So, you’re ready to buy your first home. While it’s an exciting feeling it can also be intimidating. Applying for a home loan, saving up for a down payment, and searching for the right house are just some of the new challenges you’ll encounter as you move through the process.
However, while it might be your first home-buying experience, there have been many people before you who have faced the same obstacles to find their dream home and successfully enter the world of homeownership. Now’s your chance, and to help you avoid common home-buying mistakes, we’ve compiled a list of what not to do and some helpful tips to make your experience easier.
Mistakes to Avoid:
- Don’t put down just the bare minimum on your down payment
- Don’t drain your savings account for your down payment
- Don’t settle for the first mortgage quote you get
- Don’t look at homes until you’ve figured out your price range
- Don’t rush into a mortgage if you’re in a poor financial situation
- Don’t underestimate the costs of homeownership
Tips for First-Time Homebuyers
#1: Put Down as Much Money as Possible
While many first-time-buyer programs offer lower down payments as incentive, only putting down a small amount upfront can work to your disadvantage in the long run. This is because the smaller the down payment you make, the more money you’ll owe on the loan, which translates to higher monthly payments and more interest that you’ll have to pay over the course of the loan.
That said, you also don’t want to completely drain your savings account for your down payment. If you need to, wait longer in order to save for a larger down payment and maintain your emergency savings fund.
#2: Get Quotes from Several Mortgage Lenders
Mortgage lenders set their own interest rates. With that in mind, it may be to your advantage to shop around and get quotes from multiple lenders before settling on an offer. This is especially true if you don’t have excellent credit. While some lenders may offer you a very high interest rate, others may have special loan programs that cater to your situation, allowing you to secure better terms that will save you substantially over the life of your loan.
When choosing which lenders to go to for quotes, and potentially your final mortgage loan, it would be in your best interest to vet these providers first. What are their reviews like? Do they have the appropriate certifications (FHA underwriter training, etc.)? How long does their typical loan application and approval process take? These are all questions that can help you select the lender who is going to provide you with the best experience.
#3: Get Pre-Approved for a Mortgage Before House Hunting
You may have your own budget for what kind of house you can afford based on your income. However, that’s only part of the story. Mortgage lenders conduct an evaluation of your financial situation including your debt-to-income ratio, your credit history, and more, all of which is used to determine how large of a home loan you’d be able to take on based on their risk tolerance. So essentially, the mortgage lender tells you how much they’ll approve you for, and that’s the budget you should be working with when setting the price range for house hunting.
By getting a mortgage pre-approval before you start looking for houses, you will know how much of a loan you can qualify for, and in turn, which homes are in your price range. Having pre-approval can also cut down the timeline on the home-buying process.
#4: Address Credit or Financial Issues Before Applying for a Mortgage
If your financial situation is standing in the way of you and better loan terms, it may be worth the wait to work on improving your credit before officially starting the home-buying process. Whether you have a lot of payments left on your car, you have several credit cards that you haven’t started paying off, or you need to cut down on your expenses, it all matters when it comes to making yourself look like a reliable borrower.
Even moving your credit score from fair to good could have a notable impact on the interest rate you can get approved for.
#5: Budget for All the Costs of Homeownership
Many first-time homebuyers assume that the biggest cost they’ll need to worry about when buying a home is their mortgage payment. While that’s technically true, there are other expenses that should be on your radar as they can have a fairly large impact on your budget.
In addition to your mortgage, you should be prepared to pay for home improvements or maintenance (landscaping, lighting, paint, roofing, etc.) as well as emergency repairs (plumbing, roof leaks, etc.)—these costs can add up to several thousand dollars per year. If you plan to live in a community with an HOA, you should be ready to set aside a few hundred dollars per month for HOA fees too.
With these tips in mind, you’ll be better prepared to set yourself up for success when buying your first home. Good luck and happy house hunting!