Common First Time Home Buyer Mistakes

Looking for a new home? Well, DECLINING HOME VALUES as well as RECORD-LOW MORTGAGE RATES and GOVERNMENT INCENTIVES are some of the factors creating an opportunity for prospective home buyers. Those depressed values, combined with near amazing interest rates and the 2009 stimulus bill that allows for an $8,000 first-time home buyers' tax credit, are enticing more first-time home buyers into the market. If you are thinking of purchasing, be aware that the process comes with plenty of potential missteps. Here are common mistakes first-timers make.

1. Ignoring your credit score
Get a copy of your credit report as soon as you decide to buy. Many contain some type of error and most of these mistakes are serious enough to drag down your credit score, potentially disqualifying you for the most competitive interest rate on a mortgage. Keep in mind, once you find a problem, it can take several weeks and a bit of negotiating to have the black mark taken off of your credit report.

2. Not knowing how much house you can afford
One of the first things buyers should do is talk to a qualified lender especially as you may have observed, uncertain economic times lead to tight lending requirements by all reputable lenders. Before you even start visiting open houses make sure you have a preapproval in hand; knowing how much house you can afford puts you in a much better bargaining position and helps you avoid falling in love with a house that you cannot find the money for.

3. Assuming foreclosures are great deals

Just because the previous owner owed $250,000 on a house before the bank took it over doesn’t mean it’s worth that much now. Values have slipped significantly, so you may not be getting the bargain you think with a foreclosure. Most homes owned by lenders or banks may have been sitting vacant for months and may require extensive renovation or repair due to neglect and or vandalism.

4. Underestimating the costs of owning a home

Many home buyers don't anticipate the additional costs for repair and maintenance, or increase in utility costs. Things to consider include the age of your new home and how well it has been treated by the previous owners. Be prepared to set aside and or start an emergency savings account for annual repairs and upkeep. Make sure you also factor in property taxes –and the likelihood that they’ll climb over the course of your time in the house.

5. Skipping the inspection

As a prospective home buyer about to perhaps make the largest purchase of your life, you want to make the best decision possible to get the most for your money. Of course it is easy to identify the obvious problems in a home, but you also need knowledgeable inspection of the structure, roof, furnace, air conditioner, electrical, plumbing, exterior and interior of the homes, among many other things. Most reputable inspectors are certified by the American Society of Home Inspectors (ASHI), adhere to a strict code of ethics and carry errors and omissions insurance.

6. Failing to include a contingency clause in the contract

In this market it is important to include a mortgage financing contingency clause which protects you if, say, you lose your job and the loan falls through or the appraisal price comes in under the purchase price. Should one of these events occur, you as the buyer would get the money used to secure the property. Without the clause, you may lose that money and may still be obligated to buy the house.

To learn about and avoid these and other mistakes on your homeownership journey, visit our website http://www.ywcade.org/ or e-mail DFEAinfo@ywcade.org to register for our Pathways to Success class; this is the first step in joining the YWCA Delaware Homeownership Education program!

Submitted by Faith M. Mwaura, Program Manager, YWCA Delaware