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Five Biggest Mistakes To Make As A First Time Home-Buyer (And How To Avoid Them)

Monday, April 15, 2019   /   by Keri McCombs

Five Biggest Mistakes To Make As A First Time Home-Buyer (And How To Avoid Them)

Buying your first home is an exciting and rewarding experience! It also comes with an emotional roller coaster ride, and lots of unknowns and uncertainty. It's easy to get caught up in the process and make some mistakes that can be detrimental to your home-buying experience (and to your wallet also). So here are five common mistakes that first-time homebuyers make, and the ways in which to avoid those mistakes.


Being Closed-Minded About Inventory Of Homes
In a highly competitive real estate market, like the one that's happening in the Spokane area, there is a definitely lack of available inventory. This can make it tough when looking for your first home, because there is so little to choose from, and you're competing with so many other buyers. It's easy to want to buy a home in one of the area's most desirable areas, and refuse to go outside of your preferred search area. This mistake can cost you, especially if your search area is very narrow and an area that's heavily searched by lots of other buyers.


How do you get around this? You want to be a little more open-minded about inventory. Here are a couple of tips to help with this:
1) Be willing to go outside of your narrowly defined search area. You may find the perfect home just a few blocks over from your preferred area (and you may spend a little less too!).
2) When you see a home with bad listing pictures, go see the home anyway. Some realtors don't pay for professional photography, so their seller's home isn't highlighted in the best light, but that may be an opportunity to beat out other buyers for your perfect home!
3) As you look at homes, pay attention to your must-haves versus preferred items on your checklist. Anytime I've ever had buyers who are stuck and struggling to find a home, I give them an assignment to sit down (separately, if it's more than one person buying the home) and create a list of the most important features. Then they must rank those items, in order of importance. These are things like price, location, A/C in the home, bedroom size, fenced backyard, you get the idea. Every single time, it helps buyers get clear on what they want, and then end up finding the perfect home.

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Getting Distracted By The "Small Stuff"
When you're searching for your first home to buy, it's easy to get distracted by surface finishes - flooring, paint colors, cabinet handles, missing outlet cover plates, things like that. These are all important things, but don't let yourself get distracted by them. You will never find a perfect home - even a brand new construction home will have little quirks that you find over time. 


So how do you avoid getting distracted by the small stuff? 
1) Keep health and safety items as your top priorities. These are items like your heat source, electrical, and other systems and features that can impact your health and safety in the home. While these things are a health and safety concern, they are also items that can be a condition that needs to be fixed during your lender's appraisal of the home. 
2) Ask your agent where you should focus your attention. Your agent should already be pointing out the more important items - looking at the roof, the heat source, the water heater, items that are integral systems in the use and functionality of the home. Also, depending upon the home and the home's price, different items may be of greater or lesser concern. This is another area where your agent can coach you on what's important to pay attention to.
3) Skimping On Due Diligence
In the state of Washington, we live in a buyer's beware state. This means that it is up to you, as the buyer, to do your due diligence in making sure every aspect of the home meets your satisfaction. In other words, it is up to you to check crime rates, neighborhood stats, school district, any potential covenants and restrictions on the property, any and all physical home inspections, and title of the home, just to name a few.

It's easy for a buyer to get caught up in the emotions of buying a home, and all that is required from the lender, but do NOT skimp on your due diligence. Your agent can coach you on what types of inspections you should get, where to find all of the information in performing some of these tasks, and also what items you should be concerned about, based on your unique situation. Say you want to build a 4 car garage in the back - your agent can direct you on who to contact in order to making sure there are no issues with zoning and building, as well as any potential neighborhood restrictions. 


4) Blaming Others When Things Go Wrong
Homeownership is the most accessible and easiest way of building long-term financial wealth. Most of our society won't own a Fortune 500 company, but many will purchase a home. It's also emotionally and mentally rewarding to be able to call yourself a homeowner. However, it's not all a bed of roses. Homeownership does come with challenges, often times when you least expect it.

When these challenges come up, it's easy to blame others for what happened. I've been there. A month after moving into our current home (my first home), we found out the garbage disposal had a six inch crack down the back of it and leaked every other time it was operated. I was quick to blame the inspector, but he could only see the condition of the disposal during the inspection, and it worked perfectly fine for him.
It's easy to think that it's the fault of others when things go wrong. Remember that challenges are a normal part of homeownership, and it's up to you to deal with them. It's also normal that every single home will have challenges come up, and the best way to deal with them is to address the issue head on. It may even be helpful to contact your agent when things do go wrong, and ask for their advice and guidance on how to address the issue and who to contact to support you. Just don't allow yourself to get caught up in the blame game - it won't change the situation and it can create more harm in the end.


5) Miscalculating Full Costs Of Buying
There are a lot of myths with buying a house, and one of the common myths is that you have to make a down payment of 20% of the home's price. This is a great option if you can do it, as it allows your mortgage insurance to drop off of the loan (if you're getting a conventional loan... this is an explanation for another blog). However, it's not required. Depending on your loan type, your down-payment is anywhere between zero and 5% of the home's purchase price.

Here is a breakdown of the downpayment totals, depending on loan type, in the state of Washington:
FHA loan: 3.5%
Conventional loan: 3% or 5% (5% is standard, and there is an option of 3% for first-time homebuyers, depending on certain qualifications)
VA loan: zero down-payment
WSFHC loan (down-payment assistance loan, referred to as a bond loan): zero downpayment (this loan is actually a second mortgage that gets added onto the end of your mortgage)


Now that you have a good idea about how much your down-payment will be, let's review the additional costs of buying a home. This is where most buyers get caught in a trap.


On top of your down-payment, you also have closing costs. These are costs that are due at closing, when you sign to buy the house, and they equal approximately 3% of your purchase price (more than 3% if your home is a lower price, and less than 3% if your home is a higher price). 
Closing costs equal three things: 
1) Title and escrow fees (you and the seller are equally responsible for these fees)
2) Costs to acquire the loan (including appraisal fee, underwriting fee, things like that; these fees are different for every lender, so make sure you're not paying extra hidden costs)
3) Prepaids (these are prepaid months of homeowner's insurance and property taxes that are deposited into your escrow account right when you obtain your mortgage). 
You want to make sure you plan for these costs! You can ask the seller to cover your closing costs, as it is becoming more common with so many first-time homebuyers entering the real estate market. However, if you're able to cover these costs, you should do so, as it can make the difference between buying the home of your dreams and losing out in a multiple-offer situation. Make sure you talk to an expert agent and an expert lender so that they can coach you on the best possible way to put yourself in an advantageous position.


I've given you the breakdown of costs due at closing; now let's look at costs that are due during the process of buying your home. There are two costs that you're responsible for during the process:
1) Earnest money: this is money that is deposited right after your offer is accepted. It's money that says you're making a good faith effort to buy the home, and it's money you're willing to risk and lose to the seller, if you default on the purchase of the home. Although this is a cost that's due during the home-buying process, it's held onto and applied towards your total costs due at closing (towards your down-payment and closing costs). I recommend 1% or more for your earnest money.
2) Inspection costs: it is your responsibility, as the buyer, to make for any and all home inspections. This includes your regular home inspection, sewer inspection (should you choose to do one), and any other inspection costs that may arise. Each home may require different inspections, so ask your expert agent about what inspections he or she recommends to have done. On your average size home, a home inspection costs $350-$450. A sewer inspection is $150-$200.


On a $225,000 home, here is a general breakdown of costs:
Downpayment: $7,875 (if you're getting an FHA loan, which is common among first-time homebuyers--if you're using a down payment assistance loan, this amount is covered by that loan)
Closing costs: $6,000 (this number can fluctuate, and if your costs are significantly more, you are probably paying extra fees that aren't required of every lender, or you are paying extra cash up front to get a better interest rate - called a buydown or discount points).
Earnest money: $2,250 or more (remember, this goes towards your total costs due at closing)
Home inspection: $350-$450 (this is just the general home inspection; remember that additional inspections for sewer, electrical, radon gas, etc do cost extra).
I know this list of costs can be a bit overwhelming, so make sure you talk with an expert lender who can find out the best possible avenue for you.

I hope this article provided value to you on your journey to buy your first home! If you have any further questions, please reach out to me at keri@spokanehaven.com or 509.844.5843.

Cheers to buying your first home!
-Keri


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Cambria Henry
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Spokane, WA 99201
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