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10 First Time Home Buyer Mistakes

Posted by Susanna Haynie on October 25, 2022
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We often speak with home buyers who are looking for their first home in Colorado Springs but don’t know where to start. The process can be exciting and exhilarating, but also quite intimidating. There are plenty of things that require more research: FHA loans, down payments, credit scores, mortgage lenders and more. It’s a lot to navigate, and pitfalls lurk all around. This list of first time home buyer tips will help you navigate the home buying process and avoid common mistakes we see. After all, home buyer education is just as important as finding the right property. We always strive to help our clients understand the process behind each step of the way.

>>Download the Home Buyer Guide<<

1. You didn’t get pre-approved for a loan

A loan pre-approval is essentially a promise from the lender that you’re qualified to borrow up to a certain amount of money at a specific interest rate (under certain circumstances) for your mortgage loan program. A pre-approval aids you in several ways in your home purchasing process:

  • It helps you understand your financial limits during your home search.
  • When you are ready to make an offer, the pre-approval will support your offer because it proves you are a serious buyer and you have funds ready for the home purchase.
  • It will speed up the lending process in case a quick closing is necessary.

A pre-approval is always a smart idea since it doesn’t obligate you to move forward with the loan. We’d recommend requesting fee sheets from three different lenders to compare different options and figure out what works best for your circumstances.

Related Reading:
Tips for Choosing a Mortgage Lender
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2. Forgetting about additional monthly expenses

You have your pre-approval letter. Awesome! However, the purchase amount that your bank is willing to finance might not be the amount that you are actually comfortable with. Have you given thought to how much home owners insurance will cost you? How much are your local taxes?

The reality is that owning a home comes with many expenses in addition to your mortgage. A first time home buyer in Colorado might not realize all of the costs associated with owning a home. Costs to consider might be:

  • Monthly Home Owners Association (HOA) dues
  • Home and yard maintenance
  • Additional utility cost (water, heating cost) if your new home or lot is larger than where you currently live

We always recommend you work with a realtor and a tax professional to chart out all potential expenses you might incur. There are many programs out there to help home buyers, including second mortgage or down payment assistance programs. In fact, you might even find ways to save money with certain Colorado housing tax incentives or first time home buyer programs.

Related Reading:
Partnering with the Right Real Estate Agent
Boost Your First Time Home Buying Skills
Tips to Maintain Your Home

picture of home buyers planning for monthly home payments

3. You can’t see “the good bones” of a home

The location is great, the price is right,  and it has the perfect number of rooms. Everything adds up but you just can’t see past the dated décor, the popcorn ceilings, maybe even some deferred maintenance. Maybe you really don’t want to do any work and move right in?

There is a price for updated, perfect and move in ready. Are you willing to pay the price? Take a step back and think about it. It is often cheaper to do some home improvements yourself than to pay more for a move in ready home. You’ll most likely save some cash if you hire a contractor to do the updates.

You’d be surprised by how much of an impact inexpensive updates can have. Updating lighting, replacing drawer pulls and handles on cabinets, fresh paint or wallpaper, and new window treatments can make your home feel fresh.

Related Reading: 
5 Ways to Update Your Home Without Major Renovation
Steps to Buy a House in Colorado Springs

4. You didn’t believe the mantra: Location, Location, Location

Have you done your neighborhood homework?

  • Your real estate agent is more than just the person who can sell you a home in Denver or Colorado Springs. Indeed, they are happy to provide more information. Ask your real estate agent about home values in your neighborhood in the last 12 – 24 months so you can get a clear idea of any market trends.
  • Keep in mind that there a lot of things you can change about a house, but location isn’t one of them.
  • Drive the neighborhood at night. Maybe you’ll see the neighborhood in a new -excuse the pun- light.
  • Chat with the neighbors. Ask them questions about previous owners and things that happen in the neighborhood. You’ll be surprised what neighbors want to you to know.
  • Take a look at your closest schools so you can decide if they are a good fit for your family.

Related Reading:
Tips for Researching a Neighborhood
School Options in Colorado Springs
Home Buying: What is Due Diligence

Click here to download the Colorado Springs Neighborhood Guide

5. Being too picky or too swift in your decision

Tell your real estate agent what you want in a house in Colorado Springs! Dream! However, when it comes down to it you might have to compromise. The choice might be simple but raw: either compromise or keep on renting until you can afford everything that’s on your list.

On the other hand, don’t be swept away by minimal but aesthetic upgrades that you end up paying lots of money for. If this one particular house has what NO other property offers, by all means, go for it. Just don’t be impressed by ‘bling’. Real value is what you are looking for. Ideally, search for a home that you can add value to yourself.

Related Reading: Steps to Buy a Home

6. Buying the most expensive house on the block

If you have the home of your dreams you really don’t consider moving unless something unexpected comes up. In short, you’re are happy and you have the most expensive house on the block. Good for you. However, homeowners in Colorado Springs stay in their house for an average of 8 years before selling.

Your future buyers will want to buy a $500,000 home in a $500,000 neighborhood. Quite frankly, all the lower values will actually pull yours down when it comes time for an appraisal.

Related Reading: Find Your Dream Home

7. Skipping the home inspection

As a future new homeowner, you want to make sure that you get exactly what you are paying for. Get the home inspected to learn what condition the house is really in. A home inspection is also a negotiation tool to lower the price or to get out of the contract if the condition is completely unacceptable.

Related Reading: Attending the Inspection

8. Hiring the sellers agent to represent you as the buyer

As a buyer, you do not have to pay for any real estate agent services. The seller’s fees typically pay the buyer’s agent a commission. A buyer’s agent will be your advocate and guide you through the home buying process. If the involved agent is the seller’s agent his interest lies in the seller only. If he is a transaction broker, then he basically just makes sure the sale/purchase is completed without recommendations, suggestions, or advice.

You want to make sure that you hire an agent to work for you and your best interests.

Related Reading: Partnering with the Right Realtor

9. Overlooking closing costs

Closing costs are an essential part of buying a home, but sometimes get overlooked. These are various expenses you’ll need to pay for prior to you getting the keys to the house. Governmental expenses, lender fees, realtor commissions, and more are all considered closing costs. You should budget 3-5% of your overall home costs for closing costs.

This can be unexpected for a first time home buyer. Not only must you get approved for various loan options, but you need enough money in your savings account to pay for these additional costs. If you do not have this money handy, there are closing cost assistance programs that help manage payments.

10. Spending big while you are on the house hunt

Keep your spending to a minimum while you are on the house hunt. No you don’t have to go hungry! Hopefully you’ve already created a budget to track expenses and save money in preparation for your home purchase. Simply don’t buy a truck or run up a credit card bill. A lender pre-approval isn’t a guarantee and lenders will check your credit again just before closing.

Buying a home in Colorado Springs is a big decision. If you are a first time home buyer, we highly recommend taking a home buyer education course or speaking to your real estate agent in detail about the process. With the right knowledge, even those with moderate income can navigate home loan programs, tax incentives, and mortgage credits.

Related Reading:
10 Commandments for Successfully Closing on a Home Loan
10 Ways to Lower Your Mortgage Payment

Pro Tips for First Time Home Buyers:

It’s vital to know what resources and programs are available to home buyers, especially since home prices have increased so much. Every penny that you can save on your payment will count, particularly when you are starting out.

1.  Start early: Speak with one or more lenders (we recommend 3) to see what it takes for you to qualify for a loan. Your loan pro might recommend working on your credit, specific financial tasks you should do to be ready to buy a home, or they might suggest that you pay off more debt in order to get below the maximum debt-to-income-ratio. Don’t guess. Ask a professional.

2. Strategize: When you talk to a lender it’s very important to communicate what your goals are with this home purchase. That could determine, which loan program is best for you. For example, if you are investing in a home,  you might choose to spend as little cash as possible with the biggest impact, however, as an owner occupant will just look at the lowest monthly payment (and low closing cost). If you are a veteran, refinances are very low cost which opens up new loan strategies to get the most benefit.

3.  Consider Conventional Loans: This can be a good option for first time buyers who have some savings tucked away for buying a home. Private lenders might have their own programs for first time buyers. Fannie Mae and Freddie Mac loans require at least a 620 credit score, but private lenders might have different requirements.

4.  Zero Down USDA Loan. This loan is not just for first time home buyers, but still something to investigate. It’s similar to a VA loan because you don’t need a down payment, but the home you are purchasing needs to be in certain rural areas.

5.  CFHA (Colorado Housing Finance Authority) has the First Step ™ program for first time home buyers and other specific home buyer groups. They also offer down payment assistance and low or no cost mortgage insurance. Ask a participating lender about details.

6.  Tax Credits for First Time Home Buyers: the Mortgage Credit Certificate gives home buyers an actual tax credit on their tax return. Make sure that you actually have enough tax debt to apply this credit. You’ll need to own your home for at least nine years.

7.  Colorado First Time Homebuyer Savings Account (FTHSA): You can save up to $50,000 towards a down payment on a home and any income or gain from these savings is tax free (forever!). Others can contribute to your account. It’s similar to the 529 college savings accounts.

8.  Home Modification Grants for Coloradans with Disabilities: While this program will not help you purchase a home, these grants will help you modify your home to accommodate a home owner’s disability.

9. Save up for all your expenses: down payment, inspections, closing cost

Conclusion

Buying a home has a lot of moving parts, new terminology and even in times of everything-digital, plenty of paperwork. After reading and researching the process, the first step should be to speak with a lender or two, who can give you a financial road map and timeline to achieve your real estate goals, after that you are ready to build a relationship with a real estate professional, to give you deeper insights into the process with a buyer consultation, once you are ready.

Do you still have questions about the home buying process? Reach out to us: susanna@co-regroup.com or 719-219-9739. We’re here for you every stop of the way.

Click here to download your free home buyer guide

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