Any time you do something for the first time, there are things you don’t know. Sometimes those things don’t hurt you. You just learn as you go along. But, when you’re buying a home for the first time, the things you don’t know can hurt you. It makes sense to understand the mistakes others have made and figure out how to avoid those things before they make buying your first home a stressful experience. Here’s how to avoid five first-time homebuyer mistakes.
1. Assuming Your Credit is Fine
If you haven’t checked your credit score lately, you need to do that now. You may assume that everything is fine, especially if you don’t have creditors beating down your door. But, there are all kinds of things that can affect your credit score.
You may have an old dispute with a creditor that you never resolved, or you could think that being late making payments isn’t an issue if it happened a long time ago. Besides things you’ve done, there can be inaccurate information on a credit report that is bringing down your score. You need to make sure your credit reports are accurate and if your credit score isn’t that great, fix it. You’ll find lots of information online about fixing your credit and increasing your score.
Why Avoid It? Your credit score will have a big effect on the interest rate lenders will offer. It could be a full percentage point, which could be the difference between a reasonable monthly payment and one that you can’t support. Besides that, the interest you pay over the life of the loan will be much higher.
2. Not Saving for a Down Payment
This is one of those classic first-time homebuyer mistakes. You do know you’ll need a down payment, right? If you do, you probably also know that there a variety of requirements for a down payment on a house. But, just because you think you can get a mortgage with 3% down, that doesn’t mean that you should. The less you put down, the higher your monthly payments will be and it will take you longer to build equity.
Why Avoid It? At a minimum, you need to look at your options before you make a decision about a down payment. There are low interest/low down payment options, but you need to choose carefully. You also need to be prepared for the cash you’ll need to pay closing costs.
3. Skipping the Pre-Approval
It’s easy to get caught up in looking at homes for sale on the internet and put off thinking about financing. That backward approach can cause trouble later. Hiring a real estate agent to start your search isn’t a problem. Your agent can probably refer you to a lender who specializes in first-time buyers who can tell you about mortgage programs that target first-time homebuyers. But, before you get serious about looking at homes, make sure to talk to a lender and get a pre-approval.
Why Avoid It? Once you get pre-approved, you’ll know exactly what price range to look at. You’ll also have an estimate of a monthly payment that you’re comfortable with. It’s very sad when someone falls in love with a house, then discovers that they can’t afford it.
A pre-approval also gives you a strong negotiating position when you do find your house. Sellers don’t want a deal to fall through because the buyer can’t get a mortgage. When you’re pre-approved, your offer will stand out from the crowd, which will make negotiations go more smoothly.
4. Buying Too Much House
After you’ve talked to a real estate agent and a lender, you will have an estimate of the amount of a mortgage you can get approved for. But, keep in mind that you don’t have to use that entire amount when you buy a house. You need to take a hard look at the maximum monthly payment you’ll have if you buy a house at the top of the range for which you’re pre-approved.
Another way people end up with too much house is that they don’t calculate maintenance costs and factor that in to their monthly commitment. Maintenance costs will vary depending on the age of your home, your climate, and more. There’s a rule many people use that says you’ll spend 1% of the value of your home each year in maintenance. So, for that $250,000 house, you can estimate costs of $2500 a year, or approximately $200 per month.
Why Avoid It? It’s easy to see the house of your dreams and know that you could purchase it with the mortgage pre-approval you have. But, more than one homebuyer has had that new-house glow wear off when they can’t afford to do the things they’ve always done. Sometimes people start running balances on their credit cards to make ends meet.
Sometimes people lose a job and can’t find another at the same salary quickly. The last thing you want to do is lose your house, or end up hating it because it changes your entire lifestyle. Think about your spending habits and be realistic about the monthly mortgage payment you want to sign up for.
5. Going on a Spending Spree after Getting a Pre-Approval
This is a very common among first-time homebuyer mistakes. Getting a pre-approval doesn’t guarantee that you’ll get a mortgage. Yes, that’s a surprising statement, but it’s true. When you make an offer on a home and your lender completes a formal mortgage application, the application then goes to underwriting. The underwriters review all the factors related to your application before giving a final approval. It’s important that you don’t change your financial situation until you close on your house.
Why Avoid It? If you finance the purchase of new furniture for your new home, you’re changing your financial position. Or, let’s say that you’d paid down your credit cards before you got the pre-approval, but then start running balances as you stock up on purchases for your new house. It’s possible that your mortgage application won’t be approved, even though you had a pre-approval.
When you’re a first-time homebuyer, you need to work with professionals who can guide you through the process. The Teri Arbogast Real Estate Team has established a reputation for working with first-time homebuyers.
Take a look at our Google reviews, and you’ll see that our clients have lots of good things to say. We’re very proud of our five-star ratings on Google, Zillow, and other real estate review websites. We’d love to make you our next successful client! Call us at 954-242-8030 or send an email today.