Buying your first home is a thrill. Browsing homes online, daydreaming when driving through neighborhoods, and creating a Pinterest board to save remodeling ideas is great fun. But don't let the excitement of buying your first home cause you to make silly mistakes.
Here are the most common and avoidable missteps for first-time homebuyers.
1. Falling in love with a home before applying for a home loan
Many first-time buyers start by looking for a home before applying for a mortgage. What happens if you actually find a home you want to buy? Without pre-approval, you have no way to make an offer on your dream home. Instead, start by applying for a home loan. That way you'll know how much you can afford as well as have a letter of approval showing that you are a qualified buyer.
2. Going over on your budget
A little bit here and there may not cause too much harm. But going over your homebuying budget can eventually cost you your home if you're unable to make payments. In other words, just because you were approved for a $300k home loan may not mean that you can afford the monthly payment.
Instead, consider the required monthly payment as well as how much you qualify for. Make sure that you can comfortably make the monthly mortgage payment and avoid the temptation of buying more than you can afford.
3. Rushing to move
Buying a home in 2019 is much faster than it was two years ago thanks to digital convenience, but the actual process of moving still takes time. Rushing to move could cause cost you --and the last thing you want to do is charge up your credit card or tap into your savings to cover a rushed relocation.
Instead, plan well ahead of time to save up for your downpayment, extra for buying appliances and furniture, packing supplies, a moving company or truck rental, and other "surprise" expenses for moving.
4. Being casual with credit use
One of the first things we do when you apply for a home loan is pull your credit. However, many first time homebuyers don't realize that it'll get pulled out again just before closing to make sure that nothing has changed. If significant changes are found, then your approval status could also change!
Instead, attempt to keep your credit the same or, if possible, improve it. Try to keep existing balances down to about 30 percent of the credit limit and make your payments on time. You also want to avoid opening new credit cards and keep your credit rotating on the ones you currently have.
5. Falsey believe a 20 percent down payment is necessary
You don't NEED a 20 percent down payment to buy a home. You can buy a home with 0-3 percent down. The advantage of having a 20 percent down payment is that you can avoid the cost of private mortgage insurance (a requirement if you put less than 20 percent). However, many home loan programs allow for little down, so there is no need to spend years saving for a large downpayment.
Instead, consider an FHA loan. It requires only 3.5 percent down or sometimes even zero down. If you're a veteran or qualify for a USDA loan, there are even more perks! VA loans are for active-duty and veteran military service members as well as for their spouses. They don’t require a down payment, but a funding fee is sometimes necessary. USDA loans are meant for moderate- to low-income borrowers that want to buy homes in rural areas. There are specific eligibility requirements and some qualify for zero down.
Are you a first time home buyer? We can help! Call us today for personalized guidance in matching you with the right loan. You can even get started right now by applying online!