If you are a first-time homebuyer, there are some pitfalls and mistakes you should definitely try to avoid as you enter into the process of planning, saving, and applying for a loan to purchase a new home.
What kinds of mistakes do we mean?
There is the usual Home Loans 101 type advice you read in every single finance blog ever written–don’t be careless with your credit, don’t apply for new credit while you are trying to apply for a home loan, and don’t start house hunting in earnest without home loan preapproval.
But what about some of the less-obvious mistakes first-time homebuyers make? The ones you won’t find in some other online home loan blogs or advice centers?
First-time homebuyers sometimes overlook critical expenses in the planning and saving stages of a home loan. You may be required to pay for a pest inspection, a flood zone determination, or you may need to anticipate having to replace appliances in the home you buy.
But one of the overlooked expenses of owning a home involves belonging to a homeowner’s association.
Not all first-time buyers may contend with this, but if you buy a condo unit with an FHA mortgage, for example, you would be required to join a condo owner’s association to deal with the maintenance and upkeep of common areas, replacing or repairing the roof eventually, etc.
If the home you want to buy makes it through the appraisal process but requires repairs or corrections in order for the loan to be approved, that is a financial issue that must be worked out between the buyer and seller.
And if you have required corrections, a compliance inspection may also be required and that will cost more money.
That’s why it is very important to consider such unexpected costs in the saving stage.
Another mistake first-time buyers make? Not anticipating property taxes as an ongoing expense. Property taxes are thought of by those who don’t own a home yet as being something you deal with at the end of the year.
But if your property taxes are at a hypothetical county tax rate of 2.020% on a $250 thousand home, the amount you would be required to come up with at the end of the year? Approximately $5,000.
If you can afford to (hypothetically) pay a lump sum of $5k at the end of the year, that is a very good thing.
But for those who need more time to come up with that amount, a monthly installment payment on those taxes is the most financially smart thing and may even be (depending on the loan agreement you make with the lender) be required as part of your monthly mortgage payment. And having that extra sum to pay monthly is something you should DEFINITELY anticipate.