Buying your first home can be an exciting decision -- and the largest financial investment you have made up to this point in your life. When you do this correctly, you can find a property that will appreciate over time while also making a wonderful home for you and your family. Here are some of the biggest mistakes that people make when buying their first home -- and that you can avoid.
Budgeting incorrectly for the true cost of the home.
Remember that your monthly expenses will be more than just your mortgage payments. You also have to pay property taxes, homeowner's insurance, and utilities that will be higher than what you were paying in an apartment. You might have to pay dues to a homeowner's association, and you'll want to be setting aside money each month into a maintenance savings account, even if you have a home warranty. Otherwise you can end up behind the financial 8-ball pretty quickly.
Shopping for the house before you find out how much you can borrow.
Don't start your home purchase process by driving around or surfing the web for houses (unless you're one of the lucky few who will be able to pay cash for the whole house and don't have to worry about a mortgage). Begin by talking to a lender and getting a pre-qualification letter. This will let you know how much you can afford as far as a purchase price goes. That way you don't end up falling in love with a home -- and finding out that you can't afford it.
Using your entire savings for the down payment.
If you can't put 20 percent down on the purchase of your home, you're going to have to pay private mortgage insurance (PMI) premiums on top of your interest and principal payments. It's true that this can add thousands of dollars to the cost of the mortgage over time, but if you drain your savings to hit 20 percent and have nothing in case of a rainy day, you'll be bringing yourself close to financial trouble. What if your furnace goes out in the middle of next winter, and you haven't replenished your savings enough to pay for it? Then you can face a real financial pickle.
Take the time to plan your home purchase correctly -- and it will be one of the most enjoyable experiences of your life. Use these tips to get started, and follow a disciplined path to home ownership.