5 Tips To Ensure You Don't Make Financial Mistakes When Buying Your First Home

As a first-time home buyer, navigating the financial responsibilities of buying a home can be incredibly challenging. Most first-time home buyers are unaware of all the costs associated with buying and owning a home – but are quickly made aware of them if they are working with a great real estate agent.

Even with the help of a real estate agent, it can be easy to make serious mistakes in terms of your finances. The following are five tips to help ensure that you don’t make these financial mistakes when buying your first home.

1. Don’t focus on distressed properties only because you think you’ll find a good deal

Some first-time home buyers will explore distressed properties, such as bank-owned or short sales, in search of a bargain. If you’re looking for a great investment and can put in the sweat equity, then a distressed property can be a great deal. But you need to have plenty of time on your hands. If you need a livable home to move into quickly, then you may not want to waste your time looking at distressed properties. Finding the right distressed property to live in can take months or even years. Then, closing on a distressed property can take longer, and the amount of money you may have to put into renovations may not be worth it, especially if you can't do the renovations yourself.

Market conditions may also be against you if you’re hoping to buy a distressed property. There were lots of distressed properties to choose from in the 2000’s and into the early 2010’s. However, as the market has shifted to a seller’s market fueled by historically low inventory, the number of distressed properties has been very low. When a great distressed property does hit the market, a fierce bidding war can drive the price too high. Add to that the fact that many investors with cash in hand are able to snag up the best distressed properties, and you begin to see why it can be difficult for the average first-time buyer to get a great deal on a distressed property.

Additionally, the type of mortgage you are able to get as a first-time home buyer may keep you from being competitive in fierce bidding wars. Cash is king in real estate and gives investors an advantage. Talk with your real estate agent about distressed properties that favor owner-occupants. This strategy may help level the playing field against all the cash-buying investors.

Spending all of your time looking at distressed properties could also result in missing out on well-priced homes that may have suited all of your needs. As a home buyer, keep in mind that you are looking for a home first and foremost. Focus on finding what you love and need. There are other ways to get a good deal without all the hassle of a distressed property. 

2. You don’t need to borrow the full amount that your lender is offering

Just because you are approved for a mortgage doesn’t mean you have to borrow the full amount that the lender is offering. A general rule of thumb is to borrow around 20 percent less than what the lender is offering. So if the lender has approved a $350,000 mortgage, you should consider only looking for homes priced at $280,000 or less. This will help to protect you financially.

The amount offered by the lender is typically the most that they are comfortable lending to you in terms of what they think you can pay back on a monthly basis. This means that you could barely end up affording the mortgage payments if you take out the full amount — and you don’t want to be financially uncomfortable.

3. Think twice about getting a short-term adjustable-rate mortgage

A short-term mortgage is going to cost you an arm and a leg every month. Yes, you will end up paying off your loan sooner, which will help relieve your debt. But is it worth the financial discomfort? Not to mention that an adjustable-rate means that you’ll never know how much your mortgage payments might be — it could vary from month to month. During times of fast-rising interest rates, an adjustable-rate mortgage can make your house payment explode.

A longer-term fixed-rate mortgage is a much safer play. With a fixed-rate mortgage, you’ll know exactly what you’ll be paying every month, making it much easier to budget. A long-term mortgage isn’t as bad as it might sound either. You may be making payments for 15 to 30 years, but remember those payments aren’t going to seem like that much after a decade or two since they will remain constant throughout, even with inflation.

4. Don’t use up all of your cash in order to buy the house

Make sure that you prepare for the many costs associated with buying a home, from the down payment to the appraisal fees, agent fees, title fees, and more. Not to mention all the other costs that you need to prepare yourself down the line, including your mortgage payments, homeowners insurance, HOA fees, property taxes, and more. Plus, you will probably find that you need new furniture pieces or appliances, and there may be repairs you discover after you've lived in the home for a bit.

When saving up money, keep all of these costs in mind. You don’t want to end up emptying out your savings account by your very first day as a homeowner, as this can end up putting you in a very dire financial situation.

5. Try to scope out the neighborhood first

There’s a good chance that you are going to be living in the neighborhood for a very long time, so you’ll want to make sure that you don’t end up regretting putting all of your money into a home where you can’t stand your neighbors, or it's loud, or there's school carpool traffic, or something else you may not have considered when seeing the home during a showing.

There’s not much you can do if you end up buying a home next to a fraternity that throws wild parties twice a week or if your neighbors have dogs that bark throughout the night. This is not a situation you want to find yourself in as a first-time home buyer since you won’t be in a good financial situation to be able to get out of it.

Buying Your First Home in Central Ohio?

Being a first-time home buyer can be both exciting and daunting at the same time. Because there is so much on the line, financially speaking, you’ll want to make sure that you do your research and speak in detail to an experienced local real estate agent in order to prevent yourself from making any potentially costly mistakes.

Are you thinking about buying a home in the Columbus area? Reach out to Rita Boswell at 614-830-9767. Rita is a Top Home Buyer’s agent and has helped many people buy a home, from 1st time buyers to empty-nesters. Her experience speaks for itself.