Buying a home is always an anxiety-ridden process, and that goes triple for anyone who’s embarking on homeownership for the very first time. There’s so much to do and so much you don’t know that “overwhelming” hardly seems like an appropriate description of how it feels.
Even though you don’t want to scare yourself away from the entire process, you still need to be wary of falling into a few common traps that first-time buyers generally don’t avoid. If you’re aware of these five potential mistakes — and able to keep yourself from making them — then you’ll be saving yourself some significant stress on your homebuying journey.
1. Not understanding your down payment options
The biggest headache for so many first-time buyers is the down payment. If you’ve ever bought a car, then you’re probably familiar with the concept — it’s money that you contribute to the total cost of the purchase.
A down payment of just a couple thousand dollars can get you a head start on your car. If you don’t have a certain amount to put down on your home loan, however, you might find yourself paying private mortgage insurance (PMI) on the lifetime of the loan.
Depending on your credit score, the bank and other factors, PMI could cost between 0.5 percent to 1 percent of the total loan amount.
Most banks require at least a 20 percent down payment before they will waive the need for PMI on the loan. And most homes in this area cost about $300,000, so that means a buyer would need to bring $60,000 to the table in order to avoid PMI.
Some government organizations and lenders try to incentivize first-time homeownership by offering free down payment grants or loans to qualified buyers. Depending on your age, income level, credit score and other factors, you could qualify for free money to wrap into your down payment; a full rundown of programs is available at downpaymentresource.com.