Buying your first home can be an exciting time. But it can also bring a lot of stress to the table because it is the single largest purchase that most of us will make in our lives. Because of that fact, it is important to avoid the pitfalls that can come with the process.
And it only makes sense that first-time homebuyers are the ones that fall into the most traps. They haven’t been there and haven’t done that. They simply just don’t know what to look for. Here are a few things that first-time homebuyers should be aware of so that they can avoid them.
Keeping Your Eye on the Prize
When we make this kind of purchase, it is only natural to think about how we would fill the space and use it on a daily basis. So you might be thinking about something like where organize the kid’s room or how to decorate your space instead of the essentials of the deal.
Having an idea of how your space will look is certainly important, but you can begin to worry about that after getting the deal done on the home. So, you might think that planning out space for the best two person hot tub is important, but those are tertiary details that can wait.
Stay focused, keep your eyes on the prize, and you will be ready to tackle all of those details after you get the home of your dreams.
Not Knowing What You Can Afford
This is one of the biggest issues that first-time homebuyers deal with. This is because there is a distinct difference between how much you can get approved for and how much you can actually afford. It may sound confusing, but it makes a lot of sense.
Think about it like this: you might be able to get approved for a certain amount. But let’s say that getting approved for that amount would put you against your ceiling when it comes to bills. This leaves you in a situation known as “house poor”. It means that you have a house but not much else.
Know what your budget is, know what you can afford on both the mortgage and furnishing/caring for the house, and that will tell you what you can actually afford. This can mean all the difference in the world when it comes to making a home purchase.
Taking the First Quote
Again, purchasing a home is the single biggest purchase that most of us will make. So, it should naturally make sense to not go with the very first mortgage quote that we get. Yet that is exactly what far too many homebuyers do.
Getting multiple quotes takes a bit longer, but it is also the only way to find the best rate for you. Getting a higher interest rate can mean thousands in interest paid out over the life of your mortgage. Save yourself that money by getting as many quotes as you can.
Too Small of a Down Payment
That down payment can be a seriously scary thing. After all, it is usually recommended that you have 20% for a down payment before you purchase. For a $100,000 home, that means $20,000 must be put down initially.
That’s a lot of money no matter how you cut it. But there are some programs that let you pay with as low as zero down. While it might seem attractive to have to save less, it can also mean longer waiting times or higher interest rates. Do your homework and know what you need to have down instead of just running on assumptions.
Not Looking at a Credit Report
Credit is a huge factor in the homebuying process. The better the score you have, the better interest rates that you will get. And when you have great interest rates, it means that you will save thousands over the life of your mortgage.
But if your credit score is low, it can not only mean way higher interest rates, it can mean that you may not get approved for a mortgage at all. This is why consulting your credit report beforehand is such a vital thing.
By looking into your credit report before you begin applying for mortgages, you can know what areas of your report need the most work. Not only that, you can catch any potential issues that may be there and dispute them if they are inaccurate.
The point is to know what your credit report looks like before going through the process of buying a home. It can save you serious headaches before you ever get started.
Not Taking Advantage of First-Time Homebuyer Programs
There have been programs implemented since the housing crash that has been put into place to help first-time homebuyers. One of the biggest mistakes that these first-time homebuyers make is that they don’t look into what programs are out there.
With that first-time program, you can actually save on things like closing costs or be required to have a substantially lower amount up front. The point is that you don’t know what programs are out there if you don’t look.
First-time homebuyers can potentially save quite a bit of money on their first go around and this is only possible by checking out the available programs for first-time homebuyers.
Applying for Credit Before the Sale has been Finalized
This has happened too many times: an agreement is made on a home and the closing process begins on the home. While this is happening, the first-time homebuyer applies for a credit card or other line of credit and throws the process into disarray.
This is because the lender bases their decision on your credit score as well as your credit utilization and debt-to-income ratio. When you apply for new credit, it can bring your score down due to a hard inquiry. Wait until things have been completely finalized before trying to take out any new lines of credit.
Article By: Peter Rossi, a professional hot tub designer and founder of ByRossi.