Due to a global housing market slowdown, purchasing a home now seems harder than ever. For buyers who are looking to complete their first home purchase, it’s important to avoid several critical and expensive home buying mistakes.
Not obtaining mortgage pre-approval before shopping
2019 research from the National Association of Realtors showed that for 44 percent of home buyers the first step of the home buying process was looking at homes for sale online, while 16 percent first contacted a real estate agent.
It is easier than ever to shop for a home online thanks to real estate websites and glossy photos, but the real first step in any home buying process should be to calculate affordability and obtain prequalification with a lender. “You won't believe how many people are shopping for homes they can't get approval for,” says Sa El, a Licensed Real Estate Agent & Co-Founder of Simply Insurance. The best thing to do is to make sure your credit and finances are in order and to have an idea of your budget. Then before you do any house shopping, you get a pre-approval from a lender.”
Skipping out on rate shopping
According to analysis from NerdWallet of the National Survey of Mortgage Originations, 50 percent of buyers only get a rate quote from one lender before applying for a mortgage. This is a huge missed opportunity as home buyers are missing out on a reported $776 million in savings each year by not rate shopping with multiple lenders.
To avoid this mistake, buyers should rate shop with at least three lenders and pick the most competitive rate. Even a small difference in interest rates could net buyers thousands in savings over the life of the loan.
Not going to look at the home in-person
It’s surprising to imagine buyers purchasing something as expensive as a home without going for the in-person showing, but it happens. Extenuating circumstances such as a competitive market or out-of-state home search can keep buyers from going in-person, but a National Association of Realtors survey found that 67 percent of buyers use the online home tour feature when vetting properties.
Cyndee Carr, a Virginia realtor with Century 21, advises against relying too heavily on internet features to tour a home. “In a fast-moving market often there isn't lead time for the photography before going active so the pictures can be misleading,” Carr said.
For out of towners, Carr recommends having an agent or trusted friend video tour or Facetime from the property. For those who live nearby, “I always suggest visiting homes live as the feel of a home - it's location and lot specifics can only be truly experienced in person.”
Not shopping around for home insurance
Similar to rate shopping for a mortgage, research from Insurance.com shows nearly a third of new home buyers do not shop for the best homeowners’ insurance quote, either. “Not shopping for their home insurance policy means that they will end up paying more per month in premiums for a policy that might not fit their needs,” El said. “It is essential that a homebuyer get several quotes for home insurance and make sure those quotes match the coverage they need.”
Overspending on the home purchase
One-third of home buyers go over their initial home budget, according to research from Owners.com. Aside from going over budget, having a low down payment and entering the housing marketing with a large student loan debt burden can also put homeowners in a difficult financial position post-purchase.
Those who overspend often end up regretting it. 68 percent of millennials in a Bank of the West survey said they had buyers remorse after purchasing their first home. The 2019 NerdWallet Home Buyer Report echoes these findings: 25 percent of respondents in the report no longer feeling financially secure following their home purchase.
How can buyers cope? Saving up as close to 20 percent for a downpayment, paying down outstanding debts before applying for a mortgage loan, and buying a home well within the limits of affordability can prevent buyers from spending more than they can afford, and will help them feel more financially secure after move-in and beyond.