Budgeting Mistakes of First-time Home Buyers

The experience of purchasing your first home can be both exciting and stressful. Like in all first-time situations, the probability of committing “newbie” errors is high. This especially happens in the case of the budgeting of funds to cover all expenses before and after the house purchase.

Some typical budgeting mistakes are made by buyers going in for their first homes. Though these errors are understandable, they can prove to be quite costly. If you’re aware of them, you have better chances of avoiding them.

Lack of affordability knowledge

Many buyers envision their first home as a castle or a dream house. But a first home most often has very few features of the dreams of young home buyers. You need to have a clear idea regarding how much you can afford to spend on your home before you begin shopping.

Make it a point to invest more time in researching for suitable financing options and understanding the effect of debt ratios on mortgage approvals rather than in judging design preferences and home styles. Once you know what exactly you can afford, you’re in a better position to make a judicious choice from the options available.

 

Incorrect assumptions

It’s true that everyone is thrilled to get a deal. But it’s highly erroneous to assume that every foreclosed or short-sale property offers a fabulous deal. This may be true in some cases but in the real estate market, a property is only worth as much as a buyer is ready to pay for it.

Experts in the real estate field know that it’s quite likely that properties which appear to be bargains often have serious HVAC, plumbing, structural, or other problems.

Inappropriate buyer's agent

A seller's agent has the responsibility of getting the best deal in terms of the highest sale price possible for a home seller. Similarly, a buyer's agent needs to represent the buyer's interests and try to get a great deal from the buyer’s perspective.

If you pick an inappropriate buyer's agent to represent you, you could be down by thousands of dollars by the end of the transaction.

Underestimating total costs

If you do not correctly gauge the real costs associated with home ownership, you’re in trouble. When you’re staying on rent, you can call your landlord when anything goes wrong. But when you become a home owner, this option is eliminated. The complete responsbility is on you.

So even if you’re buying a brand-new house, some things may go awry and you’ve got to solve all issues yourself. You would generally need to spend money to resolve the problems because you cannot be a master electrician, plumber, and everything else yourself. So make sure you plan for repairs, maintenance and emergencies. Also, remember to budget sufficient funds to take care of moving expenses.

No contingency clause in sales agreement

Today, most standard Sales and Purchase Agreements contain contingency clauses. While sellers would prefer not to have these clauses, they are of utmost importance from the buyer’s perspective. If you do not receive the required mortgage, the purchase will not be possible.

If you do not have a clause regarding this in the agreement, you don’t have a way out and your seller can refuse to return your deposit. Also funds spent for things like land surveys, appraisals and home inspections are forever gone. So make sure you have contingency clauses in the Sales Agreement before signing on it.

 

Don't make the mistake of not knowing the value of the home you want to purchase! Neighborhood IQ offers a free home value report that will tell you what a house is worth so that you can budget accordingly. Also, the Home Loan Advisor can analyze your property, current market conditions, local market comps, and other variables in our proprietary algorithm, and match you with potential lenders.