First Time Home Buyers - 6 Common Mistakes You Must Avoid

Purchasing your first home is an exciting milestone, but it's important to approach it with caution and a clear understanding of the potential pitfalls. In fact, studies tell us that first-time, and really any time, home buyers often have regrets after making their purchase, and that's because of unforced errors.

To ensure that you don't fall into the same trap, we've identified six principal mistakes that commonly lead to buyer's remorse. By avoiding these missteps, you can make a more informed decision and set yourself up for a successful homeownership journey. Stay tuned.

Welcome to We're Talking Money. I'm Phil Clark, founder and CEO of OmniStar Financial Group, and today we're talking about avoiding some of the most common mistakes when it comes to purchasing a home. Let's get into it.

Mistake number one: ignoring the real cost of buying and maintaining a home. One of the most common mistakes that first-time home buyers make is underestimating the true cost of homeownership. It's not just about the acquisition cost or the purchase price. There's several other expenses that you should consider: closing costs, property taxes, insurance, maintenance, repairs and utility bills. They all add up. This is in addition to the acquisition cost. This can lead to financial strain and frustration down the line.

To avoid this mistake, it is essential to create a comprehensive budget that includes all of the associated expenses of owning a home. Consider the mortgage payments and potential repairs and ongoing maintenance. Factor in unexpected costs as well, such as emergencies or maybe even a change in your financial situation. By being financially prepared and having a clear understanding of the actual cost of homeownership, you can avoid what turns out to be unnecessary regret.

Mistake number two: failing to get your credit in tip-top shape. Since I was a child, talk of a good credit score was always popular. After all, the higher your credit score, the lower your borrowing cost, especially when it comes to a mortgage. Now, a good credit score is even more important when we're in a high interest rate environment, such as we are in today.

Boosting your numbers is never out of reach, but it does require a few things. Make sure that you pay all of your credit cards or other debts on time. Cover the full balance each month when it comes to credit cards, and don't start canceling open cards just because you don't use them. Many people will tell you, if you don't use the card, cancel it. I'm going to implore you to avoid that, as it is a mistake. The reason being, your credit history is one factor that contributes to your total score. Unless those unused cards are charging a large annual fee just for having the card, keeping them can actually help your credit score.

And be willing to request a free copy of your credit report, review it and dispute any errors. Another way to keep your credit score in great condition is avoiding too many credit inquiries. Remember, every time you apply for new credit, your score can be affected.

Mistake number three: buying a house that you cannot afford. Now, some of you might be saying, well, that's a foolish thing to say, surely that's not a mistake. Many first-time home buyers just can't say no. They get into this thing of buying a house and they have to do it, and saying no just seems like the worst thing in the world. We see it all the time.

You find a house, but it costs more than what you budgeted. Then comes the reasoning, or the justifying. Sure, the house costs more than you plan to spend, but it's perfect, it's just what I wanted. All of these things are part of the reasoning, or that justification process. Don't fall for that.

What's wrong with a slightly larger mortgage? Well, let's think about that for a minute. Taking on a larger mortgage than you can truly afford can cause longer term problems: larger payments and a larger down payment. When life happens, any discretionary dollars, they can quickly vanish, and when monthly payments have exceeded certain amounts, they vanish even faster.

Your monthly payment should never be more than about 30 percent of your take-home pay, and actually less than 30 percent is even better. And that includes property taxes, homeowners insurance, private mortgage insurance or PMI, and any applicable homeowners association fees.

Let's move to mistake number four: believing that buying a house is a safe investment that will give you profits over time. Many first-time home buyers enter the market with the belief that buying a house is an automatic ticket to financial success. I'm here to tell you that is not true. While real estate can be a valuable investment, it's actually quite critical to understand that it's not without risks. The housing market is subject to fluctuations just like the stock market, and the value of your property, it may not always appreciate as you expect.

Now, to avoid this mistake, it's very important to approach homeownership as a long-term commitment rather than a short-term investment. Consider factors such as your financial goals, the stability of the local housing market, and your personal circumstances as it relates to your inflows and outflows. Homeownership can offer a lot of financial advantages, and it's wise to diversify your investment portfolio and not rely solely on stocks or one kind of investment, but you also don't want to rely solely on the appreciation of your property.

Mistake number five: buying a house just because buying is better than renting. There's a widespread misconception that buying a house is always superior to renting. Why should I pay rent when I can get a mortgage payment for a similar amount? Wouldn't it be better to have equity in something like a home, something that's growing in value? Maybe, maybe not. This is not a one-size-fits-all scenario. Individual circumstances and financial goals are specific to them, and what works for one person may not be the best option for another.

Renting actually provides flexibility, lower upfront cost, and the ability to relocate easily is something else that goes with renting. On the other hand, homeownership absolutely offers stability, the potential for that equity buildup that I mentioned, and the freedom to personalize your living space, something that's not always afforded in an apartment or a rental property.

The decision between renting and buying should be based on a thorough analysis of your specific situation, your goals, your needs. Consider factors such as your financial stability, your future plans, the housing market and lifestyle preferences. This is not a maybe deal. Once you purchase, you have bought yourself into a lot of responsibility.

Now, mistake number six: shopping without a real estate agent. We live in a world of information overload, and whatever the challenge, a quick internet search usually reveals enough information to make us feel like an expert. With so many real estate apps and websites now available, you might believe that you don't need a real estate agent when you're buying a home. Before you underestimate their value, let me share a few points.

First, a real estate agent can provide valuable insight that only comes with experience. You can gain access to an MLS, or multiple listing service. These folks, these real estate agents, are adept at negotiating, so home price is an important part of this transaction. You want someone who knows how to negotiate. They're also great at dealing with all the paperwork, and there's a mountain of it when it comes to buying or selling a home.

Nearly 90 percent of home buyers used a real estate pro in the last year. The seller usually pays all of the agent's commission anyway. You need an experienced agent on your side as you try to navigate this home buying process, but don't just go with the first one that you talk to. I can't stress this enough: not all real estate agents are equal. Yes, they're all licensed, but it doesn't mean they're equal.

Try interviewing two, maybe three agents. Pick the one that you're most comfortable with. Verify their reputation, ask around. Don't be afraid to pick the one that you believe makes the most sense for you. Now, this home purchase will likely be the largest purchase that you make in your lifetime, and you don't want it to be in the hands of someone who acts like a slimy used car salesman. No offense to you used car salesmen out there, but this is a big deal, much more expensive than probably any car you will ever purchase.

You also don't want family getting involved trying to help you decide on an agent. The reason I say that is because often they will suggest maybe a neighbor, or they will suggest someone that just got their license. They want to help them a little bit, so they'll turn them on to you, or turn you on to them. Stay clear of that. Do your own research. If your family has great ties to real estate and you know the folks that they're recommending you use have a long track record, then that might be okay.

Now, never underestimate good planning. In a situation like this, it really matters. If you're a first-time home buyer or an anytime homebuyer, be aware of the potential pitfalls and mistakes that can lead to regrets down the line. The professionals here at OmniStar are happy to help you avoid these six mistakes.

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