First-Time Homebuyer Mistakes to Avoid
There are plenty of firsts that represent important milestones in your life. More likely than not, purchasing a home will be one of the earliest of these accomplishments. However, there are important things to know before dabbling in the market.
While you may think you’re ready to tackle the home buying process, there are several steps to take before getting the keys to your new place. It’s easy to get caught up in the excitement surrounding your first home purchase, but certain errors can create costly consequences down the road.
Break the cycle of inadequate home purchasing habits by being an informed consumer, approaching your real estate ambitions with educated decisions, and avoiding these common first-time homebuyer mistakes.
You Haven’t Done Your Research
As the saying goes, knowledge is power. If you’re reading this article, you’ve already taken the first step to positioning yourself for success.
Each year, first-time home buyers slip up and get caught in a cycle of mistakes that have been passed down from generation to generation. Taking advice from your baby boomer parents versus doing your own research can be disastrous considering how much home buying has changed over time.
There are many crucial decisions that need to be made when buying a house. First, you should know exactly how much house you can afford. Research the housing market in your area and compare it to the average monthly payments you expect to pay. Visit plenty of open houses to see just how much house you’re getting for the price.
If you vastly overestimate how much you can afford, don’t fret. Meet with a financial counselor to get your affairs in order. When it comes to saving your home, refinancing your mortgage or participating in government relief programs are two feasible ways to lower your monthly expenses and keep you in your home.
You Haven’t Checked Your Credit Score
Getting a credit report is vital to purchasing a home and getting approved for a mortgage. A credit report contains personal information (your name, address and employer), credit history, any debt you have accumulated, public records like lawsuit judgments filed against you, car/home repossessions or whether you’ve filed for bankruptcy.
This report then assesses your creditworthiness with an actual score. Your credit score is a 3-digit number ranging from 300-850. If you’re concerned that you have a low credit score, there are several strategies you can use to raise it. Pay off any outstanding debt to reduce your overall debt responsibilities. Make sure you are paying your bills on time as well. Finally, don’t apply for too much credit as too many hard inquiries negatively affect your score.
Your credit score is key to buying your first home as it determines of what type of loan you can qualify for. Be sure to have a credit report completed before contacting a mortgage lender or meeting with a realtor.
Ignoring First-Time Buyer Programs
There are a bunch of first-time homebuyer programs out there that can help homeownership feel much less daunting. To know which programs are right for you, figure out which ones you qualify for.
The Department of Housing and Urban Development (HUD) gives first-time homebuyers several means of saving on their loans. The Good Neighbor Next Door initiative aids teachers, police officers, firefighters and EMTs with assistance to make homeownership more affordable.
HUD homes are another option to think about. These foreclosure homes are made available through auction at a discounted rate. Keep in mind though, these homes are sold “as-is.” If you’ve always dreamed of a fixer-upper, this may be the way to go!
There are also different types of loans to consider during the buying process. A Federal Housing Association (FHA) loan is insured and administered by a lender that is FHA approved. You may qualify for this loan if you have a lower credit score. This loan also has a lower minimum down payment than other types of loans.
The Department of Veteran Affairs also offers a home loan program for qualified veterans, service members, and their spouses. This loan option does not require a down payment or mortgage insurance and buyers can have a lower credit score or more debt compared to conventional loans.
Emptying Savings Before the Sale is Final
Charging expenses like new furniture, appliances, or other relatively unnecessary purchases on your credit card should be prevented until the sale of your home is approved. Increasing your debt while your credit is being monitored will not help when you’re trying to get approved for a mortgage.
There are also plenty of associated costs that follow homeownership on top of your monthly mortgage payment. Don’t forget to include your neighborhood’s property taxes, utility bills and the cost of home insurance into your new budget.