Steer Clear of These Pitfalls That Usually Trap First Time Home Buyers
Are you getting ready up to buy your first place? Shopping for a home is exciting, exhausting, and a little bit scary. Your aim is to end up with a home you love at a price you can afford, but unfortunately, many people do things that prevent them from achieving that dream. It’s easy to get swept up in the whirlwind of home shopping and make mistakes that could leave you with buyer’s remorse later.
Here are the 10 most common mistakes first-time buyers make, the more you know, the easier it is to make an informed decision.
- Not figuring out how much house you can afford
Without knowing how much house you can afford; you might waste time. You could end up looking at houses that you can’t afford yet, or visiting homes that are below your optimal price level.
For many first-time buyers, the goal is to buy a house and get a loan with a comfortable monthly payment. Use a mortgage affordability calculator to help you know what price range is affordable.
- Looking for a home before applying for a mortgage
Many first-time buyers make the mistake of viewing homes before ever meeting with a mortgage lender. This puts you behind the ball if a home hits the market you love, or you look at homes that you can’t afford.
In many markets, housing inventory is tight and competition is fierce. You might find yourself willing to stretch your budget to buy a property or lose a property because you aren’t preapproved for a mortgage. Before you fall in love with that gorgeous house you’ve been eyeing, be sure to get a fully underwritten preapproval.
- Getting just one rate quote
Shopping for a mortgage is like shopping for a car or any other expensive item: It pays to compare offers. Mortgage interest rates vary from lender to lender, and so do fees such as closing costs and discount points. A typical borrower could save $430 in interest just in the first year by comparing five lenders, NerdWallet finds. All mortgage applications made within a 45-day window will count as just one credit inquiry.
- Not checking credit reports
Mortgage lenders will scrutinize your credit reports when deciding whether to approve a loan and at what interest rate. If your credit report contains errors, you might get quoted an interest rate that’s higher than you deserve. That’s why it pays to make sure your credit report is accurate.
- Failing to Consider Additional Expenses
Once you’re a homeowner, you’ll have additional expenses on top of your monthly payment. Unlike the days when you were a renter, you’ll be responsible for paying property taxes, insuring your home against disasters, and making any repairs the house needs. If you are part of a homeowner’s association, expect to shell out a few hundred a month on top of your mortgage.
- Moving too fast
Buying a home can be complex, particularly when you get into the weeds of the mortgage process. Rushing the process can cost you later on. You need to plan far enough ahead for the purchase. Map out your home-buying timeline at least a year in advance. Work on boosting your credit score, paying down debt and saving more money to put you in a stronger position to get preapproved.
- Fixating on house over neighborhood
Sure, you want a home that checks off the items on your wish list and meets your needs. Being nitpicky about a home’s cosmetics, however, can be short-sighted if you wind up in a neighborhood you hate. The goal is to find a place where the culture and values of the area match yours.
Ask your real estate agent to help you track down neighborhood crime stats and school ratings. Measure the drive from the neighborhood to your job to gauge commuting time. Visit the neighborhood at different times to get a sense of traffic, neighbor interactions and the overall vibe to see if it’s an area that appeals to you.
- Assuming you need a 20 percent down payment
The long-held belief that you must put 20 percent down payment is a myth. While a 20 percent down payment does help you avoid paying private mortgage insurance, many buyers today don’t want (or can’t) put down that much money. In fact, the median down payment on a home is 13 percent, according to the National Association of Realtors.
You can put as little as 3 percent down for a conventional mortgage. Some government-insured loans require 3.5 percent down or zero down, in some cases. Plus, check with your local or state housing programs to see if you qualify for housing assistance programs designed for first-time buyers.
- Overlooking FHA, VA and USDA loans
First-time buyers might be cash-strapped in this environment of rising home prices and higher mortgage rates. As a result, it can be harder for them to qualify for a conventional loan and they might assume they have no financing options. That’s where government-insured loans enter the picture.
Look into one of the three government-insured loan programs backed by the Federal Housing Administration (FHA loans), U.S. Department of Veterans Affairs (VA loans) and U.S. Department of Agriculture (USDA loans).
- Neglecting the Inspection
It’s tempting to think that you’re a homeowner the moment you go into escrow, but hold on. Before you close on the sale, you need to know what kind of shape the house is in. You don’t want to get stuck with a money pit or with the headache of performing a lot of unexpected (and potentially expensive) repairs. That’s why you need to set up a thorough inspection of the property. Keeping your feelings in check until you have a full picture of the house’s physical condition and the soundness of your potential investment will help you avoid making a serious financial mistake.
Preferred Lending Solutions can help you explore your options during the loan application process. Contact us to get started!