14 First-time Homebuyer Mistakes to Avoid

14 First-time Homebuyer Mistakes to Avoid

First-time home buyer mistakes to avoid

Buying your first home comes with many big decisions, and it is often as scary because it is exciting. It’s easy to urge swept up within the whirlwind of home shopping and make mistakes that would leave you with buyer’s remorse later.

If this is often your first rodeo as a homebuyer — or if it’s been a few years since you last bought a home — knowledge is power. Alongside knowing where the pitfalls are, it’s important to urge tips from knowledgeable sources so you recognize what to expect and what inquiries to ask.

First-time Homebuyer Mistakes

Here are 14 common first-time homebuyer mistakes and the way to avoid them:

Looking for a home before applying for a mortgage.

Talking to just one lender.

Buying more house than you'll afford.

Moving too fast.

Draining your savings.

Being careless with credit.

Fixating on the house over the neighborhood.

Making decisions supported emotion.

Assuming you would like a 20 percent deposit.

Waiting for the ‘unicorn.’

Overlooking FHA, VA, and USDA loans.

Miscalculating the hidden costs of homeownership.

Not lining up gift money.

Not negotiating a home buyer rebate.

1. Trying to find a home before applying for a mortgage

Many first-time buyers start viewing homes before ever getting into the front of a mortgage lender. In many markets immediately, housing inventory remains tight because there’s more buyer demand than affordable homes on the market.

In such a competitive market, you'll lose the property if you aren’t preapproved for a mortgage, says Alfredo Arteaga, a loan officer with Movement Mortgage in Mission Viejo, California. You furthermore may have a sensible picture of your budget.

How this affects you: You would possibly be behind the ball if a home you're keen on hits the market. Furthermore, you may check out homes that you simply can’t afford.

What to try to instead: “Before you fall crazy thereupon gorgeous dream house you’ve been eyeing, make certain to urge an underwritten preapproval,” Arteaga says. Being preapproved sends the message that you’re a significant buyer whose credit and finances pass muster to successfully get a loan.

2. lecture just one lender

First-time buyers often get a mortgage from the primary (and only) lender or bank they ask for, and that’s an enormous mistake. You’re potentially leaving thousands of dollars on the table.

How this affects you: The more you go searching, the higher basis for comparison you’ll need to ensure you’re getting an honest deal and therefore the lowest rates possible.

What to try to do instead: go searching with a minimum of three different lenders, also as a mortgage broker. Compare rates, lender fees, and loan terms. Don’t discount customer service and lender responsiveness; both play key roles in making the mortgage approval process run smoothly, especially now when many lenders are protected with applications. Low interest rates have led to a loan application boom, and a few lenders are more behind on closings than others. Our mortgage rate tables are an excellent place to start comparison shopping.

3. Buying more house than you'll afford

It’s easy to fall crazy with homes that may stretch your budget, but overextending yourself isn't an honest idea. With home prices trending upward, it’s especially important to stay on the brink of your budget.

How this affects you: Buying more homes than you'll afford can put you at higher risk of foreclosure if you fall on tough financial times. You’ll even have less room in your monthly allow other bills and expenses.

What to try to do instead: specialize in what monthly payment you'll afford instead of fixating on the utmost loan amount you qualify for. Simply because you'll qualify for a $300,000 loan doesn’t mean you'll afford the monthly payments that accompany it added to your other financial obligations. Every borrower’s case is different, so think about your whole financial profile when determining what proportion of house you'll afford. Likewise, it’s important to be completely honest together with your lender or mortgage broker about your finances. At the top of the day, you’ll be the one repaying your loan, and you don’t want to struggle with a bill you can’t afford.

4. Moving too fast

Buying a home is often complex, particularly once you get into the weeds of the mortgage process. Rushing the method can cost you afterward, says Nick Bush, a Realtor with Keller Williams Realty in Rockville, Maryland.

“The biggest mistake that I see is to not plan far enough ahead for his or her purchase,” Bush says.

How this affects you: Rushing the method means you would possibly be unable to save lots of enough for a deposit and shutting costs. Speeding toward closing also can keep you from addressing items on your credit report that prevent you from securing more favorable loan terms.

What to try to do instead: Map your homebuying timeline a minimum of a year beforehand. The truth is, it can take months — even years — to repair poor credit and save enough for a large deposit. on average, most buyers can only save about $5,000 per annum toward buying a home. Work on boosting your credit score, paying down debt, and saving extra money to place you in a stronger position to urge preapproved.

5. Draining your savings

Spending all or most of your savings on the deposit and shutting costs is one of the most important first-time homebuyer mistakes, says Ed Conarchy, a mortgage planner and investment advisor at Cherry Creek Mortgage in Gurnee, Illinois.

“Some people scrape all their money together to form the 20 percent deposit so that they don’t need to buy mortgage insurance, but they're picking the incorrect poison because they're left with no savings in the least,” Conarchy says.

How this affects you: Homebuyers who put 20 percent or more down don’t need to buy mortgage insurance when getting a standard mortgage. That sometimes translates into substantial savings on the monthly mortgage payment, but it’s not well worth the risk of living on the sting, Conarchy says.

What to try to do instead: Aim to possess three to 6 months of living expenses in an emergency fund, even after you shut. Paying mortgage insurance isn’t ideal, but depleting your emergency or retirement savings to form an outsized deposit may be a risk best avoided.

6. Being careless with credit

Lenders pull credit reports at pre-approval to form sure things inspect and again just before closing. They need to form sure nothing has changed in your financial profile.

How this affects you: Any new loans or MasterCard accounts on your credit report can jeopardize the closing and final authorization. Buyers, especially first-timers, often learn this lesson the hard way.

What to try to do instead: Keep the established order in your finances from pre-approval to closing. Don’t open new credit cards, close existing accounts, remove new loans, or make large purchases on existing credit accounts within the months leading up to applying for a mortgage through closing day. Pay down your existing balances to below 30 percent of your available credit limit, and pay your bills on time and fully monthly.

7. Fixating on the house over the neighborhood

Sure, you would like a home that checks off the things on your list and meets your needs. Being nitpicky a few home’s cosmetics, however, are often short-sighted if you finish up during a neighborhood you hate, says Alison Bernstein, president and founding father of Suburban Jungle, a true estate strategy firm.

“Selecting the proper town is critical to your life and family development,” Bernstein says. “The goal is to seek out you and your brood an area where the culture and values of the (area) match yours. you'll always trade up or down for a replacement home, add a 3rd bathroom or renovate a basement.”

How this affects you: You'll finish up loving your home but hating your neighborhood.

What to try to do instead: Ask your land agent to assist you to hunt neighborhood safety stats and faculty ratings. Measure your commute time and take things like proximity to the transportation system and walkability under consideration. Visit the neighborhood at different times to urge a way of traffic, neighbor interactions, and therefore the overall vibe to ascertain if it’s a neighborhood that appeals to you.

8. Making decisions supported emotion

Buying a home is a serious life milestone. It’s an area where you’ll make memories, create an area that’s truly yours and put down roots. It’s easy to urge too attached and make emotional decisions, so remember that you’re also making one among the most important investments of your life, says Ralph DiBugnara, president of Home Qualified in NY City.

“With this being a robust seller’s market, tons of first-time buyers are bidding over what they're comfortable with because it's taking them longer than usual to seek out homes,” DiBugnara says.

How this affects you: Emotional decisions could lead to overpaying for a home and stretching yourself beyond your budget. 

What to try to do instead: “Have a budget and stick with it,” DiBugnara says. “Don’t become emotionally attached to a home that's not yours.”

9. Assuming you would like a 20 percent deposit 

The long-held belief that you simply must put a 20 percent deposit is (often) a myth. While a 20 percent deposit does assist you to avoid paying private mortgage insurance, many buyers today don’t want (or can’t) put down that much money. The median deposit on a house is 12 percent, consistent with the National Association of Realtors, and 6 percent for first-time buyers. Some communities, like co-ops, condos, and HOAs should require larger down payments, so confirm you ask your land agent about specific community requirements and budget accordingly.

How this affects you: Delaying your home purchase to save lots of up 20 percent could take years and will constrain you from hitting other financial goals like maximizing your retirement savings, adding to your emergency fund, or paying down high-interest debt.

What to try to do instead: Consider other mortgage options. You'll put as little as 3 percent down for a standard mortgage (note: you’ll need to pay private mortgage insurance). Some government-insured loans require 3.5 percent down, though in some cases you'll even be ready to secure a mortgage with no deposit in the least. Plus, ask your local or state housing programs to ascertain if you qualify for housing assistance programs designed for first-time buyers.

10. expecting the ‘unicorn’

Unicorns are mythical creatures both in nature and in the land. Trying to find the house that checks all of your boxes perfectly can narrow your choices an excessive amount and might lead you to skip good, suitable options within the hopes that something better will come along. Don’t let pie within the sky thinking sabotage your search, says James D’Astice, a true realtor with Compass in Chicago.

How this affects you: Trying to find perfection might limit your land search or cause you to overpay for a home. It also can lengthen your home search. 

What to try to do instead: Keep an open mind about what’s on the market and be willing to place in some equity, DiBugnara says. Some loan programs allow you to roll the value of repairs into your mortgage, too.

11. Overlooking FHA, VA, and USDA loans

First-time buyers could be cash-strapped during this environment of rising home prices, and if you've got little saved for a deposit or your credit isn’t stellar, you would possibly have a tough time qualifying for a standard loan.

How this affects you: You would possibly assume you've got no financing options and delay your home search.

What to try to do instead: Check out one among the three government-insured loan programs backed by the Federal Housing Administration (FHA loans), U.S. Department of Veterans Affairs (VA loans), and U.S Department of Agriculture (USDA loans). Here’s a quick overview of each:

FHA loans require just 3.5 percent down with a minimum 580 credit score. FHA loans can fill the gap for borrowers who don’t have top-notch credit or little money stored-up. the main drawback to those loans, though, is mandatory mortgage insurance, paid both annually and upfront at closing.

VA loans are backed by the VA for eligible active-duty and veteran military service members and their spouses. These loans don’t require a deposit, but some borrowers may pay a funding fee. VA loans are offered through private lenders and are available with a cap on lender fees to stay borrowing costs affordable.

USDA loans help moderate- to low-income borrowers buy homes in rural areas. you want to purchase a range in a USDA-eligible area and meet certain income limits to qualify. Some USDA loans don't require a deposit for eligible borrowers with low incomes.

12. Miscalculating the hidden costs of homeownership

If you had sticker shock from seeing your new monthly principal and interest payment, wait until you add up the opposite costs of owning a home. As a replacement homeowner, there are many other potential expenses to allow, like property taxes, mortgage insurance, homeowners insurance, insurance, repairs, maintenance and utilities, and more.

How this affects you: A Bankrate survey found that the typical homeowner pays $2,000 annually on maintenance. Not having enough cushion in your monthly budget — or a healthy period fund — can quickly put you in the red if you’re not prepared. 

What to try to do instead: Your agent or lender can assist you crunch numbers on taxes, mortgage insurance, and utility bills. go searching for coverage to match quotes. Finally, aim to line aside a minimum of 1 percent to three percent of the home’s price annually for repairs and maintenance expenses.

13. Not lining up gift money

Many loan programs allow you to use a present from a family, friend, employer, or charity toward your deposit. Not checking out who will provide this money and when, though, can throw a wrench into an authorization.

What to try to do instead: Have a frank discussion with anyone who offers money as a present toward your deposit about what proportion they're offering and when you’ll receive the cash. Make a replica of the check or electronic transfer showing how and when the cash traded hands from the gift donor to you. Lenders will verify this through bank statements and a signed gift letter.

14. Not negotiating a homebuyer rebate

The concept of homebuyer debates referred to as commission rebates is an obscure one to most first-time buyers. This is often a rebate of up to 1 percent of the home’s sales price, and it comes out of the customer agent’s commission, says Ben Mizer, founder, and CEO of Clever land-based in St. Louis.

How this affects you: Homebuyer rebates are available in most U.S. states, but not all. Ten states prohibit homebuyer rebates: Alaska, Alabama, Iowa, Kansas, Louisiana, Mississippi, Missouri, Oklahoma, Oregon, and Tennessee.

What to try to do instead: If you reside during a state that permits homebuyer rebates, see if your agent is willing to supply this rebate at closing. On a $300,000 home purchase, this will be a $3,000 savings for you, so it’s worth asking.

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