Since this is your first home purchase, you’re probably feeling a bit overwhelmed – after all, there’s a lot to understand and do. Fortunately for you, though, many homeowners have gone through this process before so you can learn from their mistakes!
Here’s our list of the 5 common mistakes made by first-time homeowners in Massachusetts – because knowing what NOT to do before buying and owning a home can help you jump into this exciting time with confidence and peace of mind.
Mistake #1: Insufficient financial planning.
Planning and preparation for buying a home must begin before you buy it. Saving money for your down payment (and other purchase-related costs), establishing, and building solid credit, and determining a viable monthly mortgage payment based on your stable employment and income are all part of the process. Here are some things you’ll need to have in order:
- You will need a sufficient down payment to get a loan and to manage the amount of your monthly payments (a 20% down payment is preferred).
- You will want to look for a reasonably low-interest rate, as this will also affect the amount of your monthly payments.
- You'll need a credit score of at least 620 for most loan types. However, higher is better, and applicants who have a credit score of 740 or higher will receive the best interest rates.
- Your Debt-to-Income Ratio must fall within a certain range to be considered for a loan
- (28-36% is the general rule).
- You’ll need the financial means on hand to cover closing costs.
- You need to have the necessary financial documentation ready.
Having your planning together is incredibly important: be sure to do it first!
Mistake #2: Not “Interviewing” your potential lenders.
The majority of individuals believe that choosing a loan provider should be based solely on the interest rate they offer – or the mere fact that they will approve you for a loan. While these are certainly important factors, they are not the only things to consider.
You’ll want to choose a reputable lender who can answer some other important questions before you try to obtain pre-approval for a loan – their responses will help you determine if the lender is a good fit (you'll also learn about the mortgage application procedure while you talk, which is essential for a successful financial transaction!) Here are some of the questions you should be asking lenders:
- Which type of mortgage is best for me?
- How much do I need for my down payment?
- Are there any down payment assistance programs I could qualify for?
- What will my interest rate be?
- Will I have to pay mortgage insurance?
It’s also important to know that there are numerous mortgage alternatives available to first-time buyers, the majority of which require no down payment. FHA, VA, USDA, and conventional loans are all popular types of loans. In most cases, though, you must pay mortgage insurance if you put less than 20% down.
Get help from a Massachusetts independent agent
They understand your risks and will find you the home coverage you need.
Mistake #3: Failure to properly insure the home.
Homeowners insurance is designed to repair, replace, or recover the value of what you own if it’s damaged due to any number of causes. Homeowners insurance isn’t required by law exactly, but nearly every lender will require that you have a policy in place before giving you a loan. At a minimum, they will want your policy to cover the replacement value of your home to protect their investment in you.
Here are some types of home insurance to consider:
- Structural damage: Perhaps the most commonly used protection, this includes damage to your house and any structures on your property due to water, fire, severe storms, and a few other common risks.
- Personal property coverage: This will depend on the policy. Items like furniture may only be covered up to a depreciated value, whereas valuables like jewelry might not have any coverage at all, requiring additional insurance protection.
- Standard home liability: In many cases, this will cover the legal expenses if someone or their property is injured by you.
- Additional living expenses: If your house suffers covered damage the policy can pay for a hotel and other living expenses, including groceries while your home is being repaired.
A standard-issue homeowners insurance package can provide the protection you need for a number of common threats to your home. But, understanding the right mix of insurance types and levels of insurance coverage necessary for your specific house in your specific city can prevent you from losing your new home in the event of a costly disaster, property loss, injury, or lawsuit.
This is where local independent insurance agents come in. They can look at your specific needs as a homeowner, help you do the coverage and policy research, and then help you find you the best deals from the best carriers to meet your needs – because they don’t work for one insurance company, they work for local homeowners. And at no extra cost to you!
Mistake #4: Not taking the whole cost of closing into account.
Aside from the purchase price, there are other costs associated with purchasing a home. Closing costs are usually unanticipated by first-time home buyers. These fees could range from 2% to 5% of the sales price. Speak with all parties who may charge you fees, such as your agent, lender, insurance company, title business, and so on, in order to make sure you are as informed as possible about all of the costs of purchasing and owning a home. Many new homeowners are surprised by hidden costs and become more “house poor” as a result.
Mistake #5: Making an impulse purchase.
Maybe this is the first house you’ve seen and you “have to have it!” Maybe you’ve seen dozens of homes and you’re downright tired of looking? Or maybe you know deep down that this house you’re about to buy is out of your comfort zone, but you will “figure it out later.” All of these are potential traps for an impulse buy.
It’s important to remember that this is likely the most significant investment of your life thus far – it’s not just an exciting life event, it’s a business decision that must be made with clarity and patience.
Take the time to do your due diligence, despite your excitement. As you learn more about the house and your potential investment, you have more time to consider your decision rationally. For example, check the house and surrounding area to avoid missing any red flags such as these:
- Are the proper permits in place for any additions that were made to the house?
- Do any of these additions infringe on town/city codes? Or the neighbor’s space?
In short, as the buyer it’s your responsibility to understand these 5 common mistakes made so many new homeowners in Massachusetts...before you hand over your hard-earned money!
And remember, a local Independent Insurance Agent can help save you time and reduce the stress of buying and owning your first home by assisting with insurance research, making insurance coverage recommendations, and helping out with your homeowners insurance claims down the line.