Every year, first time homebuyers enter the market and make the same mistakes that people have been making for years. But, we think it’s time to stop the cycle! Here are some common mistakes that first time home buyers often make, and what you should do instead.
1. Not calculating how much house you can afford
Before you start house shopping, you should figure out how much you can afford to spend. Otherwise, you may end up falling in love with a house you can’t afford. Once you have your eyes set on a home that’s out of your price range, it’ll be much harder to find one in your budget that compares with it.
How to avoid this mistake: Determine what price range is affordable, what’s a stretch, and what’s aggressive. Using a mortgage affordability calculator can help you with this!
2. Not checking your credit reports and correcting errors
Mortgage lenders will scrutinize your credit reports as they decide whether to approve a loan and at what interest rate. If your credit report contains errors, you might get quoted for an interest rate that is higher than you deserve.
Over time, a few extra interest rate points can really add up, so you should make sure your credit report is accurate before you apply for a loan.
How to avoid this mistake: Check over your credit report thoroughly and report any errors that you find.
3. Getting just one mortgage rate quote
Shopping for a mortgage rate is similar to shopping for a car. You wouldn’t just look at one car, right? You would consider many different options and price points. The same goes for getting a mortgage rate quote – you need to compare offers. Mortgage interest rates can vary between lenders, as do closing costs and discount points.
How to avoid this mistake: Apply with a few different mortgage lenders and compare the quotes to find the one that suits you best.
4. Misunderstanding first-time homebuyer programs
As a first-time homebuyer, you may not have a lot of money saved up for a down payment and closing costs. You’ve probably heard about incredible programs to help people buy their first home, but don’t be fooled. Yes, there are some low or zero-down mortgage options available, but not everyone will qualify. However, it’s still worth looking into just in case you can find some assistance that’s targeted toward first-time homebuyers.
How to avoid this mistake: Inquire with a lender about your first-time home buying options. You can also look for programs specific to your state.
5. Applying for credit before the sale is final
The period between when you apply for a mortgage and when you close on your home is a crucial one, and you want to make sure that you leave your credit alone as much as possible. Try not to take out an auto loan or get a new credit card during this period.
But why is this time period so crucial? The lender’s mortgage decision is based on your debt-to-income ratio and your credit score. Getting a new loan increases your debt-to-income ratio, and applying for a credit card can lower your credit score – neither of these are good things from the perspective of the mortgage lender.
How to avoid this mistake: Wait until after you close on your home to alter your credit. That doesn’t mean you can’t have the new car picked out, just don’t take out an auto loan until you have the house keys in hand.
6. Underestimating how much it costs to own a home
Did you know that a mortgage payment is not the only cost associated with owning a home? After you buy a house, other costs can sneak up and surprise you if you’re not ready. Some of these costs include homeowner’s insurance, repair costs, bills, and property tax.
How to avoid this mistake: Factor all of these extra costs into your budget before buying a home. Work with a realtor or lender to estimate how much your property taxes and insurance could cost. You also can ask to see the seller’s utility bills so that you have an idea about how much they will be once you move in.
7. Incorrectly calculating repair and renovation costs
Don’t those TV home renovation shows make repairs look easy? This is often not the case, and most first-time homebuyers are surprised by how high repair and renovation costs can be. Make sure to factor any repairs that you will need to do into your budget. Typically, homeowners will spend one percent of their home’s sale price on repairs each year.
How to avoid this mistake: Get project estimates from multiple contractors and compare them. Talk to your friends and family about any referrals that they may have, and compare those to your other estimates.
8. Ignoring government home loan programs
Chances are, as a first-time homebuyer, you’re looking to make a small down payment. Did you know that some government programs allow you to put little or no money down? Some programs that currently exist include VA loans, USDA loans, and FHA loans.
How to avoid this mistake: Do your research about the different federal loans and how they might be able to work for you.
Let us help you avoid mistakes
Even though homeowners before you made these mistakes, you do not have to follow in their footsteps! We’ve helped many home buyers purchase the homes of their dreams, while also avoiding common mortgage mistakes. Get in touch if you’re ready to move forward with owning your own home.