For those who are in the process of looking for your first home, congrats! This is an exciting time, as this is one of the biggest (if not THE biggest) purchases you’ll make in your lifetime. If you’ve been asking your friends and family for advice, chances are they’ve had plenty to give you. It’s rare that the first time home buying process goes 100% smoothly, and most will say they wish someone told them about those hiccups sooner. In this article, we’ll take a dive into common mistakes a first time homebuyer can make, and how you can avoid them to create a smoother home buying experience.
Common Mistake #1: Overestimating your budget.
When you find a place you like, it can be easy to shoot for the stars. We’re often tempted to spend more than we can afford in hopes of making up for it later. Before you start house hunting, really dig into your budget to gain a better understanding of what you can pay each month. Figure out where you can cut down or flex in order to meet that monthly payment. In general, a monthly mortgage payment should be more than 28% of your gross monthly income. And if you add any existing debt into the picture, that percentage should be much lower. All estimates should be based on current income, and not what you anticipate making a few years down the road.
Common Mistake #2: Being unprepared for the mortgage process.
The mortgage process isn’t as black and white as many think. And getting your ducks in a row before applying takes time. Before determining whether or not you can qualify for a mortgage and what the rate will look like, a lender needs to look at your credit score and debt-to-income ratio. Make sure you have all the proper documentation to show to your lender, and look at your credit report to make sure there aren’t any discrepancies or unexpected bad credit. The more prepared you are for the process, the easier it will be to lock a mortgage down.
Common Mistake #3: Failing to understand pre qualification and pre approval.
This is more common than you think, and not at any fault to a first time homebuyer! They do seem similar, but they are in fact two separate processes. When lenders pre qualify or pre approve you, they provide a rough estimate of what they may lend you. Pre-qualification helps provide an idea of what that price range might look like. However, it doesn’t guarantee you’ll receive the loan. The preapproval process takes place when your credit and likelihood of paying on time are evaluated by an underwriter based on the documentation you provide.
Common Mistake #4: Bypassing the home inspection.
Your house might seem intact to you, but chances are a thorough evaluation hasn’t been done in a long time. A home inspection can also be expensive, which is why many homebuyers decide to neglect it. This is a particularly important step if you are buying an existing home (new construction might have a builder’s warranty). Having a better understanding of your repairs also prove helpful in negotiating issues with the current homeowner and adjusting prices accordingly.
Common Mistake #5: Not factoring in closing costs and other additional costs.
Ahh, closing costs. They always seem to creep up at the end, and are often more than most people expect. Keep in mind that these costs usually total around 3-5% of your home’s purchase price. These can be fees for the attorney, title insurance, etc. In addition, don’t forget to factor in other costs that come with being a homeowner. You’ll have costs like property taxes, maintenance, homeowners insurance, and more.
Are you a first time homebuyer who needs some guidance? You’ve come to the right place! Ken Venick has over 30 years of experience in the mortgage loan business and can put you in the right mortgage loan product for your unique needs. Visit our FAQ page to learn more, and contact us today.