Deciding to purchase a new house is among the biggest and most important financial decisions a person could ever make in the entire life. As a matter of fact, a lot of people might not experience this life-changing decision in their entire life. There is a lot of emotional attachments to this decision that to a certain extent, lead to bad deals. It is crucial to set aside emotions to avoid making extremely bad deals as first time home buyer.
As a neophyte in the real estate market, the first thing you must need to know are the worst mistakes typical first-time home buyers commit that hamper their chances of finding affordable home deals. Amy Fontinelle of Investopedia compiled a list of these mistakes first-timers make.
10 Worst Mistakes First-Time Homebuyers Make
Are you gearing up to buy your first place? Shopping for a home is exciting, exhausting, and a little bit scary. Your aim is to end up with a home you love at a price you can afford, but unfortunately, many people do things that prevent them from achieving that dream.
Arm yourself with our smart strategies and tips to get the most out of your purchase and avoid making the following 10 costly mistakes, which could put a hold on that sold sign.
1. Not Knowing What You Can Afford
As we’ve all learned from the subprime mortgage mess, what the bank says you can afford and what you know you can afford (or are comfortable with paying) are not necessarily the same. If you don’t already have a budget, make a list of all your monthly expenses (excluding rent), including vehicle costs, student loan payments, credit card payments, groceries, health insurance, retirement savings, and so on.
Don’t forget major expenses that only occur once a year, such as any insurance premiums you pay annually or annual vacations. Subtract this total from your take-home pay and you’ll know how much you can spend on your new home each month. When calculating this figure, use a mortgage calculator to research current interest rates. This will give you an estimate of what your total mortgage payments will be.
2. Skipping Mortgage Qualification
What you think you can afford and what the bank is willing to lend you may not match up, especially if you have poor credit or unstable income, so make sure to be pre-approved for a loan before placing an offer on a home. If you don’t, you’ll be wasting the seller’s time, the seller’s agent’s time, and your agent’s time if you sign a contract and then discover later that the bank won’t lend you what you need—or that it’s only willing to give you terms you find unacceptable.
3. Not Considering Other Expenses
Once you’re a homeowner, you’ll have additional expenses on top of your monthly payment. Unlike the days when you were a renter, you’ll be responsible for paying property taxes, insuring your home against disasters, and making any repairs the house needs (which will occasionally include expensive items like a new roof or a new furnace).
This is where a lot of first-time home buyers failed, and that is to plan and work on a budget. Basically, they don’t know exactly what they can afford. Being exposed to the real estate market for the first time, it is understandable that they would not know right away the needed cost. That’s why they are encouraged to work on a budget and stick to it all the time. Also take into consideration the additional costs incurred in buying a property such as the taxes, insurance and more. First-timers should as well factor in these costs to the overall budget.
While mistakes somewhat become common for first-timers, there are several proven ways to completely avoid these newbie pitfalls. Holden Lewis published these very effective tips in his article at Nerdwallet.
12 First-Time Home Buyer Mistakes and How to Avoid Them
First-time home buyers are prone to missteps, such as getting just one rate quote. Here are some common errors and how to steer clear of them.
Every year, first-time home buyers venture into the market and make the same mistakes that their parents, siblings and friends made when they bought their first houses.
1. Not figuring out how much house you can afford
Without knowing how much house you can afford, you might waste time. You could end up looking at houses that you can’t afford yet, or visiting homes that are below your optimal price level.
For many first-time buyers, the goal is to buy a house and get a loan with a comfortable monthly payment that won’t keep them up at night. Sometimes it’s a good idea to aim low.
How to avoid this mistake: Use a mortgage affordability calculator to help you know what price range is affordable, what’s a stretch and what’s aggressive.
2. Getting just one rate quote
Shopping for a mortgage is like shopping for a car or any other expensive item: It pays to compare offers. Mortgage interest rates vary from lender to lender, and so do fees such as closing costs and discount points.
But according to the Consumer Financial Protection Bureau, almost half of borrowers don’t shop for a loan.
3. Not checking credit reports and correcting errors
Mortgage lenders will scrutinize your credit reports when deciding whether to approve a loan and at what interest rate. If your credit report contains errors, you might get quoted an interest rate that’s higher than you deserve. That’s why it pays to make sure your credit report is accurate.
How to avoid this mistake: You may request a free credit report each year from each of the three main credit bureaus. You may dispute any errors you find.
4. Making a down payment that’s too small
You don’t have to make a 20% down payment to buy a home. Some loan programs (see item No. 5) enable you to buy a home with zero down or 3.5% down. Sometimes that’s a good idea, but homeowners occasionally have regrets. See full post here…
As mentioned, first-time home buyers mistakes aren’t inevitable. They can actually be avoided if they carefully follow these tips and do their homework before deciding to buy a house. The problem of not figuring out how much you can afford can be completely avoided by setting up a budget and sticking into it. Fixing bad credit is also very helpful when you plan on buying a house thru mortgage loans. The most important thing here is to do your research depending on how you’re going to purchase your very first property.
Once you have completely known the most common first-time home buyer’s mistakes and how to avoid them, you are ripe for the real purchase. The Lender Network published an article about tips in buying a house for first-time home buyers. Check them out below to learn more.
9 Tips to Buying a House for the First Time
So you’re ready to buy your first home. But where do you start? As a first-time homebuyer the entire home buying process seems like a daunting task. But, it doesn’t have to be. In this article we’re going to walk you through the home buying process from start to finish and give you some tips to help the process run smoothly..
1. Know Your Credit Score
One of the biggest factors in qualifying for a loan is your credit score. If you have good credit then you’ll get approved and have the most favorable terms. However, if your credit score is low you will have a hard time getting approved and if you do, your interest rate will be high. You can check your credit score for free on sites like Credit Karma and Credit Sesame. Review your report to see if there is any room for improvement. If you have open credit cards make sure you pay the balances down below 15% of the credit limit to maximize your credit score. Checkout our article on how to improve your credit score in 30 days for more information on raising your scores.
2. Get Pre-Approved for a Mortgage
First things first, you need to get a pre-approval letter before you start your home search. Getting pre-approved for a mortgage is a fairly simple and straight forward process. You need to contact a lender, this can even be completely done by phone. A loan officer will pull your credit report to make sure you meet their minimum credit requirements. You will also need to have w2’s, tax returns, paycheck stubs and bank statements to verify your income and ability to afford the loan. A pre-qualification letter is NOT the same thing as a pre-approval. Pre-qualified just means you spoke to lender who pulled credit but did not verify your work history, income, or bank statements. Most homeowners will not accept an offer with a pre-qualification letter. Usually you can get a pre-approval letter within an hour. The letter will show the maximum loan amount you qualify for so you know how much you qualify for.
3. Know Your Budget
There are many costs associated with getting a mortgage besides the loan payment. There’s property taxes, mortgage insurance, homeowners insurance, HOA fees. You need to make sure you can all the costs. Most mortgages include the property taxes, mortgage and homeowners insurance in escrow that is added to your monthly payment. Learn more here…
First-time home buyers need to familiarize themselves as to how the real estate market works, what are the things they need to know, understand and learn in order for them to only find the best home deals. They don’t need to be aggressive but instill some high level of discipline instead.
However, if none of these makes sense to you, or your current circumstances won’t allow for thorough research and learning about the real estate market, Dependable Homebuyers can help you find the best home deals tailored to you as of first time home buyers. They have expert agents in Baltimore, Nashville, San Antonio, and Washington D.C. Choose your location now and let them help you. For more information, visit https://www.dependablehomebuyers.com/tennessee/nashville/ and we look forward to hearing from you.