Buying your first home is exciting — but common mistakes that first-time home buyers make often cause stress during a time when the focus should be getting the best bang for the buck. Much like in sports, the best defense is a good offense. Prepare your house search before you actually start looking. What you want may not realistically be what you can actually afford. The first step is finding a real estate team to help with the process.
Here are the common mistakes first time-home buyers make.
1. NOT Getting Preapproved
Skipping the mortgage preapproval process is like trying to swing a bat at a baseball when blindfolded. Mortgage lending companies (banks, credit unions, etc.) provide preapproval plans to buyers. How much money can you actually borrow? Buyers who don’t get preapproved often look for houses they cannot afford. A preapproval isn’t a guarantee that you’ll get the loan, but it does show sellers that you’re seriously considering a sales contract. Get preapproved for a mortgage loan before you start house hunting.
2. NOT Estimating Your Budget
Daily living is more than just paying your home mortgage. You might think, “sure, I can handle that,” but after the mortgage, there are utilities, insurance, gasoline, groceries, health costs, clothing, and other monthly expenses. Debt-to-Income ratio (DTI) calculations determine how much of your take-home earnings pay off mortgage debt. But these numbers don’t take into account everyday living expenses. If you take out a home mortgage that hits the edges of your DTI, you may not have enough income left over for anything else — like food and heat. Sum up your monthly expenses to add to the mortgage payment. Can you afford it?
3. NOT Talking to More than One Mortgage Lender
Mortgage loan offers tend to differ when coming from various companies, and buyers who compare options might find a better deal. Lending strategies power high-end closings, which could mean the property you want would come at a better price. Research local community lenders in your area as well on the national level — get as many quotes as possible.
4. NOT Reviewing Your Credit Report
Borrowing money depends on your creditworthiness. Credit reports determine whether a lending company thinks you’re worth the risk of dishing out lots of cash. Interest rates, repayment terms, and your overall financial picture play a part. By not checking your credit report before applying for a loan, you risk finding an unexpected (negative) surprise that could affect your creditworthiness. (By the way, negative credit reports could mean changes to a previously-approved loan). Review your credit report and attempt to improve whatever may need fixing. Don’t take on any more debt. Pay off credit cards.
5. NOT Hiring an Expert
The real estate market is everchanging, with home sales’ prices going up and down — sometimes predictably, sometimes not. Real estate can be confusing… agents keep tabs on what‘s going on in the market. House sellers generally pay realtor fees, so, as a buyer, there’s no reason not to work with an agent. Hire a qualified real estate professional.
6. NOT Doing a Home Inspection
Getting caught up in the excitement of a new (to you) house is easy, but is the property stable or damaged? Skipping the suggested home inspection is an absolute no-no. House inspections do cost a few hundred dollars but they’re well worth it. Qualified contractors determine if there are any serious problems in the house structure, windows, plumbing, cooling and heating systems, insect or rodent infestations, and whatever else crops up. With a professional inspection of the property’s major components, new owners can make their seasonal home improvement inspection checklists with confidence that the big stuff is sound. Schedule a home inspection. (Noted problems may be useful for the price negotiation process).
First-Time Homebuyers Should …
• Seek out programs and grants geared for buying a house for the first time, usually through state and local government assistance.
• Save enough money for a sizeable down payment that would include Homeowner Association fees, if necessary.
• Making a “low” down payment may impact your loan’s interest rate — increasing the size of your monthly mortgage payment (20% of the purchase price is a standard ideal).
• Look at the practicality of this purchase. It’s easy to get caught up in the emotions of finding something “absolutely perfect.” But what you love and what you can afford may be two different things.
Be Smart
Doing your pre-homework before buying a house is the best way to be well-prepared for the whole process. Write down your needs, wants, and must-haves (and then cut the list in half). Keep your emotions in check. Most of all… use common sense.
Written by Teri Silver.
