HOME BUYING:

7 First Time Home Buyer Mistakes [and How to Avoid Those]

You’re about to make one of the biggest decisions of your life.

Congratulations!

Buying a home is an exciting time, but it can also be stressful and full of new challenges.

We want to help you avoid those first-time buyer mistakes so that you can enjoy this momentous occasion with peace of mind.

Let’s get started!

 

Personal Budget income

Moving into a new home is an exciting time for many people.

There are so many things to do and decisions to make, it can be easy to get overwhelmed.

However, you don’t want this process to turn sour because of a few mistakes that could have been avoided.

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I’ve compiled 7 common first time home buyer mistakes that we see happen over and over again in the real estate market – from spending more than you can afford, not considering location, not talking to the banks to get a good deal all the way down to making sure you’re ready with keys in hand before signing on the dotted line!

1. Buying a home that is out of your budget

The first time home buyer mistake that is most often made, unfortunately for some home buyers, is buying a home they really cannot afford.

Most people rely on the bank’s opinion of affordability when looking at homes, but this information may not be accurate for everyone.

Impacts of this mistake
1. If you buy a home that is out of your budget, the chances are slim to none for getting the loan approved. You will need at least 20% down, so it’s important not to overestimate that amount when looking at homes.
2. If you get an expensive home loan, you will have to pay more money. You may need to pay higher property taxes and maintenance fees.
3. It is possible that when you get your home, you might have to spend more of your money on the monthly payments. You will not be able to do other things like go out for meals as much. There was a time where I had to give up 60% of my take-home salary towards my home and plot loan. It was tough for me to pay for other expenses then too.
4. It might also mean that you will have less cash left over for your furnishings after buying a home!
Recommendations
1. After you’ve found the property of your dreams, work out how much it will cost to buy and run. This includes EMI repayments, maintenance costs and other expenses. You should also factor in the cost of the initial interior- furniture, kitchen cabinet, wardrobes, chandelier and so on and calculate the overall budget you can afford.
2. Make sure you are spending not more than 25% to 40% (depending on your income level) of your take-home salary in loan EMIs.
3. If you are buying an under-construction property, consider both your rent and EMI may overlap for a certain time and plan your budget.

2. Not getting a pre-approved loan before buying a home

When you’re buying a home, one of the first things to do is get pre-approved for a loan. This will help you figure out how much money you can afford and what your monthly payment will be.

It also provides an opportunity to shop around for banks so that when it comes time to find homes in your favourite location, the process is quick and easy!

One way or another, getting approved ahead of time will save you both time and stress during this important purchase decision.

Impacts of this mistake
1. You won’t know how much you have to set aside for EMI, so it will have an impact on your planning.
2. If a property is in demand, you may be forced to rush through the process or lose it.
3. When you’re near the deadline of buying a home, you’ll get more stressed out and will end up losing valuable time.
Recommendations
1. Obtain pre-approval by providing all financial commitments, such as the other car or personal loan.

3. Not considering the resale value of the home

If you do not research the future growth potential of your home, it can affect the future value. In case, at some point, if you want to mortgage your home for a business loan, then it is better to have a higher resale value. On the other hand, it’s possible that you may need to do a reverse mortgage. In such cases, a higher resale value means a bigger loan is possible.

You cannot predict the resale value accurately. 

There are certain factors you can take into consideration to evaluate multiple properties under consideration.

We know there are certain areas that are getting connected via a ring road or a peripheral road that will develop better, meaning better future value.

A new special economic development zone that will come up next may positively impact the future growth of the property value.

Impacts of this mistake
1. You may end up buying a property in an area that sees lower growth and thus lower future value.
Recommendations
1. Research neighborhood trends with other homeowners in the area.
2. Check out local reports on future projects near the area.
3. Ask about any nearby developments when speaking to people from real estate agents and builders.

4. Ignoring the importance of location when buying a home

Not all new homeowners are aware of the importance of location when buying their home. Some people may not be fully aware of the different areas and what they entail, while others may have preconceived notions about certain areas which can lead to a costly mistake. 

Impacts of this mistake
1. While you may get a good deal on a home that is on the outskirts, you may end up spending time and money on travel to work.
2. You may have to compromise for low-quality health facility and a lower standard of living
3. The kids might not get a really good school in the area. They might have to take a bus for a long time to get to another better school.
Recommendations
1. Consider what factors are important for you and which ones you can compromise on. Make sure you think about the factors below:
- The time it takes to travel to work
- Availability of healthcare facilities
- Availability of good schools
- Parks
- Libraries
- Grocery stores
- Restaurants
- Connectivity

5. Putting less than 20% as the down payment

One of the most difficult questions you’ll have to answer when buying a home is how much of a down payment should I make? The typical response from people is that it depends on your financial situation and the requirements of particular banks you are going through.

At least 20% is what is recommended as a good down payment amount. So if you can’t afford to put at least 20% down then perhaps you should wait for some more time to make the money for the down payment.

Impacts of this mistake
1. You will pay more for your home in the long run in interest payment.
2. You have the burden of loan for longer years. By chance, if the interest rate increases and you are already at maximum loan tenure, the bank may ask you to increase EMI or put down some lump sum money. You will be in trouble at that time.
3. While some of the banks may give a 90% loan against your 10% down-payment, you may own the home too early than you are ready and it may become a financial burden for you.
Recommendations
1. Have a savings goal and ensure you pay at least 20% of the property’s value as down-payment.

6. Buying a pre-owned home without understanding the cost of renovation

It’s a common misconception that buying a pre-owned home will be cheaper than building your own. It seems like the logical choice, but if you don’t know what to look for and how to renovate it properly, you could end up with an expensive headache.

Much of your money will be put into fixing up the home. You may end up with hidden costs that weren’t anticipated at first glance (for example, would need to replace floors; fixtures & fittings).

I remember from my first home buying experience which was a pre-owned home. I ended up spending about 25% on top of the purchase price on the renovation. Not a pleasant experience, though!

Impacts of this mistake
1. You may end up spending more than you have the budget if you do not understand all the costs.
2. Sometimes you may have to arrange the money for renovation outside the loan amount. You may end up taking a personal loan.
Recommendations
1. Make a list of all the renovations that you should make to convert the home to your liking.
2. See if there are any costs that can be included in the loan amount and how much personal loan you may have to take.
3. Calculate all your combined monthly EMIs to make sure that you can afford them.

7. Not talking to multiple banks for loan

It is important to talk to multiple banks for loans before buying a home to find the best deals. Often, new home buyers ignore this.

You should always ask around before making an investment, especially when it comes to big consequences like paying your life’s earnings in interest payments!

Impacts of this mistake
1. If you end up with a loan having a higher interest rate, you will lose money
2. You may get sub-par customer service if you did not choose a good bank or lending institute and have to spend time and energy in future.
Recommendations
1. Talk to multiple banks for a loan while buying a home. Talk to at least 3 banks.
2. Ask about their interest rates, processing fees, and if they have any concession in interest if a woman is a primary borrower.
3. Check with a family/friend who may have got a good interest rate and customer service experience.
4. Choose the best bank for your needs and budget.

Conclusion

I hope you can learn from these common mistakes and avoid them in your own first time home buying process.

Remember, there’s no need to be stressed out about this exciting experience!

What have been some of the challenges you faced during your search?

Do you think any of these apply to what happened to you?

Let me know by commenting below!

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Illustrations by Freepik Storyset

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