So you’re ready to buy your first home? But, do you know where to start? Buying a home for the first time can be an extremely stressful process and navigating the new waters can lead to some easily avoidable headaches. Besides having a great real estate agent, like the ones here at Collier & Co, here are a few ways to avoid some of the most common mistakes that first time homebuyers experience.
🏠 Prep your Debt
This should always be your first step with any major purchase, and missing this step could possibly cost you thousands of dollars in higher interest rates or prevent you from even being able to get a mortgage. Using a credit score review program such as Credit Karma, can help you put a pulse on where your current score is. Keep in mind that this is only going to give you an idea of where your current score is and only updates once a month. For a more accurate credit report, you’ll need to go to one of the three major credit bureaus (Experian, Equifax, or Transunion) and request it from them. Keep in mind that you get only one free report a year from them.
Also knowing your debt to income ratio is a good idea. This ratio is the sum of all your monthly installment debt payments vs your monthly income. This percentage helps mortgage lenders know how much more debt you can comfortably take on.
Last is addressing your credit cards, these revolving debt sources can wreak havoc on your credit scores. Look to try to minimize your use and balances of your credit cards a few months before you apply for your mortgage.
🏠 Know Your Loan Program Options
There are many options out there besides the conventional loan. Look for opportunities to save through a loan program. If you are a veteran, see what options you have for a VA loan that has no down payment or mortgage insurance. If you’re in the low to moderate income range an FHA loan with a lower minimum down payment and credit score requirement might be the solution for you. Keep in mind that the larger your mortgage gets you may slip into what’s called a Jumbo loan, and because of the size of the loan, it’s a higher risk investment and can require a higher down payment and cost more in your interest rates.
🏠 Shop Around For Your Loan and Interest Rates
This is an important step that first time homebuyers miss frequently. Shopping around for a mortgage allows for you to do comparison shopping, looking at the differences between not only mortgage rates, but fees, terms, and even the responsiveness and service of a lender, all of these aspects can make a difference when it comes to choosing a provider. The Mortgage Reports, doesn’t necessarily give an amount but recommends that you have enough to feel comfortable that you have a great deal. Keep in mind two things; you can use the different quotes to leverage better rates and two make sure you do all your quote shopping within the same 45 day period. This is the window that you get from FICO that the multiple inquiries will only count against your credit score once.
🏠 Get Pre-Approved
Pre-approval is a great way to get started, by getting pre-approved for a home loan this will give you a great idea as to how much of a house you can afford. Mortgage lenders will provide you a pre-approval, which is different from a pre-qualification which provide you an idea on a price range that you can afford. Investopedia.com, discusses what you need to do to get pre-approval. This pre-approval on a loan can help you get ahead of other home seekers in today’s in-demand market.
One other thing that the process does is it allows for you to avoid becoming disappointed. Without the preapproval, you could find yourself looking at a home outside of your price range or possibly losing that dream house you’re looking at because of another buyer coming in with preapproval for a loan already.
🏠 Narrow Your Search First
Nothing can affect your search more than indecision. Knowing what you’re looking for in a home makes a big difference in the search itself, especially in today’s in-demand housing market. The best way to mitigate a wide search is to determine the basics (How many rooms? How many bathrooms? Neighborhoods?), then make 3 lists, one for features you need, one for features you want, and one for features that would be nice to have, but aren’t really necessary. These lists are great to have when you’re working with a realtor, because they can really narrow down your search, help save time looking at homes that don’t fit you at all, or let your realtor know if they need to help you readjust your expectations.
🏠 Don’t Forget the Extras, Like Property Taxes
We’ve discussed this topic before in our article, “7 Tips on How to Save for a House Down Payment”, but one thing that people forget at times is the extra expenses that come with home ownership. Insurance is more expensive, plus you’ll possibly see higher utility bills, expenses in maintaining a home, and you’ll start having to pay property taxes. All of these things add up to the total home ownership package, keep this in mind when you are evaluating the cost of a home, you could potentially be putting strain on your monthly budget and not even know it.
🏠 Spending Everything at Close
You’ve found the perfect house, you are ready to put in an offer, but you soon realize that the down payment is going to take every cent you have in savings to make the down payment to avoid PMI. This is a common trap to fall into. Yes, it’s great to avoid paying the PMI, which is extra money per month, but imagine that you tap out your savings to pay for that dream home and then you find yourself laid off and looking for a new job. Though this is an extreme situation it is something that could potentially happen and lead you to find yourself struggling to keep your head above the bills. Huffpost also points out that by keeping this cushion or safety net you can avoid potentially using higher interest debt sources (credit cards or loans) to provide for repairs to the home as well.
These are just a few tips to help avert some of the common mistakes, but you can avoid making them with the help of knowledgeable experts in the industry, Collier & Co’s staff has more than 80+ combined years in the real estate industry and can help you navigate the waters of first time home buying. Using a lender that your realtor recommends will expedite the process and help save you money. Realtors work with many lenders, so you’ll want to take their advice. Contact us today to learn how we can help you find your next home.