Millennials, Don't Make These 7 Mistakes When Buying Your First Home

January 26, 2018

Buyer

Millennials, Don't Make These 7 Mistakes When Buying Your First Home

Buying your first home while in your 20s? Congratulations! This is a very scary and exciting time for you, but you're almost there. The keys to your new home will be in your hands very soon. But for now, take a moment to step back and find out if you're doing any of these common mistakes without you knowing.

1. Not being financially prepared

When you're young, a lot of factors can lead you to believe that you are ready to buy a house NOW, even if your financial situation may prove otherwise. This is possibly the most significant investment you’ll ever make, so make sure you won’t be left high and dry by an impulse decision.

Buying a house is a choice that must stem from your honest assessment of your financial situation. So, how do you know if you’re financially ready to buy a home?

You’re not merely getting pressured into buying a house just because everyone else thinks it’s a good idea
You have an emergency fund set aside that will allow you to pay your mortgage in the event of sudden unemployment
You can pay your own closing costs (which account for 2 to 5 percent of the home’s value)
You’ve prepared enough money to pay property taxes and insurance
You have a set budget for pre-move-in upgrades like painting and furniture
You have a healthy relationship with debt, or better yet, you’re debt-free

2. Not hiring an agent

Current technology and the internet have made it a lot easier for home buyers to search for properties online, but being able to do your homework with the help of Google does not exempt you from needing an experienced real estate agent by your side. Hiring an agent you can trust will allow you to navigate the whole buying process more efficiently, which will lead to more successful negotiations.

An agent with a broad understanding of the market will know how to land you a great deal considering everything you want and need regarding location, price, and overall quality of the house. With an experienced agent doing the work on your behalf, you'll have a professional set of eyes that can oversee transactions and make the process more convenient for you – especially if it’s your first time. Also, having a professional who can be physically present during stressful times is still a lot better than hundreds of Google searches.

To find the right agent for you, get referrals from friends and family whose interests align with yours. Once you narrow your choices down to a few, make sure to ask the right questions before you decide.

3. Making decisions based solely on price

When you're working with a limited budget, a house that is within or even below your price range may seem like a great deal. While some people do get lucky with relatively cheap purchases, banking on price alone can be disastrous. If you decide to buy a home just because of its attractive price, you may be missing out on some critical details such as the safety of the neighborhood, its accessibility to schools and hospitals, and plenty of other things that must be on your criteria.

Price is important, but it is only part of the equation. Weigh your options wisely by considering more than just the cost. For example, a more expensive house located in a safe and progressive area is a much better investment than a cheap house in a declining neighborhood.

4. Not getting a mortgage pre-approval

Another mistake a lot of millennials seem to make is going on a home search without a pre-approved mortgage. While you can definitely take a look at houses without getting a mortgage pre-approval, not knowing how much you can afford might cause you to waste your time looking at homes that are actually out of your price range.

A pre-approved mortgage makes searching for a home a whole lot easier, especially since it arms you with the confidence of having a committed lender who is ready to back you on your decision once you zero in on the home you want. Getting pre-approved is a must especially for young buyers who are eager to buy in a seller's market. This is because home buyers with pre-approved mortgages are taken more seriously by home sellers, and are more likely to be prioritized over other interested buyers without potential opportunities for financing.

Don’t risk having your dream home taken away from you just because you didn’t bother to put your financing in order. Mortgage pre-approval is free and non-binding; there is nothing to lose and everything to gain in presenting yourself as a serious and qualified home buyer.

5. Skipping the home inspection

First-time homebuyers sometimes forego home inspection when staging is impressive enough – but what a lot fail to realize is that a lot of problems associated with homes aren't readily noticeable to the naked eye.

No matter how great a house may look at first sight, a home inspection is still a non-negotiable step in the home buying process. It may cost you quite a reasonable sum of money, but it will surely prove beneficial in the long run. Professional home inspectors are trained to spot problems in the house that would otherwise go unnoticed - damages that will potentially cost you more should you decide to buy the house without going through a rigorous inspection.

Inspections cost around $324 on average, but prices vary depending on the size of the home and circumstances that may require more specialized inspectors to come in. But then, if you’re investing so much of your savings into a house, it’s always best to make sure you’re getting your money’s worth.

6. Focusing on how much you're able to borrow, instead of how much you should borrow

Lenders may sometimes pre-approve you for a mortgage with monthly payments that are a bit more than you can genuinely afford. The lender cannot always factor in your daily expenses such as food and transportation, so you’ll have to do that on your own. Again, making a detailed and honest assessment of your financial capacity is key to knowing how much you can comfortably pay for your mortgage on a month-to-month basis. Once you factor in the amount you’ll be spending on insurance, taxes, closing costs, maintenance, and savings, only then would you know what you can afford.

If you think that you’ve been pre-approved for a mortgage that is much more than what you initially set out for, we strongly advise you not to max it out. Look for homes in a lower price range, and buy one that is within the budget you can comfortably shell out.

7. Disregarding resale value

When you're a young home buyer, chances are, you’re buying your very first home with a limited budget. Meaning, even if you’re about to buy a house that fits your standards at the moment, you’re not exactly getting the dream home you wish to retire and live in for the rest of your life.

As someone with plenty of opportunities to increase their income, it’s very likely that you’ll be selling your first home for a better or bigger one when the time comes. Given this, it is imperative that you factor in the resale value of the home you’re planning to buy. Choose one that is highly likely to increase in value over time. You’ll spot such houses in up and coming neighborhoods, and areas where new facilities are starting to prosper.

Also, aside from paying off your mortgage to build equity on your home, you can also consider an active approach in increasing its resale value. Remember, careful planning and an effort to gain foresight will help you get a great deal on your first home should you decide to sell it in the future.