Purchasing the first house can involve many large decisions and can be both exciting and intimidating. It can be easy to get caught up in the home buying process and accidentally make decisions that leave you with buyer’s remorse.
If this is your first time making a purchase, or if it’s been a long time since you have purchased a house, having the right information is vitally important. Let’s take a look at common home buying mistakes, as well as ways that you can avoid them:
1. Shopping for a house before you’ve applied for a mortgage
A large number of first time home buyers mistakenly look at homes before they’ve ever had a meeting with a lender about a mortgage. This is a huge mistake as if a house hits the market and you fall in love with it, you may not have the money you’ll need to make the purchase.
You may also find that in larger real estate markets, the housing inventory is small and competition for the best homes is tough. This can lead you to go outside of your budget in order to purchase a property or to even lose a property because you weren’t already pre-approved for the mortgage before looking at houses.
This makes it vitally important to get a loan pre-approval that’s fully underwritten before you begin looking for homes so that you don’t fall in love with something that you can’t afford. Being pre-approved also sends the message that you’re able to get a loan, your credit and finances are in good shape, and you’re serious about making a home purchase.
2. Only Speaking to One Lender
This is a giant one. First-time buyers may get a mortgage from the initial, or only, the lender that they speak with, which could leave thousands of dollars behind on the table. Shopping around and speaking to a variety of lenders provides you with a wide basis for comparison to help ensure that you’re getting a great deal on your loan.
A skilled loan officer will be able to look into the situation and see any obstacles so that they can help you see your home buying options clearly and have a great understanding of what is available to you.
What to be sure to do instead: Take the time to shop around with multiple lenders (at least three), as well as a mortgage broker. Be sure to compare loan terms, rates, and lender fees. Don’t neglect to take customer service and how responsive the lender is into account, as they both play an important role in helping the approval process for a mortgage to go well.
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3. Purchasing More House than You Have the Budget For
It’s quite easy to find yourself in love with a home that’s a bit out of your reach financially, but making a purchase that puts you in a “house poor” situation can cause you a lot of regrets later on. It can leave you at a much higher risk of accidentally losing the house you love if you wind up in tough financial circumstances.
Instead, focus on the payments you can afford each month, instead of on the full loan amount that you are qualified for. Just because you’re qualified for a large loan doesn’t mean that you can afford the large monthly payments that come with it on your budget. Be sure to take all of your financial obligations into account, including those that don’t show on a credit report, when you determine how much of a loan you can afford for a house.
4. Don’t Move Too Quickly
Buying a home is complicated, especially as you get into the smaller details of the mortgage process. However, rushing the process can cause you a lot of problems down the road.
One of the worst mistakes that first-time homebuyers make is not planning far enough ahead in order to purchase a home. They don’t save in advance, clean up their credit, and learn about the process well in advance of making a purchase.
Instead, take the time to map out your homebuying timeline at least a year in advance. Be aware that it can take months to years to fix poor credit while saving enough money for the down payment that you’ll need for a house. It’s important to work on improving your credit score, paying off your debt, and saving all the money that you can in order to put yourself in the best possible position to be approved.
5. Don’t Drain Your Savings
Spending the majority of their savings on their initial down payment and closing costs is another huge mistake that many first time home buyers make.
A lot of people spend years scraping together the money to make their down payment so that they don’t need to pay for mortgage insurance, but this can leave them with no liquid savings at all which is also dangerous.
Home buyers who put down twenty percent or more won’t have to pay for mortgage insurance when obtaining a conventional mortgage. This often translates into large savings on the monthly mortgage payment, but it might be worth the risk of having no savings stashed aside.
Instead, it makes good sense to try to keep several months of savings in an emergency fund. It’s not a great idea to get stuck paying mortgage insurance, but spending all of your savings to make a large down payment is also financially dangerous.
6. Don’t Be Careless with Credit
Lenders take a look at your credit report at preapproval to make sure things look good, and then they’ll pull it again right before closing. The goal is to be sure that nothing about your finances has dramatically changed. You’ll find that any new loans or credit card applications can actually put your home’s closing at risk. First-time buyers tend to learn this the hard way, often losing the home they desperately want.
Your goal should be to keep your finances the same from the preapproval of your loan all the way to the closing on your home. There’s a possibility, otherwise, of damaging your credit and risking the approval of your final loan.
Instead, avoid opening new credit cards, closing current cards, taking out new loans, or making big purchases between applying for your mortgage and closing on your loan. Pay down your credit card balances to under thirty percent of the available credit limit, and pay the bill on time each month.
7. Don’t Focus on the House Over the Area
It’s important to have a home that’s perfect for your needs and ticks off all the items on your list. However, it may not make sense to be choosy about the specifics of an individual house if it’s in a neighborhood that is difficult to enjoy.
It’s important to choose the right town so that you and your family can be happy over time, and so that you can find a culture where you match well. The goal is to help find your family a great place where you’ll all fit in, then improve the home as you’d like to so that it fits. You can renovate, add rooms, or purchase a new home as you’d like if you find the best neighborhood to suit you.
Instead, talk to your real estate agent to find out how to track down neighborhood statistics about crime, schools, and population. Learn about the commute, traffic, and the distance between the neighborhood and your job.
8. Avoid Making Emotional Decisions
Purchasing a house is a giant milestone. You’ll be choosing a location to put down roots, make a place that’s all yours, and create memories with your family. It’s easy to get too attached to a location and make overly emotional decisions that aren’t the right ones.
Sometimes a first-time home buyer in Texas will wind up taking out loans for more than they can afford because it’s taking them more time than it usually should find a house.
Instead, create a budget, stick to it, look for homes, and don’t get emotionally attached to a house before it is completely yours and you’ve closed on it.