6 Donts When Buying Your First Home

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6 Donts When Buying Your First Home

Written By: Jaymi Naciri

These are exciting times. Youve finally outgrown apartment life or living with your parents or sharing a place with waaaaayyyyy too many roommates, and youre ready to take the leap to homeownership. Now its time to prepare. As you embark on this journey, beware of six important donts that could potentially derail your purchase.

Dont think its too early to get prequalified

So, youre just going to go out "looking" at houses, you say? The time when you just expect to drive around a little and maybe visit an open house or two is obviously the time when youre going to fall in love with a house and want to make a move on it right away. If youre not already prequalified with a lender, you may not have a chance at it. Competition is fierce across the country thanks to low inventory, and well-maintained, move-in ready homes do not sit if theyre priced right. Talk to a lender now to make sure you can qualify - and learn your max budget - even if you just think youre casually looking because that can change in a hurry.

Dont wait to the last minute to check credit

As a continuation of the casually looking conversationyou want to check your credit the second you start thinking about buying a home. You never know whats going to be on there. Even if youve never missed a payment and have always done a good job of managing your outstanding debt, there could be errors on your report that youre unaware of or even something from many years ago that you didnt realize had been reported to a credit agency. Those little boo-boos, accurate or not, could be hurting your score, and a low score could keep you from getting a mortgage at all. Give yourself time to correct errors or fix blemishes; every tick upward can help you get a better rate and make your home more affordable.

Dont forget about PMI when calculating your monthly expenses

The idea of putting as little down as possible on your new home is attractive, especially if youre not a natural saver. Today, that can mean just three percent of your purchase price, depending on the loan. For FHA loans, its three and one-half percent. The problem with making the minimum down payment is that you then have to pay Private Mortgage Insurance PMI.

"PMI is a fee you pay on your mortgage until you owe 80 percent or less of what your home is worth. Its one reason why so many experts advise homebuyers make a 20 percent down payment; if you do, you avoid the evils of paying PMI," said Student Loan Hero. "PMI can cost between0.3 percent and 1.15 percent of your loan annually. Depending on how much you borrow, that can mean thousands of dollars in extra costs until you can cancel your PMI."

Dont ignore the closing costs

Many of us micro-focus on the down payment when getting ready to buy our first home, but there is another important expense >Dont forget to factor in all the monthly expenses

New-home communities often quote a monthly payment that looks quite affordable and that can entice buyers who dont look more closely. Thats because the payment is based on principal and interest only Typically, youll see a star next to the payment that tells you theres a disclaimer at the bottom of the page.. If you take a look at the small print, youll see that there are also taxes and insurance to factor in. In some cases, there is also a homeowners association fee. That monthly payment may not be looking so good anymore.

If youre buying your first home and coming from an apartment or other rental property, you may not have worked things like a gardener into your monthly budget. Youll also want to consider that if youre going up in square footage, there could an increase in your utilities, and you may be taking on payments for things like water and trash that were covered by your rental. Its best to have a true idea of what your monthly expenses are going to look like when buying your first home so you dont end up in over your head.

Dont think you can go it alone

Can you buy a home without an agent? Sure. Is it a good idea? Not usually. It could be that you are looking to buy a home that is for sale by owner. "In the industry, we call these types of sellers unrepresented," said The Balance. "Beware if you are trying to buy a home directly from an unrepresented seller. Odds are the seller wont know what she is doing or she might be taking advantage of you; either way, it could be problematic."

Unless you are a real estate attorney or are otherwise connected to the industry and aware of the laws, contract issues, etc., its best for you to have representation, regardless of what type of home you are buying.

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