Success in the real estate market comes with experience, therefore, it isn’t rare for first-time home buyers make a couple mistakes when buying their first home. Common mistakes include paying too much, deciding on an ill-suiting mortgage type, disregarding a budget for necessary home improvements. The key to preventing these kinds of first-time home buying mistakes is to seek the help of a capable, credible lender.
One mistake is done when lenders qualify buyers based on their incomes and debt-to-income ratios without taking into consideration on how much the borrowers use on items such as transportation, savings, food and other necessities. To avoid this mistake, you should create your own budget and know your limits. Most first-time buyers are optimistic about the future and enthusiastic about purchasing a property, so they borrow as much as they can, instead of giving themselves wiggle room for future expenses. It is suggested that consumers decide how much they want to spend each month on housing before meeting with a lender. Most first-time home buyers tend to experience a fairly large change in their housing payments, such as a change from $500 a month in rent to a monthly mortgage payment of $2,000. Many need to deal with payment shock first, or what happens when a homeowner’s monthly payments increase.
The first step toward homeownership should be meeting with a lender for a buyer consultation and being prequalified for a mortgage. This isn’t the case with many first-time homebuyers, who wait until they are prepared to start house hunting before contacting a lender. Every homebuyer needs to get prequalified early enough in the process so that changes can take place if needed or correcting errors on their credit report. Getting prequalified early enough can let some buyers know if they need to spend a year on saving more money, which does increase their incomes or can help clean up their credit before making offers on homes.
Another crucial mistake first-time buyers make is having a misunderstanding of how important a high credit score is. Many consumers know it’s important to have a high credit score, but not everyone understands how costly it can be when having a low score. All mortgage lending is based on the category of interest rates and terms based on the buyer’s credit score. Having a credit score of 720 or higher will earn you the best rates and can possibly save you thousands of dollars. It is important for consumers to learn about credit scores once they start working.
Choosing the wrong mortgage product is one major mistake a first-time buyer typically does. First-time buyers often go for a 30-year fixed mortgage rate. Homebuyers eager to build equity in their homes or who are older and want to live mortgage-free in retirement should consider a 15-year fixed-rate loan or a 10-year mortgage to reach their goal, only if they can afford it.
Ultimately, being a first-time buyer can be nerve-racking, but to avoid these simple mistakes, relying on a credible and capable lender and learn from others’ mistakes can help.