02/01/2024
10 Worst First-time Homebuyer Mistakes
Are you gearing up to buy your first place? Shopping for a home is exciting, exhausting and a little bit scary. Your aim is to end up with a home you love at a price you can afford; but unfortunately, many people do things that prevent them from achieving the 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
One of the most frequent information I receive from clients who are contacting me today is not knowing what they can afford. Typical for Filipinos to say βyung affordable langβ, βyung di masyadong mahalβ, βyung kaya sa bulsaβ. Sometimes the sarcasm in me kicks in and I wanted to answer them sarcastically, but of course, thatβs rude. Now the statements above are actually subjective, what could be very affordable to me may not be affordable to you. And what could be not expensive to me is expensive to you. So thatβs the reason why you have to be specific, and I mean very specific about how much and what you can afford. a
Now as a first-time buyer, if they are currently renting they base their budget on their current rent and how much they can set aside more to afford the purchase. However, what you believe you can afford is not what banks and other financial institutions believe you can. As a first time buyer, hereβs what you need to do.
List your total income from all sources; if you are married that means for both husband and wife.
List all your expenses and that includes your monthly payments for utilities and other loans.
Add up your expenses and subtract it out from your household income
How much was left from your total household income? With whatβs left 70% of it is what you can afford.
Next, tailor your house-hunting to properties within the what-you-can-afford neighborhood. If you end up looking at homes that are more than your price range, youβll end up desiring after something you canβt afford. It can put you in a dangerous position of trying to stretch beyond your means financially or causing you to feel unsatisfied with what you actually can afford.You may even learn that you canβt 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.
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 pre-approved for a loan before placing a reservation for a home. If you donβt, youβll be wasting the sellerβs time, the sellerβs agentβs time, and your agentβs time if you sign a contract and then discover later that the bank wonβt lend you what you need, or that itβs only willing to give you terms that you find unacceptable.
Be aware that even if you have been pre-approved for a mortgage, your loan can fall through at the last minute if you do something to alter your credit score, like finance a car purchase. If you cause the deal to die, you may have to forfeit any deposit or earnest money (or equity and down payment) you put up when you entered into a contract. Please note that your equity payments and down payments are non-refundable if the reason for discontinuing purchase is your fault.
3. Failing to Consider Additional Expenses
Once youβre a homeowner, youβll have additional expenses on top of your monthly payment. Unlike your renter days, youβll be responsible for paying property taxes, insuring your home against disasters (insurance) and making any repairs the house needs or maintenance (which will occasionally include expensive items like a new roof or a new furnace).
If youβre interested in purchasing a condo, youβll have to pay maintenance costs (or sometimes known as condo dues) monthly regardless of whether anything needs fixing, because youβll be part of a homeownerβs association, which collects a couple of hundred dollars a month from the owners of each unit in the building in the form of condominium fees.
4. Being Too Picky
Go ahead and put everything you can think of on your new home wish list, but donβt 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 dΓ©cor, 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 β youβll just have to decide how important it is for you to become a homeowner now rather than in a couple of years. (For related reading, read βTo Rent or Buy? )
5. Lacking Vision
Even if you canβt afford to replace the hideous ordinary or basic tiles in the bathroom or the kitchen sink is a bit smaller, 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 otherwise meets your needs in terms of the big things that are difficult to change, such as location and size, donβt let physical imperfections turn you away.
Besides, doing home upgrades yourself, even when 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. (For more information on renovating, read our related article βHow to effectively flip houses for profit.β)
6. Being Swept Away
Minor upgrades and cosmetic fixes are inexpensive tricks are a sellerβs dream of playing on your emotions and eliciting a much higher price tag. Sellers may pay for minimal upgrades or pay several thousand pesos on staging like the ones in model units. If youβre on a budget, look for homes whose full potential has yet to be realized. Also, first-time homebuyers should always seek a house they can add value to, as this ensures a bump in equity to help you up the property ladder.
7. Compromising on the Important Things
Donβt get a two-bedroom home when you know youβre planning to have kids and will want three bedrooms. By the same token, donβt buy a condo just because itβs cheaper than a house β if one of the main reasons youβre over apartment life is because you hate sharing walls with neighbors. Itβs true that youβll probably have to make some compromises to be able to afford your first home, but donβt make a compromise that will be a major strain.
8. Neglecting to Inspect
Itβs tempting to think that youβre a homeowner the moment you go into escrow, but not so fast β before you close on the sale, you need to know what kind of shape the house is in. You donβt 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 houseβs physical condition and the soundness of your potential investment will help you avoid making a serious financial mistake.
9. Not Choosing to Hire an Agent or Using the Sellerβs Agent
Once youβre seriously shopping for a home, donβt walk into an open house without having a real estate agent or broker (or at least being prepared to throw out a name of someone youβre supposedly working with). Agents are held to the ethical rule that they must act in both the seller and the buyer partiesβ best interests, but you can see how that might not work in your best interest if you start dealing with a sellerβs agent before contacting one of your own. (To learn more, read βWhy to Hire a Real Estate Agent?β)
10. Not Thinking About the Future
Itβs 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 in the future?
Is your street likely to become a major street or a popular rush-hour shortcut?
Is there talk of a bridge or a highway to be built in your backyard in five years?
What are the zoning laws in your area?
If there is a lot of undeveloped lands? What is likely to get built there?
Have home values in the neighborhood been declining?
If youβre happy with the answers to these questions, then your houseβs location can keep its rose-colored luster.
The Bottom Line
Buying a first home can seem stressful and overwhelming, and it isnβt without its share of potential pitfalls. If youβre aware of those issues ahead of time, 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 it need not be the most difficult.
