More to it than mortgage payments
Many first-time homebuyers decide to buy when they feel ready for a mortgage. But just because they can afford the mortgage payments doesn’t mean they can afford to own a home, says New York attorney Rafael Castellanos, president of Expert Title Insurance. “They have an idea of what their mortgage payment is going to be, but they don’t realize there’s much more to it,” he says. Property insurance, taxes, homeowner’s association dues, maintenance, and higher electric and water bills are some of the costs that first-time homebuyers tend to overlook when shopping for a place.
“Keep in mind property taxes and insurance have a tendency of going up every year,” Castellanos says. “Even if you can afford it now, ask yourself if you’ll be able to afford the increased costs later.”
Looking for a home first and a loan later
Home buying doesn’t begin with home searching. It begins with a mortgage preapproval — unless you’re lucky to have enough money to pay cash for your first house.
Often, first-time homebuyers “are afraid to get prequalified,” says Steve Anderson, a broker and owner at Re/Max Benchmark Realty in Las Vegas. They fear the lender may tell them they don’t qualify for a mortgage or they qualify for a loan smaller than expected. “So they pick a price range out of the sky and say, ‘Let’s go look for a house,'” Anderson says.
And that’s not how it should be done. Yes, it’s more fun to go look at houses than to sit in a lender’s office where you have to expose your financial situation. But that’s a backward approach, says Ed Conarchy, a mortgage planner and investment adviser at Cherry Creek Mortgage in Gurnee, Illinois.
“You get preapproved, and then you find a home,” he says. “That way, you’ll make a financial decision versus an emotional decision."
Not getting professional help
Venturing into this process alone, without professional help, is not a good idea. While every rule has its exception, generally, first-time homebuyers should not try to deal directly with the listing agent, Anderson says.
“If you are getting divorced, are you going to go to your husband’s attorney for help? Of course not,” he says. “Same here. If you go to a listing agent, they are only going to show you their listings. You must find a buyer’s agent to help you.”