Common First-Time Home Buyer Mistakes To Avoid
Buying a home is a big decision. For most people, their mortgage is the largest single investment they make in their lives. You may be both excited and anxious about your first home purchase. These are a few mistakes many first-time homebuyers make and how you can avoid them.
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Making a Down Payment That Is too Large or Small
Many first-time homebuyers believe that they need to save a 20 % down payment to get approved for a mortgage loan. A high down payment helps you save money on private mortgage insurance because you have built-in equity in your new home. However, don’t drain your savings. Instead, save at least three months of living expenses in case you encounter any emergencies.
The median down payment is typically only 12 % on most loans, but you may find a first time home buyer loan that only requires 3.5 % of the home’s value. However, if you pay more upfront, your monthly mortgage payments will be lower and you may get a better interest rate. Your home then becomes more affordable every month and you gain immediate equity in your new home.
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Not Managing Finances and Credit
Another of the common home buying mistakes first-time buyers make is not managing their credit and finances. Your mortgage interest rate and insurance requirements may be affected by your outstanding debt and credit score. Therefore, before you start looking for a mortgage, clean up your finances. Pay off as much debt as you can, especially consumer debt. You may even get rid of some of your high-balance credit cards because your revolving credit can affect your creditworthiness.
Next, you should pull your credit report. Look over it carefully and correct any errors that you find. For example, if your report shows debt that you have paid off, contact the credit companies and make sure your credit status is correct. Also, don’t start spending on credit just because you have been approved for a loan, and avoid applying for new credit accounts during the buying process. You may be denied a final approval at closing if you are careless with your credit during the buying process.
Don’t rush your home purchase. Start early, about one year in advance, and get your credit and finances in order. Then, save toward your down payment.
Choosing the Wrong Home
Calculate how much you can spend on a mortgage. One of the mistakes to avoid when buying a home is to underestimate the true cost of buying a house. You should also work your property taxes and insurance into your monthly bills. Although most mortgage companies add these into your mortgage, they increase your monthly payments. You may have budgeted your mortgage payment, but you may also have higher utility bills. One tip is to ask for copies of the seller’s utility and other bills for the previous 12-month period.
In addition, you need to set money aside for home repairs and emergencies. Be sure you carefully calculate any renovation or repair costs that you may incur immediately after your purchase. Get multiple estimates for any project, such as roof repairs or kitchen renovations.
Finally, pay more attention to the neighbourhood than the house. Many first-time buyers find a home they absolutely have to have, which may cause them to overspend for the neighbourhood or they may end up hating the area. Instead, start with safe neighbourhoods that have quality school districts and your desired amenities, such as proximity to public transit. Figure out your commute time to and from work and other common destinations. When you find a neighbourhood that appeals to you, find your home.
Not Shopping for a Mortgage
Many buyers make a few house buying mistakes related to their mortgages. Apply for mortgages before searching for a home. If you go in with your mortgage already set, your bid may be more appealing to the sellers. In addition, you should apply with at least three lenders. Shop for the best interest rates and mortgage terms. Also, pay attention to the service you receive and how responsive the lender is to your needs and situation.
Search for first-time buyer programmes, such as FHA, VA and USDA loans. These loans typically have a lower down payment and credit score requirements. Some programmes are specifically designed for low-income borrowers, rural properties and military veterans or active-duty service members. Also, don’t be afraid to negotiate for rebates if they are legal in your state, which may be up to one per cent of the sale price on the house.
If you are a first-time homebuyer, adopt strategies that help you avoid the common mistakes others have made.