Along with the excitement that buying your first home brings comes the apprehension about the decision. Millions of questions come to mind making your decision even harder to make. The best tip that you can get is to get informed. But, do you know what you have to get informed about? If you are thinking of buying your first property ever, take a deep breath and start reading through the most common mistakes first-time homebuyers make so that you can avoid making the same ones.
Starting a House Hunt Without a Financial Plan
Since you are buying your first home, it is understandable that you are very excited about the idea and impatient to find the right one. However, that doesn’t mean that you should start your search completely unprepared. You should at least know what price range to look at. Since the real estate market is quite competitive and demand is almost always higher than supply you should come prepared. That means that you should be pre-approved for a loan before looking at listings. Then you will be more acquainted with your financial prospects and you will know what you can hope to find. By the way, there are so many facts you should know about mortgage before you apply, so do not rush it.
Sticking to One Mortgage Lender Only
A mortgage is also a product that you buy and can find at different prices with different sellers. Do not make a mistake by not comparing the quotes before committing. Choose at least three lenders and compare the estimates that you get. Remember, you are looking for a good deal as well as the lowest rates you can get. You cannot find those if you only consult one bank or lender. The same goes for finding skillful movers who can relocate your home – you need to make a list and then choose one company that suits you best.
Not Paying Attention to Your Credit Reports
Your credit reports are extremely important to a bank or lender that you are considering taking a mortgage from. They will analyze every single detail of it, so you need to make sure that they like what they see. A credit report that contains errors may result in higher interest rates for you, so it is in your best interest to keep it as accurate as possible. The good news is that you can get a free credit report from any of the main credit bureaus at the end of a year so that you can correct any errors that you come across. The lenders need this report at pre-approval and before final loan approval. In the meantime, you shouldn’t be opening new credit cards and you should do your best to pay your bills on time every month.
Thinking That You have to Make a 20% Down Payment
When you start calculating how much money you need for your down payment, you will probably ask yourself whether buying real estate is a good investment at all. Twenty percent of your future property’s worth is a lot of money to prepare before you even start searching for a home. Luckily, there are some loan programs that allow you to make a down payment as low as 3.5% or even 0%. It goes without saying that a bigger down payment means that you can get a smaller mortgage, so you will have more money left in your budget every month.
On the other hand, while you are saving money for your 20% down, the property prices continue to grow along with the mortgage. So, the decision is all yours and you need to make sure that you set a monthly payment that you can actually provide. And, do not forget that you are obliged to pay the mortgage insurance in case your down payment is less than 20%.
Not Considering Special Programs for First-Time Homebuyers
There are some special programs for first-time homebuyers that offer low down payment loans. You should inform yourself whether such programs exist in your state and learn about the following:
- FHA loans – the down payment can be as low as 3.5%. Besides this obvious rebate, the Federal Housing Administration is not so strict about credit reports. But, once you commit to this loan, you will have to pay for mortgage insurance as long as you have the mortgage to pay, which means even after your equity is more than 20%.
- USDA loans – if you are planning to buy a property in a rural area, the chances are that you qualify for zero percent down and 100% financing – a program offered by the U.S. Department of Agriculture. If you opt for this program, you will have to pay the guarantee fee instead of mortgage insurance.
- VA loans – mortgages offered by the US Department of Veterans Affairs to people who have served in the military. These loans allow veterans to put a down payment of zero percent and get 100% financing. A funding fee has to be paid instead of mortgage insurance.
Falling in Love With the Property and Failing to See its Faults
This can be a huge mistake. It often happens that we like the house, but it turns out that its neighborhood is not a place where we would like to raise our children. You should always visit the place at least two or three times, at different times of day and week, before you make a decision to buy. If you notice that there is something the seller is trying to hide, that should be a red flag to look for.
Wasting All Your Savings On Your First Property
This is one of the common mistakes first-time homebuyers often make. They do this to add to the sum for a down payment and lower the monthly payment rate. However, you still need to have an emergency fund (three to six months of living expenses) because there are so many things that can go wrong when you buy a property. It is better to pay for mortgage insurance and still have your emergency fund untouched, just in case.
Not Knowing About the Hidden Costs of Ownership
There are many costs of ownership that first-time homebuyers do not know about. Property taxes, insurance (mortgage, hazard, and homeowners), repairs, maintenance, and utilities are just a few of them.
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