Barbara Corcoran: First Time Home Buyers' Most Common Mistakes

Real estate mogul Barbara Corcoran wants young people to get in the game when it comes to home-ownership. "The faster you buy your first home, in my opinion, the better."

Because the process is often difficult, confusing and expensive, though, it's hard to get right, especially when you're just starting out. "You have to go in with power," she says, and good information, so that you can avoid these four common mistakes.

1. Not accounting for closing costs
"The biggest mistake that first time homeowners make is they forget that they need closing costs — not just the down payment of say 10 or 20 percent," says Corcoran.

Closing costs, which include agent commissions and transfer or sales taxes, will typically add 2-5 percent of the total cost of the home onto the final price. For the median U.S. home, these expenses exceed $13,000.

It's a mistake Corcoran made herself, she says: "When I bought my first home I showed up at the table to close without the closing costs. Thank God I was able to borrow it from the very nice seller or I couldn't have closed on the place.

"Don't forget the closing costs."

2. Not checking your credit score
Before trying to buy a home, you want to know where you're at financially, which means checking your credit score.

"The loan you get to buy the property will be totally dependent on your credit rating," says Corcoran. Generally speaking, the higher your credit score, the lower the interest rate on your mortgage, and a lower interest rate can mean significantly lower monthly payments. In other words, a good credit score means you'll spend a lot less on your home in the long run.

If your score isn't great, consider taking some time to improve it before home shopping, suggests Corcoran.

3. Falling in love with the house instead of the block
"The emotional mistake that so many first-time buyers make is they fall in love with the apartment or the house instead of the block," Corcoran says. "It's nuts."

Your home doesn't exist in a vacuum. Context is what's actually going to decide most of the value of your property, she says: "It's going to be 85 percent determined by the block in the town you're living in. So you're much better off falling in love with a good block with a rickety old house than falling in love with a lovely, pretty house on the wrong block."

After all, when it comes to real estate, location is everything.

4. Not getting pre-approved for a mortgage
"Before you go out shopping for your first home, the most important thing you have to do is to qualify with a bank for your mortgage in advance," says Corcoran.

Pre-qualification is an estimate of how much you can borrow from your lender. Ideally, you'll go one step further and get pre-approval, which analyzes your creditworthiness and assures the seller that you can get the deal done.

If you're pre-approved, "you're going to be able to walk in and say, 'My bid is an all-cash bid,'" Corocran 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."

That can make all the difference between winning a bid or not, she says: "The power word in buying real estate is, 'I'm all cash.'"

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The 4 biggest mistakes first-time homebuyers make, according to real estate mogul Barbara Corcoran | CNBC Make It.

[xdozie]

6. Buying your first home expecting it to be your forever home

[Loachie]

5. Getting a home based on two incomes rather than one.

6. Buying an investor-flipped home where the upgrades were only a facade and don’t actually have real benefits like upgraded insulation and new water heater.

[azflorhuerta]

4 Mistakes First Time home buying
1. Forgetting closing costs- 3-4%
2. Not knowing your credit score
3. Falling in love with the house instead of the block
4. Not giving an all cash bid

[tixibdu]

“This video is too short, and for that reason, I’m out.”

[emilyspecter]

Another mistake is not saving additional money for the inevitable repairs, upgrades and small purchases you will need to make after buying a home.

Also don't forget property and school taxes.

[FireYourLandlord]

An all cash bid is exactly that. All Cash. A loan whether it's pre-approved or already underwritten subject to acceptable appraisal and acceptable title would be the proper way to present it through your realtor. By presenting as all cash - in this instance you would be in violation of the contract to use a loan. A fully approved loan is actually more valuable than an all cash offer because 28% of all cash offers cancel before closing.

[sjhd]

Concise, to the point and short. Exactly how a finance video should be made.

[abenakwabuwaa]

Didn’t know about the closing cost, thanks you Barbara

[CKevni]

My understanding of an "all cash bid" is a bid free of any form of financing (seller financing, mortgages, etc.) to avoid appraisals, underwriting, filing liens, contract contingency language, etc. etc. Basically cash on hand, ready to go. but hey, what do I know. I'm not Barbara Corcoran....

[wfoholeshot]

Why would you not ROLL the closing cost into the sales price. Just raise the sales price to account for it. I know it will have to appraise for the NEW sales price, but hey, I do it all the time and my buyers love me for it..

[danielledefreitas]

Me and husband are going through the process right now. First time homebuyers thank you for the tips. We are in good shape just have to make a decision.

[Damonbird]

To me, an all cash bid means you can buy the home with your own cash and that you don’t require financing.

[ElectronicaLife]

My lender also qualified me for WAY more than I could afford because of my overtime and hazard pay. Neither of which are dependable, consistent amounts. Thankfully, I knew what I could afford with my base salary... but I can't imagine how many unfortunate people get into mortgages they can't afford due to commissions, bonuses, overtime, etc.

[eyang]

I'm not even buying a house but I'm watching this, so for that reason, I'm out 😅

[JoseMartinez-dfdb]

I wish I knew this when I first bought my home.

[catparksworld]

That last tip though! Very helpful thank you!!

[bigfunky]

Imagine being a real estate expert and not knowing that a mortgage finance is NOT an "all cash" bid. This world is so strange.

Cashier: Cash or charge?
Expert: Cash!
Expert: *swipes credit card*

[TahLeeShuh]

Whewww Chile! Those closing costs are a killer!

[patandbrandi]

All cash bid means buyer has funds available to write a check out of his or hers bank account. Since when did all cash mean pre approved with bank loan. People want all cash to close quicker and with less headaches. If you going to accept a all cash you better get proof of funds.

[DreamsLoopsTruths]

#3 Couldn’t agree more; you buy the neighborhood