Purchasing your first home is something you’re going to remember for the rest of your life. It’s an extremely exciting time, but without the proper education and preparation, it can also be uncertain and frightening. At H.E.R.E. Enterprises, we want you to go into purchasing your first home with everything you need to be successful and confident in your purchase. The following points are the biggest mistakes we’ve seen first-time home buyers make and tips on how to avoid them.
Mistake #1: Shopping for houses before shopping for a mortgage loan.
Advice: In extremely competitive markets like San Diego, home buyers are likely to lose the property they fell in love with because they failed to get pre-approved for a mortgage loan. Our advice is to meet with mortgage lenders prior to starting your search for the perfect home for a couple reasons: 1) When a home you love hits the market, you’ll be ahead of the game and 2) When you meet with a mortgage lender, you’ll learn your realistic budget and this could save you the disappointment of falling in love with a home outside of your price range.
Mistake #2: Not checking your credit score prior to applying for a loan.
Advice: One of the main criteria for getting approved for a mortgage loan is your credit score. Prior to applying, check your credit score thoroughly for errors. If you find anything you might think is incorrect, you may be able to dispute it.
Mistake #3: Taking the first mortgage loan you’re approved for.
Advice: When buying a car or any other expensive purchase, you shop around for the best deal, so why not do the same when looking for a mortgage loan? “A typical borrower could save $430 in interest just in the first year by comparing five lenders,” according to NerdWallet.
Mistake #4: Fixating on the maximum loan amount you’ve been approved for.
Advice: With home prices on the rise, it’s easy to use the maximum loan amount you’ve been approved for, however this puts you at higher risk of losing your newly purchased home if you fall on hard financial times. Instead, take a minute to write out a budget and find out exactly what you can afford without draining your savings account.
Mistake #5: Skipping first-time buyer programs.
Advice: Saving up for your first down payment can be a daunting task, but there are many first-time home buyer programs that you may be missing out on. “Ask a mortgage lender about your first-time home buyer options and look for programs in your state,” advises NerdWallet. You don’t need to put 20% down to purchase a home, as is commonly believed. Many programs allow you to put as little as 3% or even no payment down. It’s all about finding what works best with you and your budget.
Mistake #6: Not accounting for all costs of home ownership.
Advice: Purchasing a home isn’t just putting down a down payment and paying your monthly mortgage. There will be new costs associated with purchasing your home like property taxes, homeowners insurance, hazard insurance and possible HOA fees, just to name a few. Unlike when renting, if something needs repaired, you will be responsible for it instead of your landlord. Keep all of this in mind when deciding how much you can afford and ask your lender to help you crunch the numbers and keep a contingency or emergency fund for any unforeseen issues that may arise.
Mistake #7: Applying for credit before closing the deal.
Advice: Mortgage lenders base their decision to lend to you on your debt-to-income ratio. So opening new lines of credit before the keys are in your hand may be detrimental to closing the deal because it may increase your debt-to-income ratio and therefore lower your credit score. You may need to take out new lines of credit to furnish your new home, but wait until the sale is final to do so.