Top 10 Mistakes to Avoid for First-Time Homebuyers

Highlighting the common pitfalls of first-time homebuyers, we dive into practical aspects like the importance of a thorough home inspection, smart strategies for home purchasing, the potential downsides of aiming for a higher down payment, and the value of first-time buyer counseling sessions. We also cover the need for creative problem-solving, the risks of buying older homes without reserves, and the often-overlooked process of claiming a homestead exemption. Wrapping it up, we share insights into why reading reviews is crucial when selecting a real estate agent and the perks of choosing a real estate team over a solo agent.

1. Not Getting a Home Inspection

Many first-time homebuyers have saved up a considerable amount for their down payment and other expenses. While it might be tempting to cut costs in this area of savings, investing in a comprehensive home inspection is a wise decision for long-term benefits, offering peace of mind and avoiding potential limitations on your home.

Our state operates under the principle of caveat emptor, or "buyer beware." While this may initially sound intimidating, it's not as daunting when compared to states with seller disclosures. In many seller disclosure states, sellers often lack complete knowledge about their home's issues. Personally, as a homeowner, I'm unaware of the current conditions of my electrical system or roof. This underscores the importance of relying on a professional home inspector to conduct thorough assessments.

Home inspections are essential, even when dealing with new construction. Some may assume that a brand-new home is flawless, but in reality, new construction homes often come with their own set of issues. Existing homes, over time, tend to iron out any glitches or construction-related hiccups. However, with new homes, it's crucial to identify potential challenges before finalizing the purchase, rather than relying solely on the home warranty period.

2. Trying to Buy Your Dream Home as a First Home

A common mistake many first-time homebuyers make is trying to jump straight into purchasing their dream home. The key is to get into a home, start building equity, and then think about trading up or using the equity towards a down payment for your next home.

If you're aiming for a specific school district or planning for a certain number of bedrooms for your future kids, keep in mind that by the time your children reach that age, the home may need some upgrades. So, don't fixate solely on getting your dream home; focus on building wealth by getting into your first home.

3. Trying to Save Up for a Higher Down Payment

Saving up for a higher down payment, slower than prices are increasing, is another common mistake. What I mean is, often people say, “I really want to increase my down payment. I want to go from maybe a 5% down to a 20% down. I want to get away from mortgage and insurance premiums and those sorts of things. I want to qualify for the best interest rate that's available to me.” The challenge sometimes is that as you're saving up for your down payment, the duration it might take to increase that down payment, whether it's a year, two, or even three, prices could have surged faster than the money you've saved.

For instance, in the next year, if you're planning to save $10,000 for an additional down payment, yet the home's price you're eyeing has gone up by $20,000, you actually end up losing $10,000 by saving for that extra year.

4. Not Doing a First-Time Buyer Counseling Session

A mistake first-time homebuyers make, often without realizing it, is not getting a first-time homebuyer counseling session.

This is something I've been offering to clients, and our agency has been providing for years, aiming to educate first-time homebuyers on the entire process. While first-time homebuyer counseling sessions can sometimes feel like drinking water from a hose, they are crucial. Hearing key information multiple times throughout the process helps it sink in.

Let's admit it, buying your first home can be a bit nerve-wracking. The last thing you want is to read that contract and paperwork for the first time when you find your dream home. During a first-time buyer counseling session, we can review all the paperwork, walk through the entire process, ensuring you're prepared and confident when making your first offers.

Also, one thing we often encounter with first-time homebuyers is the importance of having enough money saved for your down payment and all associated costs. Avoiding any hidden costs in buying your first home is crucial. A first-time buyer counseling session will save you a lot of time in the long run.

5. Not Getting Creative

The number five mistake I see a lot of first-time homebuyers make is just not getting creative if needed.

Where there's a will, there's a way. Basically, if you run into an obstacle when purchasing, oftentimes there's a creative way around that. For example, if you're looking to invest in properties eventually, one thing you might do is buy a duplex and rent out the other units. It's a great way to pay for your mortgage, keep it down, and maybe even down to zero, turning the property into a long-term rental.

Another creative option that many people consider is receiving a gift from family. That's a great way to secure your down payment and reduce your overall mortgage payment. There are many different creative ways we can discuss during that first-time homebuyer counseling session. Just don't accept "no" as an answer. It's crucial to get into your first home and start building your net worth.

6. Buying an Older Home Without Reserves

A common mistake many first-time homebuyers make is buying an older home without reserves. As a first-time homebuyer, you're often saving up for your down payment and closing costs to get into that first home. The last thing you want is to buy an older home where something might go wrong in the first three months.

Upon moving in, you know things are going to break, especially in an older home. As Dave Ramsey says, “if you don't have an emergency fund, everything is an emergency.” That's one reason why I recommend new construction to many of our first-time homebuyers. The rationale behind this is that everything is new. Yes, things can go wrong in a new home, but the great thing is, as a caveat to this caveat emptor, new construction builders are required to provide a one-year builder's home warranty with the home.

There are major things that could go wrong in the first year, so you don't have to have the reserves built up as you would for an existing home. New construction is a great option for first-time homebuyers.

7. Signing Paperwork Without an Agent Going Over It

Number seven is signing the paperwork without reading it. The great thing is, we have this technology where you can sign paperwork. You don't have to come into the office every time there is a change to your paperwork. A huge time saver because I got started in the business where we did have to have wet signatures, and we faxed things back and forth.

It just took more work for the buyers. Now, the downside of that is a lot of people, a lot of first-time homebuyers don't read that paperwork, which is another reason why I recommend doing that first-time homebuyer counseling session. You can review the paperwork on the front end to have any questions that you have addressed so that you understand that going forward.

8. Not Claiming Your Homestead Exemption

Number eight is forgetting to claim your homestead. In the state of Alabama, you are eligible to get a deduction for living in a home versus investing and renting the home out. It is important that you claim that homestead.

How that works is you will close with the closing attorney. They will file your deed with the courthouse. The courthouse will then mail your deed back to you. Usually, that takes about 2 to 3 weeks. It's important to take that deed prior to October 1st, down to the courthouse, down to one of the satellite locations to claim that homestead. Quick notice, if you're in a long line, you're in the wrong line because the Homestead line is always typically very, very short to claim that.

It's really important because if you don't, that can double your taxes. So if you had a $2,000 tax burden, then that would double to about $4,000. That is an unwanted surprise and then something that you can't reverse and it's something that would stay there for the next year. Now, the other thing that you'll want to do as well is get that free first-time homebuyer counseling session and have that real estate agent look at the property taxes on any home that you're looking to make an offer on because some homes that you might be looking at could be non-homestead, and you have the ability to homestead it once you move into the home. But the way the taxes work in Alabama is whatever the taxes are when you purchase a home, they stay that until the next tax year.

The tax year is October 1st to September 30th. So if you were to close in July, then you would have that non-homesteaded rate until the next tax year if you buy a non-homestead home. Just one of those things that you want to look at and it's also really important as well because it can save you a lot of time and potential heartache. If you put an offer on a home that's not homesteaded and you're up against your pre-approval limit that the bank is pre-approving you based on your average obviously your mortgage, but also average taxes for that home. The taxes are average on that home; then that could push you out of qualifications and keep you from being able to qualify for that home.

9. Not Reading Reviews

The number nine common mistake for first-time homebuyers or any buyer is not reading reviews. Many people go with the first agent they talk to or someone recommended to them. While these are all great things, make sure you read the reviews on agents because many agents out there are new to the business and may lack the experience or service level to provide the five-star service you're looking for. Great places to look for reviews are Google and Zillow, both being excellent aggregators for real estate reviews.

10. Hiring a Solo Agent

Number ten is hiring a solo agent versus hiring a team. There are some good, solid agents out there. However, challenges arise as they may get busy, go on vacation, get sick, face life situations, or take on additional business, causing things to get dropped. This can be especially challenging for first-time homebuyers. In contrast, having a team ensures a dedicated individual for every step of the process, ensuring nothing is dropped, and you receive five-star service throughout.

The other unfortunate fact about real estate is that half of the agents out there have sold zero to one home in the last 12 months. As a first-time homebuyer, you don't want your agent assisting you with your first home purchase when they're also helping themselves with their first client. You want to go with someone with a lot of expertise and experience.

As of the shooting of this video, our team has sold over 7000 homes, so we have the experience to help you. We've assisted numerous first-time homebuyers, and we love working with them.

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