5 Common Mistakes of 1st-Time Buyers

Mistake #1 – Not getting pre-approved prior to searching for home:

The current Denver housing market is extremely competitive – there is a huge demand for homes and not nearly enough supply to satisfy the demand. So what does that mean if you are a buyer? It means that some houses receive multiple offers which forces buyers into a bidding war. In this kind of market, it is essential for a buyer to get pre-approved on their mortgage loan. Get pre-approved as this indicates to the seller that your offer is serious and will not be contingent upon getting financing.

So what is pre-qualified? Pre-qualified is the first step in the mortgage process. It is a very simple process that can be done over the phone or on the Internet. You give a bank or lender a personal financial statement that shows your balance of assets and debts. The bank or lender evaluates this information and tells you the mortgage amount that you can qualify for. After you get pre-qualified, it is integral that you get pre-approved. The pre-approval process is more involved as you will have to fill out a mortgage application. You will have to supply the lender with a lot of documentation that allows them to perform a check on your financial background and credit rating. Once you are pre-approved, the lender will give you a conditional commitment in writing that details the exact loan amount. You can then begin looking for houses at or above that loan amount. Not sure what you might be able to afford, use our Mortgage Qualifier as a starting point.

Mistake #2 – Forgetting about house maintenance/repairs and other house expenses:

One of the most common mistakes is forgetting that you will now have to pay more expenses to maintain your new home. After you have been pre-approved for a mortgage, you should sit down and estimate how much you are willing to spend on new furniture, window coverings and accessories for the house. Also factor in common maintenance expenses as well as an unexpected maintenance fund. So what do we mean by maintenance expenses? Common maintenance expenses are: property taxes, garden/lawn care, utilities: including electricity, gas, water and sewer, and general household maintenance. So look carefully at the costs to maintain your home.

Mistake #3 – Not having enough cash saved for a down-payment & closing costs:

Buying a home is a big financial commitment and decision. Sometimes it can be hard to foresee when you will be buying a home, but planning ahead by saving money is key. Once you find out how much you can afford, you will then have to calculate a 20% down-payment along with closing costs around 3% of the purchase price. So let’s take a look at the numbers:

The median sales price of a Denver home in 2014 is $272,336.


The lender will require you to put down $54,467.20 (20% of purchase price) and you should have an additional $8,170.08 (3% of price) for closing costs for a total of $62,637.28.

So what happens if you do not have that amount of cash on hand? The lender will then require that you have private mortgage insurance (PMI). PMI is a risk-management product that protects a lender against loss if a borrower defaults. If you do not have enough cash for a down payment you can then make a smaller down payment – between 3% and 19.99%. However, you have to pay more money for this: usually it costs 0.25% – 2% of your loan balance per year. However, if you do decide to pay less than 20%, you should keep track of your mortgage’s principal. Once your down payment plus the principal you have paid reaches 22%, your lender is required by law to automatically cancel PMI.

Mistake #4 – Not vetting your Real Estate Broker:

It is inevitable. Everyone knows someone who is in real estate. Your Dad’s cousin or your mom has her favorite realtor that you just have to use. But just because they know someone does not mean that they will be the best fit for your needs or have the area expertise on a neighborhood that you are interested in. Like any purchase , shop around – ask different brokers why you should use them over someone else. Does their personality mesh with yours? Maybe they don’t value educating you throughout the process.

Mistake #5 – Using Zillow to search for properties:

Zillow has a huge market share on the real estate market at approximately 80% and it is bound to be the first result on Google. But is has its shortfalls that most consumers don’t know. The biggest shortfall is that their listings are not fed by a real-time database. In other words, Zillow lags by a couple of days. So you could find the house of your dreams on Zillow, call a broker to set-up a showing, and be crushed to find out it is no longer on the market. Instead you should use the primary source – Multiple Listing Service (MLS) which is updated and maintained by real estate brokers. Better yet use our Property Search which is tied directly and instantly to the MLS.