5 Common Home Buyer Mistakes to Avoid for Beginners

5 Common Home Buyer Mistakes to Avoid for Beginners
June 29. 2020

Did you know that 5.34 million homes sold in the United States in 2019? If you’re a first-time homebuyer, chances are that you aren’t very familiar with the entire home buying process. That’s why there’s a lot of home buyer mistakes that first-time buyers often make.

However, with a little bit of information, you can avoid these first time home buyer mistakes. That’s why today, we’ve created this complete guide to help you avoid these mistakes so that your first home purchase can be a complete success.

Keep reading to learn more!

1. Guessing on Your Budget

The most common mistake that first time home buyers often make is not figuring out how much of a home they can afford. The first step you need to make when starting your home shopping adventure is to decide exactly how much you can afford for a mortgage.

If you don’t figure out what your budget is, this could result in you wasting a lot of time looking at houses that you can’t afford. It helps if you aim at being able to afford your monthly mortgage payment comfortably. It isn’t a bad idea to get a free consultation without getting your credit pulled and get an analysis based on your current expenses.

You can avoid this coming mistake by using an affordability calculator. Enter your current monthly payment obligations and what you believe you could comfortably afford and what may be stretching your budget too far for housing. This will give you an idea of what you can afford for a mortgage payment but you can get a free consultation as well.

2. Not Shopping Around for Rates

When you go shopping around for a car, the chances are that you go looking at several different car dealerships to find a relatively affordable vehicle. Shopping around for a mortgage loan shouldn’t be any different. A mortgage broker has many options for you as they shop for the best rate on your behalf. The big banks have only the option under their portfolio while a broker has many options from top wholesale lenders nationwide, they do the hard work you.

Most first-time homebuyers don’t know that mortgage rates will vary from different lenders. Plus, no rate is the same for all, the current interest rate advertised in the market still depends on the three C’s of underwriting. Credit – your credit score, Capacity – your debt to income ratios, and Collateral – loan to value of subject property. Other fees such as discount points in closing costs will also vary.

Credit report being pulled. The Consumer Financial Protection Bureau reports that mortgage applications that are within 45 days within each other only count towards one credit inquiry. Don’t be afraid to shop around with different mortgage lenders so that you can find the most affordable rates for your loan. Working with a lender that can guide you from the beginning to the end seems the best approach, people lie, numbers don’t. Transparency is key so always check for reviews on lenders and eliminate the need of pulling your credit score multiple times by working with a reputable lender, making it a one-stop-shop.

3. Not Spending Time Looking Into Special First-Time Homebuyer Programs

The chances are that as a first-time home buyer, but you don’t have a lot of money saved up. Purchasing a house can be very expensive, especially if you aren’t considering the closing costs and down payment. Here’s the good news- you don’t have to have a lot of money saved up to use as a down payment.

Some states offer down payment assistance to individuals that are purchasing their first home. However, be aware that some of these programs place a second lien on the property you are buying, for the amount of the down payment assistance, and often times these loans are at high-interest rates with more strict debt to income ratios eligibility reducing your buying power. In many cases, borrowers don’t get explained in full depth that you cannot refinance or sell the house for a certain period of time, depending on the program, and considering how rates can change to your benefit why put yourself in a situation you may regret in the future. Get educated on how these programs work. There are true low down payments to no down payment programs available to first time home buyers.

When you’re applying for a mortgage, don’t be afraid to ask your mortgage lender about any programs that are available for first time home buyers.

Depending on where you’re purchasing your home, you may be able to qualify for a loan from the US Department of Agriculture. Another option you may have is a loan from the Department of Veterans Affairs if you are eligible under these programs.

Some other types of loans only require a down payment as low as 3% on conventional loans. There are tons of different options for you, make sure you do your research, so you find the best available mortgage loan for your personal finances.

4. Looking for a House to Purchase Before You Get Pre-Approved

The entire home buying process can be exhilarating and exhausting. Another common mistake first time home buyers make is looking for a home before they receive a pre-approval.

Receiving a pre-approval from a mortgage lender is essential for you to start your home-buying process. This is because it will ensure that you are financially stable enough to be able to afford to purchase a home. Plus, it’ll also let you know how much of a home you can afford.

Once you receive a pre-approval, it will show any real estate agent that you’re serious about your home buying journey. You also stay in control of your loan process, working with a realtor of your choice instead of a realtor selecting a preferred lender for you and now having a lender and realtor relationship being in control of your purchase. When you work directly with a lender and you are pre-approved, you take control of your loan, loan program, and the outcome you want based on your own needs.

Plus, you won’t take the chance of finding a home and falling in love with it, only to find out later that you can’t afford it. Another common error with shopping before your pre-approved is that if you do find a home that you fell in love with and can’t afford it, every other home on your journey will end up comparing to the first home that you found.  Don’t be confused with a pre-qualification as that is a pre-qualification based on what you tell the loan officer you are talking to. You want to have your entire scenario analyzed and submitted through the underwriting software that gets your pre-approval letter, 100% certainty your loan is eligible.

5. Completely Draining Your Savings

When the majority of first-time homebuyers go to purchase their first home, they end up draining their savings account to provide money for the heavy down payment. But the problem with this is that there’s a lot of unexpected costs that often come with purchasing a home.

If you don’t set up separate savings account for you to have to handle any emergency expenses that may pop up, this may lead to you accumulating debt. Make sure that you have an emergency savings account and a separate savings account for you to use as a down payment to avoid this. Also, learn about closing costs lender credits and seller’s concessions that can help you keep more of your hard-earned money in your pocket.

Understanding How to Avoid These Common Home Buyer Mistakes

By having a solid understanding of how to avoid these common home buyer mistakes, you can take the proper steps necessary to ensure that your first home purchase is an absolute success.

Are you interested in finding a mortgage company that will work with you to help you get pre-approved for a loan within a few minutes? We’ve got your back! Click here to learn more today.