Failing to factor in closing costs. “The biggest mistake that first-time home buyers make is they forget that they need closing costs—not just the down payment of, say, 10 or 20 percent,” Corcoran told CNBC. Closing costs can add up—typically an extra 2 percent to 5 percent of the total cost of the home. On a median-priced home, that could be more than $13,000.
Focusing on the house at the expense of the neighborhood. Too often, first-time buyers fall in love with a home and don’t pay enough attention to the block, Corcoran says. The surrounding area plays a large role in determining a property’s value. “It’s going to be 85 percent determined by the block in the town you’re living in,” Corcoran says. “So you’re much better off falling in love with a rickety old house on a good block than a lovely, pretty house on the wrong block.”
Not getting pre-approved for a mortgage. The most important thing to do before shopping for a home is to get qualified from a lender for a mortgage, Corcoran says. Pre-qualification is an estimate of how much you can borrow from your lender, but pre-approval is the extra step. Lenders analyze your creditworthiness to determine whether you qualify for financing and for exactly how much. Those who are pre-approved can essentially “walk in and say, ‘My bid is an all-cash bid,’” Corcoran says. “What ‘all-cash’ really means is your bid’s not contingent on you getting financing from a bank. You’ve already cleared that with the bank, so you’ve got all cash to close on the property.”
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