A high percentage of first-time homebuyers say that this was the most stressful and daunting event in their lives. Unfortunately, there is some truth to that. If you step into this process unprepared, you will likely face some problems. However, with a little bit of knowledge and research, you can make home-buying as smooth as possible, even if you’re buying a house for the first time. Besides learning what you should do during this process, you also have to know what you shouldn’t do. With this being said, we curated the list of the most common first-time homebuyer mistakes and explained how to avoid them. So, shall we?
Starting house-hunt before applying and getting preapproved for a mortgage
Since buying your first home is an exciting time, many people start looking for their dream home before applying for a mortgage. There are two massive downfalls regarding this:
- Sellers won’t take your offer seriously if you don’t have a mortgage preapproval. This is something that tells them you’re not a serious buyer and that you can flake at any time. Since the market is overflowing with demands, sellers won’t take a risk with buyers who don’t even know if they can get a mortgage. Instead, they will focus on the ones that are already preapproved and prequalified.
- You might fall in love with a house you can’t afford. This is a common mistake with first-time home buyers. If you start looking for houses before knowing what your budget is, you’ll probably end up spending more money than you have. That’s a debt you don’t want on your shoulders.
Solution: Before you start browsing for properties, make sure you have a fully underwritten preapproval. Being preapproved signals that you’re a serious buyer whose credit and finances meet the criteria for obtaining a loan. With this information in mind, you won’t be disappointed with not being able to afford the dream home you saw. Instead, you’ll have a clear picture of what you can afford, so you’ll know where to look. For example, California is full of places buyers love, and with your mortgage being preapproved, you’ll know exactly which city and area you can move to.
Going with the first lender
One of the most common first-time homebuyer mistakes is choosing to get a loan from the first lender they meet. If you don’t compare the offers from different lenders, you may end up unnecessarily spending thousands over your budget. So, the more lenders you meet, the clearer picture you’ll have about the best deal you can get.
Solution: We suggest that you meet with at least three different lenders and mortgage brokers before making any decision. Rates often fluctuate, so try to acquire all of your quotations on the same day. Compare interest rates, fees charged by lenders, and loan terms. Customer service and lender response are other important factors in ensuring a successful mortgage approval process. Without these key pieces of information, you can’t make an educated decision!
Not being careful with your credit
Every mortgage lender will pull your credit record during preapproval and again right before closing to ensure everything is in perfect order. It’s crucial for them to see that your financial profile is the same at the beginning and the end of the process.
How does this affect first-time homebuyers? Any additional loans or credit card accounts on your record might endanger the loan’s official approval and closure. Unfortunately, first-time homebuyers usually learn this the hard way.
Solution: From preapproval to closure, maintain the status quo in your finances. During this time, don’t open new credit cards to your name, close existing accounts, apply for new loans, or make significant purchases. If you can, reduce your existing credit card balances to less than 30% of your available credit limit. Additionally, make sure not to be late with your monthly payments.
Overlooking home inspection
Being overwhelmed with excitement and happiness for finding their dream home, buyers often don’t see any flaws. That’s why overlooking inspection is another one of the common first-time homebuyer mistakes. Every home on the market is staged, most of them even professionally, so it’s common not to see any flaws at first glance. That’s why calling for a house inspection is necessary.
Solution: If you’re buying a home, we suggest hiring your own home inspection company. When an inspector finds a problem (that you probably can’t see), they can help you negotiate with the present owners to have the issues rectified or modify the price if the property requires major repairs.
This is something you should do even when you’re moving out of your old home, especially if you were a tenant. It’s always a good idea to check everything after leaving your rental, so you avoid any potential problems with your landlord. With a qualified apartment move-out inspection, you can prove that you didn’t cause any damage to the property or simply point out to your landlord what needs to be fixed for new tenants.
Miscalculating the necessary downpayment
One of the most common misconceptions about downpayments is that you need to put down at least 20%. While this sum helps you avoid mortgage insurance, it’s not necessary. In fact, many homebuyers can’t afford (or don’t want to) put down that amount of money. Nowadays, the median downpayment for first-time homebuyers on a property is 6%. So, you don’t need to save as much money as you thought and break the bank when buying a house.
Solution: If you do need to put down more than 6%, consider different loan options. For a traditional mortgage with PMI, you may put as little as 3% down, while FHA loans only demand 3.5% if your credit score is at least 580. There are even certain loans that don’t require a downpayment. Additionally, check with your local or state housing programs to determine whether you qualify for first-time buyer home aid programs.
Forgetting about the closing costs
The last one of the common first-time homebuyers mistakes is overlooking the closing costs. Buyers are usually so focused on getting their mortgage preapproved and having money for a downpayment that they often forget about the closing costs. This can lead to disastrous consequences.
Solution: When you sign the final mortgage loan paperwork, you must pay these expenses, including attorney fees (if required) and title insurance. Closing costs typically range from 3-5% of the home’s purchase price, so factor this into your budget from the very beginning.
Now that you know both what you should and shouldn’t do, it will be easier to avoid common first-time homebuyer mistakes. Not only will you be able to identify them, but you’ll also know how to avoid them. And remember to always hire a reliable agent to help you in your search. This is a considerable step towards buying your first home trouble-free. So, make sure you follow this guide, and good luck!
This article was generously contributed by Lindsay Denton with MiamiMovingGuide.com, a guide to moving to and from Florida from different states. Also, visit Miami Moving Guide to get great practical information, tips, and advice on making a move, in general.