The process of buying a home can be pretty overwhelming; after all, it’s a real estate decision that will have a major, long-term effect on your family’s life, as well as on your finances. The mortgage process alone presents countless critical decisions, and the need to juggle innumerable documents and deadlines.
As such, it’s not surprising that even experienced homebuyers can make honest mistakes. And for first timers, that risk is even higher. In this article, we’ll highlight some of the most common mistakes that homebuyers make during the home loans process, along with some tips on avoiding those mistakes.
What are the Biggest First-Time Homebuying Mistakes?
1) Looking for a home before applying for a mortgage.
One of the biggest mistakes of all is beginning your house hunting process before applying for a mortgage. There are a couple of reasons why this can backfire. One, until you apply for a mortgage, you don’t necessarily know how much home you can actually afford; you may fall head-over-heels in love with a property that’s simply beyond your budget. And two, if you get pre-approved for a mortgage before you start house hunting, it allows you to close on the home much more expediently.
2) Talking to just one lender.
A common misconception among homebuyers is that loan rates are the same across the board, and thus it doesn’t really matter which lender you go with. This actually isn’t true at all: Different lenders will offer different home loan products, some of which will be more affordable than others, and if you only talk to one lender then you may wind up leaving thousands of dollars on the table. Generally, it’s good to compare mortgage products from at least three different lenders before making a final decision.
3) Buying more home than you can afford.
We’ll reiterate just how dangerous it can be to fall in love with a home that’s simply outside of what you can afford; if you overextend yourself, it can really have a disastrous long-term financial effect. Remember that, if you wind up paying too much money on your monthly mortgage payment, it may leave you with little left over for utilities, bills, and other monthly expenses. Overextending yourself may make you house-poor, so again, be sure you check on mortgage rates and start talking with specific lenders before you move forward. (Getting pre-approved can be an especially good way to determine how much house you can afford.)
4) Depleting your savings account.
It’s a good idea to save money so that you can eventually make a down payment on a house; and while different mortgage products require different down payment amounts, the rule of thumb is to deposit at least 20 percent of the home’s total cost. However, also be sure you’re not completely wiping out your savings in order to make that down payment. It’s generally wise to leave at least a few thousand dollars in the bank to cover emergency expenses, such as medical emergencies or unforeseen home repairs.
5) Focusing on the house, but not the community.
It’s obviously important to thoroughly inspect a property before you buy it, and make sure it’s the right fit for your family’s needs. However, remember that the house itself isn’t the only important aspect of your real estate decision. It’s also crucial to take into account the quality of the neighborhood, the safety of the surrounding community, the local school system, and your proximity to work. The house itself matters, but it’s not the only thing that should impact your decision.
6) Not knowing about all the different home loans.
Think all home loans are created equal? Think again. Veterans have access to VA loans, and there are also federally backed FHA loans. These loans may offer you the opportunity you need to secure a home with a smaller down payment, or to be approved in spite of a lower credit score. Definitely don’t overlook the merits of a VA home loan or an FHA home loan.
7) Neglecting the hidden costs of owning a home.
While homeownership can be intensely rewarding, personally as well as financially, it’s important to recognize that it comes with some costs. For example, you’ll owe local property taxes. You’ll need to make monthly homeowners insurance payments. There are utilities, home repairs, and more. These little costs can add up, and it’s important to factor that into your budget before moving forward with a real estate offer.
8) Not negotiating.
Some first-time homebuyers assume that the asking price for a home is more or less set in stone. Sometimes, in sellers’ markets, this may be true. In fact, it may sometimes be necessary to make an offer over list price in order to secure the home you want. More often than not, however, there is room to negotiate on the price with the seller. Your real estate agent can provide guidance as to what sort of offer you should make.
9) Making decisions based purely on emotion.
It’s okay to feel really excited about buying a house; indeed, this is a place where you and your family will surely make many sweet memories, so it’s pretty normal to let emotion enter the equation. With that said, it’s also important to remember that buying a house is one of the most significant financial decisions you’ll ever make in your life. Don’t let emotion crowd out important, pragmatic calculations.
10) Failing to take care of your credit.
One final mistake that’s pretty common to first-time buyers is being sloppy with credit. Just remember that, during your mortgage underwriting process, your lender may pull your credit report multiple times, and what they really want to see is normalcy. As you apply for a loan, that’s a really bad time to open a new credit card or make any massive purchases on your current credit card. Doing so may adversely impact your ability to secure an affordable mortgage loan.
More questions about the home loans process? Contact LoanFleet at any time.
And if you’re looking for a lender, reach out to us and we’ll be happy to refer you to someone you can trust.