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5 costly mistakes first-time homebuyers must avoid

5 costly mistakes first-time homebuyers must avoid

Purchasing a home is an expensive process. Therefore, it is important to ensure that the financial aspects of the purchase are secured first. However, there are other important factors to consider when buying a home, like maintenance, insurance, and a lot more. To avoid costly mistakes, first-time home buyers should keep certain things in mind. Avoiding these mistakes can help one make an informed decision and ensure the home-buying experience is a positive one.

Overshooting the budget

This is one of the most common concerns when it comes to first-time homebuyers. It is crucial to approach discussions of money without emotion and set a firm budget for the house. It is important that you stick to the original budget because there are several uncertainties that could arise, such as changes in employment, salary cuts, or sudden dips in the market. One of the easiest ways to ensure that you do not exceed your original budget is to get pre-approved for a home loan, which is a particular amount. Also, when you are pre-approved, realtors and homebuilders develop a sense of trust instantly.

Ignoring additional costs

A first-time home buyer might assume that the selling price of the home is the only cost involved in the purchase. However, in reality, there are other additional maintenance costs that add up to the overall price of the property. To calculate the total cost, it’s important to consider the following factors:

  • Closing costs
    Generally, the final stage of the negotiation process is the closing cost. On average, this cost can reach up to $3,700. It is recommended that one must budget 2-5% of the purchase price to account for closing costs. This will help keep space while calculating closing costs.
  • Property taxes
    Property taxes vary widely from one county to another, so it’s best to check with the local government office for the exact percentage. This should be considered when estimating the cost of the house.
  • Homeowners insurance
    This is absolutely necessary and should not be overlooked. However, it’s possible to search for better plans and deals on homeowners insurance, so don’t just settle for whatever comes your way.
  • Appraisal fees
    A typical appraisal fee is somewhere between $300 and $500, and a lot of times this fee is pooled with the closing costs.
  • Escrow fees
    Some homebuyers choose to escrow the homeowner’s insurance and property tax payments, which can be a convenient option. However, they should make sure to factor these additional costs into their monthly mortgage payment plan. This will ensure that they are not caught off guard by additional expenses.
  • Home furnishing
    Once you receive the keys to your new home, the next step is to furnish it properly. It’s important not to overlook the furnishing cost, as it helps transform an empty space into a cozy and comforting home. Therefore, ensure that you have enough funds left to furnish the place according to your preference.
  • Annual maintenance
    The rule of thumb is to keep aside one percent of the purchase price of your home each year for maintenance expenses. While you are less likely to use this money right away, specifically if the house is newly constructed and doesn’t have any structural issues, it’s always wise to be prepared.
  • Homeowners association fee
    Depending on the location of the house, this fee can either be minimal or exorbitant. Therefore, it is advisable to be prepared for additional costs.

Not checking government back loan programs

It is common for first-time homebuyers to make the mistake of being unable to provide down payments on the purchase. In such cases, government-backed mortgages can provide assistance. Some of these programs include FHA loans, VA loans, and even USDA loans. Depending on the situation, there are instances where you may not have to put down any down payment or may need to put down a payment of only 3.5%.

Since these are government-backed loans, the eligibility criteria may be low, making it easier for people to get assistance.

Using credit for big purchases

Spending beyond the credit limit on credit accounts can negatively impact your credit score and also affect the debt-to-income ratio. It’s important to maintain financial stability until you finalize the home-buying process without any obstacles. If there are any purchases that need to be made, it’s advisable to check if they can be delayed or use cash for the transaction instead.

Skipping home inspection

One of the crucial parts of the home-buying process a home is getting it inspected. This inspection will allow you to gain in-depth knowledge of the property and help you identify any issues that need to be addressed. These issues can include costly structural problems like a leaking roof, or faulty water pipes. Therefore, before making an offer, always get an inspection done. This will ensure that there are no hidden costs that could make the maintenance of the house challenging and costly in the future.

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