10 First Time Homebuyer Mistakes

Not much from the home front to blog about. My realtor is going out of town and I didn't want to go through the process with her gone, so there's really nothing new to tell you about until she gets back!

Never fear, I found an article that I'd like to share.

I lifted this from MSN Money, and in bold italics after their words, I'll add my own. :)

Are you gearing up to buy your first place?

Shopping for a home is exciting, exhausting and a little scary, especially in this market. In the end, your aim is to end up with a home you love at a price you can afford. Sounds simple enough, right? Unfortunately, many people make mistakes that prevent them from achieving that simple dream. Arm yourself with these tips to get the most out of your purchase and avoid making 10 of the most costly mistakes that could put a hold on that sold sign.

1.       Not knowing what you can afford

If you end up looking at homes that are outside your price range, you'll end up lusting after something you can't afford, which can put you in the dangerous position of trying to stretch beyond your means financially or cause you to feel unsatisfied with what you actually can afford. You may even learn that you can't afford the type or size of home that you desire and that you need to work on reducing your monthly expenses and/or increasing your income before you even start looking. As we learned from the subprime mortgage mess, what the bank says you can afford and what you know you can afford or are comfortable with paying are not necessarily the same. If you don't already have a budget, make a list of all your monthly expenses (excluding rent), including vehicle costs, student loan payments, credit card payments, groceries, health insurance, retirement savings and so on. Don't forget major expenses that occur only once a year, like any insurance premiums you pay annually or annual vacations. Subtract this total from your take-home pay and you'll know how much you can spend on your new home each month.

Tommy- I'm really glad that this was number 1 on the list. I think the thing that has just intimidated me the most about this process is being stretched beyond my means. I've always heard that I definitely need to avoid being 'house rich and cash poor.' How big of a shame would it be if I purchased a house that I love, but I don't have enough money to furnish the place or put food in the fridge or cabinets? I've certainly never been a number cruncher and I'm terrible at math, but this process has forced me to pay really close attention to finances and crunch the numbers as often as possible.

2.      Skipping mortgage qualification

What you think you can afford and what the bank is willing to lend you may not match up, especially if you have poor credit or unstable income, so make sure to get preapproved for a loan before placing an offer on a home. You'll be wasting the seller's time, the seller's agent's time and your agent's time if you sign a contract and discover later that the bank won't lend you what you need or that it won't give you a mortgage you find acceptable.Be aware that even if you have been preapproved for a mortgage, your loan can fall through if you do something to alter your credit score, like finance a car purchase. If you cause the deal to fall through, you may have to forfeit the money that you put up when you went under contract.

Tommy- It was pretty simple to understand early on that being pre-approved for a home loan was something that HAD to be taken care of before I even started looking. If you are in the market for buying a home for the first time, most agents won't even be interested in showing you homes until they at least know that you can get approved for a loan. I definitely didn't want to waste anyone's time. One thing to keep in mind though, for some people (like me), the search may take longer than 30 or 60 days and depending on the bank, you may have to apply again if the search takes a long time. They'll need to make sure that nothing changes in that time with your finances.

3.      Failing to consider additional expenses

Once you're a homeowner, you'll have additional expenses on top of your monthly payment. Unlike when you were a renter, you'll be responsible for paying property taxes, insuring your home against disasters and making any repairs the house needs (which will occasionally include expensive items like replacing the roof or furnace).If you purchase a condo, you'll have to pay monthly maintenance costs regardless of whether anything needs fixing because you'll be part of a homeowners association, which collects monthly fees from the owners of each unit in the form of condominium fees.

Tommy- A lot of people get in trouble because they see a really nice amount that they can definitely pay. Unfortunately for them, they don't take into consideration the additional money they'll need. I quickly eliminated new neighborhoods from my list because I wasn't interested in doubling my payment every month because of specials and HOA fees. Add that in with regular taxes, insurance and a VERY overlooked item-utilities plus any maintenance or repairs you'd need to do, and you've got yourself a pretty hefty monthly bill for everything. Another reason that I've gotten an ulcer thinking about being 'house rich and cash poor.' I want to minimize the bleeding as much as I can in my search.

4.      Being too picky

Go ahead and put everything you can think of on your wish list, but don't be so inflexible that you end up continuing to rent for significantly longer than you really want to. First-time homebuyers often have to compromise on something because their funds are limited. You may have to live on a busy street, accept outdated decor, make some repairs to the home or forgo that extra bedroom. Of course, you can always choose to continue renting until you can afford everything on your list -- you'll just have to decide how important it is for you to become a homeowner now rather than in a couple of years.

Tommy- Reading this tip irritated me. I'm a picky person by nature, and I'm the kind of person that if I'm paying money for something, I want it to be perfect for me. Heck, if I go to Taco Bell and they make my 99 cent burrito wrong, I'm irritated about that. I definitely understand what they are saying here. Especially considering I'm in no position to buy the home of my dreams just yet, I've gotta be flexible enough to compromise on some of the minor, cosmetic issues that I could correct down the line. At the end of the day, I guess I'm ok with being open minded, especially considering that the alternative is staying a renter and throwing my money away every month.

5.      Lacking vision

Even if you can't afford to replace the hideous wallpaper in the bathroom now, it might be worth it to live with the ugliness for a while in exchange for getting into a house you can afford. If the home meets your needs in terms of the big things that are difficult to change, such as location and size, don't let physical imperfections turn you away. Besides, doing home upgrades yourself, even if you have to hire a contractor, is often cheaper than paying the increased home value to a seller who has already done the work for you.

Tommy- I'd like to think of myself as a big picture, look down the road, see what could be, kind of person, but I don't know if that's always the case. Even when I do think that way, typically it's a worst case scenario, disaster filled, negative vision, but I've learned (and I'm hoping to pass this along to others that are in the journey with me), that it is important to be filled with an optimistic vision for my house. Not a naive, oblivious vision where I ignore potentially serious problems with a house, but a positive vision of 'Wow, I could really do this with the home!' or 'I can't wait until I'd be able to make this happen!' I've come to the conclusion that at this point in my life, I'm not going to be able to find a home that is absolutely perfect, so I've got to be able to have a vision of what I could do to my home to make it perfect for me.

6.      Being swept away

Minor upgrades and cosmetic fixes are inexpensive tricks that play on your emotions and elicit a much higher price. Sellers may pay $2,000 for minimal upgrades or staging that you'll end up paying $40,000 for. If you're on a budget, look for homes whose full potential has yet to be realized. Also, first-time homebuyers should always look for a house they can add value to; this ensures a bump in equity to help you up the property ladder.

Tommy- This is a double edged sword tip for me. I completely understand the reasoning behind not getting swept away and looking for a home that you can help realize its full potential as time goes on, but that requires 2 things. 1) A positive vision (see tip 5) and 2) Skills to be able to add equity and value to the home & to be able to realize the full potential. I'm still working on number 1, with the whole positive vision thing, but I'm pretty clear on number 2.  I'm not a handyman. I'm not good at that sort of thing. I'm not saying that I can't do any of it, because I'd have to force myself to learn and become at least decent and some of it. It would be difficult though. I have a hard time believing at this point, that I would be able to realize a home's full potential on my own with the work that I would put into it. Maybe I need 'Working on a House For Dummies' to help me out, so I can fully believe in tip 6.

7.       Compromising on the important things

Don't get a two-bedroom home when you know you're planning to have kids and will want at least three bedrooms. By the same token, don't buy a condo just because it's cheaper when one of the main reasons you're over apartment life is because you hate sharing walls with neighbors. It's true that you'll probably have to make some compromises to be able to afford your first home, but don't make a compromise that will be a major strain.

Tommy- Although I realize that I'm not going to get everything I want, there are certain non-negotiables for me as this process rolls along. I know the minimum number of bedrooms/bathrooms I want, and there are several others, but the biggest deal breaker is the location of the house. I need it in a certain perimeter and although I may love a house outside of it, I just can't be interested in living outside of there. I think it's incredibly important for anyone looking to buy a house to figure what they can live with and what they just can't, plus what they can change and what they just don't have the power/money/skills to change. Going in with full disclosure and transparency while understanding exactly what you want will give you a better context in what home you should buy. The less you know about yourself and what you like, the worse the home search will be, and you may not come away happy with your home.

8.      Neglecting to inspect

It's tempting to think that you're a homeowner the moment you go into escrow, but before you close on the sale, you need to know what kind of shape the house is in. You don't want to get stuck with a money pit or with the headache of performing a lot of unexpected repairs. Keeping your feelings in check until you have a full picture of the house's physical condition and the soundness of your potential investment will help you avoid making a serious financial mistake.

Tommy- Inspect, inspect, INSPECT! I've watched way too many episodes of Holmes Inspection on HGTV and saw too many horror stories to not get your home inspected! There would be nothing worse than buying a home and then moving in, and discovering absolutely terrible things after you've already signed the contract, and it's yours baby. In fact, the house that I'm currently interested in has several issues with it that wouldn't even pass an inspection, so it would definitely need to be fixed before I'd even be open to buying the home. (Side note-some forms of home loans are subject to an inspection anyway, so there's a chance that you wouldn't even be able to obtain the financing you'd need to buy the house until it passes the inspection anyway, so that's something to keep in mind.) Also, depending on the situation of the sellers and the home plus the current state of affairs in the housing market, many of them are willing to do just about anything to the home that you'd like, because they just want to get it off their hands. Don't be afraid or sheepish to get what you want by putting it in the contract. It is, after all, your money and it will be your home. Don't budge on the tough stuff, like the safety and/or sturdiness of the house.

9.      Not hiring your own agent or using the seller's agent

Once you're seriously shopping for a home, don't walk into an open house without having an agent (or at least being prepared to throw out a name of someone you're supposedly working with). Agents are held to the ethical rule that they must act in the best interest of their clients, but if you're a buyer, you'll probably have a stronger advocate for your interests if you use your own agent and not the seller's.

Tommy- The first thing my Realtor told me was to be prepared for some drama in the negotiating phase. That sorta made me nervous, but then I thought about it and it makes sense. When you combine 2 parties who are bargaining and negotiating a significant amount of money and a significant purchase, and then you throw in two agents who have been hired by both parties to work in their respective client's best interests, you're bound to have a little bit of drama as time goes on. I'd rather that be the case than to just trust the seller's agent with the purchase. In that case, I might as well just open up a book of home listings and randomly point to one and say that I'll pay whatever they want. That's just not smart.

10.   Not thinking about the future

It's impossible to perfectly predict the future of your chosen neighborhood, but paying attention to the information that is available to you now can help you avoid unpleasant surprises down the road.Some questions you should ask about your prospective property include:

What kind of development plans are in the works for your neighborhood?

Is your street likely to become a major street or a popular rush-hour shortcut?

Will a highway be built in your backyard in five years?

What are the zoning laws in your area?

If there is a lot of undeveloped land?

What is likely to get built there?

Have home values in the neighborhood been declining?

Tommy- This goes back to tip 5 with the positive vision. You've gotta be able to have not just a vision of your house, but a vision of where the neighborhood is going to go, how the market is going to respond in the coming years, and where your life is going to be in the coming years as well. I think that's been the most stressful part of the journey, because none of us can predict the future, and I don't like doing that. I don't like guessing how the market and the country will be in 5 or 10 years from now (and if the direction we're heading now is any indication, then I really don't like thinking about it). I especially don't like thinking about my life in 5 or 10 years, where I'm at professionally, what I'm doing, what my family life looks like, etc. That's a stressful thing. In the case of the home I'm currently looking at, the house next door has been foreclosed on. It looks pretty bad and abandoned. It's certainly an eyesore for the neighborhood, but that one is pretty easy to vision positively that someday it will be bought and turned around. Thinking about my life in 5 years though, that's another story. It's essential though to do that.

Buying a first home can seem stressful and overwhelming, and it isn't without its share of potential pitfalls. If you're aware of those issues ahead of time, though, you can protect yourself from costly mistakes and shop with confidence.

For many people, a home is the largest purchase they will ever make, but that doesn't mean it has to be the most difficult.

This article was reported by Amy Fontinelle for Investopedia.