Buying your first home is a path strewn with big decisions. It’s easy to make mistakes that leave you with years of buyer’s remorse.
Stop. Take a breath. Be aware of common mistakes that first-time homebuyers make — and do everything to avoid them.
Avoid These Common Mistakes First-time Homebuyers Make
House-hunting before knowing how much you can afford
Looking at houses before even knowing the loan amount you are qualified to take out could be disappointing. Not to mention a waste of time. As a first-time homebuyer, the goal should be to secure a home loan with comfortable monthly payments.
Avoid this by: using a mortgage affordability calculator to help you know what price range is realistic for you, what’s a stretch, and what’s a huge risk.
Not going mortgage shopping
Mortgage interest rates differ from one lender to the next. The same goes for fees such as closing costs and discount points. Don’t miss out on better offers just because you didn’t canvass enough.
Avoid this by: applying with multiple mortgage lenders. You can save money on interests just by comparing about 4-5 different lenders. Do not worry that your credit score will take a hit, as all mortgage applications made within a 45-day period will count as just one credit inquiry.
Skimping on the down payment
Surveys have found that about 1 out of 9 homeowners under the age of 35 feels they should have waited to buy a house until they had the ability to make a bigger down payment.
Avoid this by: figuring out how much more to save. A bigger down payment will allow you to get a smaller mortgage, hence more affordable monthly payments. Make sure your down payment helps you secure a payment plan you can live with every month.
Draining your savings
If you buy a pre-owned home, expect that repair costs will be inevitable. Not leaving enough money for repair emergencies might put you in a bind sooner rather than later.
Avoid this by: saving enough money to make a down payment, pay for closing costs and moving expenses, and still have some set aside for repairs that may come up.
Applying for credit before closing
The weeks in between your mortgage application and finally closing are critical. You’ll want to NOT touch your credit till you close. The lender’s mortgage decision is based on your credit score and debt-to-income ratio. Applying for credit takes points away from your credit score. Taking out a new loan will increase your debt-to-income ratio.
If your credit score dips or your debt-to-income ratio rises, the lender might amend the interest rates or mortgage fees. It could delay your closing, or worse, result in a canceled mortgage.
Avoid this by: waiting until after closing before opening new credit accounts or making substantial charges on your credit cards. Have all those things picked out ahead of time, but do hold off on buying them on credit until you close.
Should You Work with a Mortgage Broker?
A mortgage broker is a licensed financial professional who acts as a “go-between” for borrowers and lenders. Brokers determine loans that will suit a borrower’s needs and take care of the arduous task of comparing rates and fees for the homebuyer. Mortgage brokers are in the capacity to offer various mortgage products from a whole network of lenders and provide access to a wider array of financial products than loan officers can. Bank officers are limited to their own institution’s financial products.
Mortgage brokers guide clients through the entire application and underwriting processes. These professionals take care of the nitty-gritty: they consolidate application materials, pull the borrower’s credit history, and verify income and employment information. Finally, mortgage brokers coordinate with everyone involved in the purchase (real estate agent, underwriter, and closing agent) to ensure the loan closes and transitions are timely and managed.
Working with a mortgage broker is a great option for those who want to delegate some of the legwork and stress from the whole mortgage process. Mortgage brokers can be especially helpful for first-time homebuyers who would be served well entrusting the more technical aspects of mortgages to an experienced professional.
Anywhere in the world, owning a home has always been THE dream, and succeeding at it is a major life milestone. People can derive joy and pride from the whole home-buying process, from touring open houses, getting approved for loans, and ultimately, homeownership. Don’t let this joyful milestone be the cause of your stress in the long run.