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If you're buying your first home, chances are that this purchase will be one of the biggest and most consequential financial transactions of your lifetime.
Hopefully you should be able to find a home you love and have fun with the process, but it's also imperative that you make smart decisions -- and avoid some common errors. In fact, there are four mistakes you definitely don't want to make with the purchase of your first house.
1. Not shopping around for a mortgage
When you buy your first home, you'll almost certainly have to use a mortgage to help you afford it. While a mortgage can be an especially affordable type of debt, it's still a major financial obligation that you're committing to for the next few decades. As a result, it's imperative you find the right loan for your needs.
If you don't shop around and get quotes from several different mortgage lenders, it's going to be really hard to do that. There are often substantial differences in interest rates, qualifying requirements, and loan fees from one lender to the next. And even a tiny difference in the interest rate you're offered could lead to thousands of dollars in extra costs because you're borrowing such a large amount and taking so long to repay it.
To make sure you get the best deal, get quotes from as many mortgage lenders as you can -- and compare at least three to five different loan offers. Look for mortgage providers offering pre-qualification without a hard credit check so you won't hurt your credit in your efforts to shop for the best loan.
2. Falling in love with a house
There's nothing wrong with loving the house you end up buying -- in fact, that's the goal. The problem comes, however, when you fall in love with a house and reason goes out the window. If you find a house you're too passionate about, you risk paying more than you should or ignoring important issues, such as an inspection that turns up major problems.
While you need to enjoy your home, you also don't want to end up with a money pit that destroys your ability to accomplish important financial objectives. Keep a level head and remember that even if a house seems perfect, you need to do your due diligence to ensure it actually is.
If that charmer that caught your eye ends up being way too expensive or having major costly problems, remember that another "perfect" house will come along, so there's no reason to enter into a purchase you'll regret.
3. Underestimating closing costs
According to research from The Ascent, average closing costs total $5,749 in the U.S., including taxes. Unfortunately, far too many borrowers aren't prepared for this financial shock.
If you don't know how much it's likely to cost you to close on a home, you could end up scrambling for money. You may also be tempted to borrow the funds for your closing costs, which will just make your loan more expensive since you end up paying interest on the added amount you borrowed.
To avoid these undesirable outcomes, plan ahead to pay several thousand dollars to close on your new home -- and save the money to cover these expenses before you begin shopping for a place to buy.
4. Failing to look at the total costs of homeownership
Homeownership is more expensive than you might imagine when you've never owned a property before. Obviously, you'll have to pay your mortgage and property taxes, but there will be other expenses you may not be thinking about, such as homeowners association dues and maintenance.
If you don't prepare for all the costs you'll incur after buying a house, you could end up straining your budget. To avoid that, think about everything your landlord is paying for now, such as snow removal from your property or repairs when something goes wrong. Make a list of the potential costs of homeownership and get some estimates so you'll have a clearer picture of the total financial commitment you're making.
By saving enough for closing costs, considering total expenses of becoming a homeowner, making practical choices when purchasing, and shopping around for a mortgage, you can avoid some of the most common mistakes new buyers make. Hopefully, this will help ensure your purchasing experience is trouble-free and that you end up very happy with your choices when buying your new home.