Buying a home for the first time is an exciting experience. With emotions running high, though, it's easy to make mistakes. Here are five common pitfalls you may face as a first-time homeowner and how to avoid them.
It's more than the mortgage payment
The math may show you can afford a mortgage payment. However, if you're switching from renting to owning, there are a few other regular expenses you need to be aware of.
Other recurring expenses may include homeowners insurance, property taxes, higher utility bills, and homeowners' association fees. If your down payment is less than 20 percent, add in mortgage insurance. What's more, the house will likely need ongoing maintenance, which can add up quickly.
To avoid this pitfall, ask your mortgage broker or loan officer to spell out all the costs you'll incur beyond the mortgage payment. Keep an emergency fund of three to six months worth of expenses to avoid having to finance maintenance.
Timing the market is a gamble
Interest rates fluctuate each day, and you may be tempted to hold out for a lower rate on your loan. The problem is, it's difficult to predict which direction interest rates will go and when. Instead of rates going down, they may go up. If you're trying to close on a home, avoid trying to time the market. Lock in your rate and don't look back. Also, use this tool by the Consumer Financial Protection Bureau to get an idea of what you can expect.
Ignoring small problems can cost you
As the home inspection report comes in during closing, you'll likely notice a number of small issues with the home. Some may need immediate repair, and some may not. If you were renting, your landlord would cover those, but now you're on your own. Because of this, it may be tempting to push off these minor, inexpensive fixes. If you do, however, you may end up with big and expensive problems. Protect your new purchase by fixing small issues early. Leaking pipes in particular can cause major damage fast.
Remember upfront fees
Closing on a home is an expensive process, so set some cash aside to cover the costs. This will be in addition to your down payment. In some cases, you can ask the seller or lender to cover closing costs, but this may not always work in your favor. The best course of action is to get an idea from your mortgage broker or lender what those closing costs will be and have enough in the bank to pay them. In the meantime, the CFPB has shared some of the costs in this article.
Spending too quickly can drain you
Once you're officially in a house, the first thing you'll want to do is make it your home. This may include buying new furniture and renovating. Before you do so, keep in mind you've just spent a lot of cash on getting where you are, and it's best to keep a cushion of savings in case of an emergency. To avoid draining your bank account, prioritize your wish list, and create a budget to make the changes you want while living within your means.
There are a lot of things to consider when buying a home. Recognizing and avoiding the pitfalls you may face will help make the experience a positive one.
Ready to start planning your home purchase? Find resources and apply for your loan at First Arkansas Bank & Trust – a pillar of the Jacksonville community for over 50 years.