SHANNON VINNICK
Sales Associate/REALTOR®
Realty Executives Oceanside
-By Deborah Kearns
Buying your first home comes with many big decisions and can be as scary as it is exciting. It’s easy to get swept up in the whirlwind of home-shopping and make mistakes that could leave you with buyer’s remorse later.
If this is your first rodeo as a homebuyer or it’s been many years since you last bought a home, knowledge is power. Here are the 14 most common mistakes first-time buyers make—and how to steer clear of these missteps.
In some large markets, housing inventory is still tight and competition is fierce. You might find yourself willing to stretch your budget to buy a property or lose a property because you aren’t preapproved for a mortgage, says Alfredo Arteaga, a loan officer with Movement Mortgage in Mission Viejo, Calif.
What to Do Instead: “Before you fall in love with that gorgeous dream house you’ve been eyeing, be sure to get a fully underwritten preapproval,” Arteaga says. Being preapproved sends the message that you’re a serious buyer whose credit and finances pass muster to successfully get a loan.
“A good mortgage loan officer can look at your situation and diagnose any potential roadblocks ahead to give you a clear understanding of your home-buying options,” Arteaga says.
What to Do Instead: Shop around with at least three different lenders, as well as a mortgage broker. Compare rates, lender fees and loan terms. Don’t discount customer service and lender responsiveness; both play key roles in making the mortgage approval process run smoothly.
What to Do Instead: Focus on what monthly payment you can afford rather than fixating on the maximum loan amount you qualify for. Just because you can qualify for a $300,000 loan, that doesn’t mean you can afford the monthly payments that come with it. Factor in your other obligations that don’t show on a credit report when determining how much house you can afford.
“The biggest mistake that I see [first-time buyers make] is to not plan far enough ahead for their purchase,” Bush says. “This doesn’t allow them to save [for a down payment and closing costs], fix items on their credit report, and debunk some of the myths about the process with a REALTOR® and lender.”
What to Do Instead: Map out your home-buying timeline at least a year in advance. Keep in mind it can take months—even years—to repair poor credit and save enough for a sizable down payment. Work on boosting your credit score, paying down debt and saving more money to put you in a stronger position to get preapproved.
“Some people scrape all their money together to make the 20 percent down payment so they don’t have to pay for mortgage insurance, but they are picking the wrong poison because they are left with no savings at all,” Conarchy says.
Homebuyers who put 20 percent or more down don’t have to pay for mortgage insurance when getting a conventional mortgage. That’s usually translated into substantial savings on the monthly mortgage payment. But it’s not worth the risk of living on the edge, Conarchy says.
What to Do Instead: Aim to have 3-6 months of living expenses in an emergency fund. Paying mortgage insurance isn’t ideal, but depleting your emergency or retirement savings to make a large down payment is riskier.
The goal: Keep the status quo in your finances from preapproval to closing. Otherwise, you could lower your credit score, run up your debt-to-income ratio and imperil your final loan approval.
What to Do Instead: Don’t open new credit cards, close existing accounts, take out new loans or make large purchases on existing credit accounts in the months leading up to applying for a mortgage through closing day. Pay down your existing balances to below 30 percent of your available credit limit, and pay your bills on time and in full every month.
“Selecting the right town is critical to your life and family development,” Bernstein says. “The goal is to find you and your brood a place where the culture and values of the (area) match yours. You can always trade up or down for a new home, add a third bathroom or renovate a basement.”
What to Do Instead: Ask your real estate agent to help you track down neighborhood crime stats and school ratings. Measure the drive from the neighborhood to your job to gauge commuting time and proximity to public transportation. Visit the neighborhood at different times to get a sense of traffic, neighbor interactions and the overall vibe to see if it’s an area that appeals to you.
“With this being a strong seller’s market, a lot of first-time buyers are bidding over what they are comfortable with because it is taking them longer than usual to find homes,” DiBugnara says.
What to Do Instead: “Have a budget and stick to it,” DiBugnara says. “Don’t become emotionally attached to a home that is not yours.”
Delaying your home purchase to save up 20 percent could take years, and you could limit cash flow that could be put to better use maximizing your retirement savings, adding to your emergency fund or paying down high-interest debt.
What to Consider Instead: You can put as little as 3 percent down for a conventional mortgage (note: you’ll pay mortgage insurance). Some government-insured loans require 3.5 percent down or zero down, in some cases. Plus, check with your local or state housing programs to see if you qualify for housing assistance programs designed for first-time buyers.
What to Do Instead: Keep an open mind about what’s on the market and be willing to put in some sweat equity, DiBugnara says. Some loan programs let you roll the cost of repairs into your mortgage, too, he adds.
What to Do Instead: Look into one of the three government-insured loan programs backed by the Federal Housing Administration (FHA loans), U.S. Department of Veterans Affairs (VA loans) and U.S Department of Agriculture (USDA loans). Here’s a brief overview of each:
A Bankrate.com survey found that the average homeowner pays $2,000 annually on maintenance services. Not having enough cushion in your monthly budget—or a healthy rainy day fund—can quickly put you in the red if you’re not prepared.
What to Do Instead: Your agent or lender can help you crunch numbers on taxes, mortgage insurance and utility bills. Shop around for insurance coverage to get compare quotes. Finally, aim to set aside at least 1-3 percent of the home’s purchase price annually for repairs and maintenance expenses.
“The time to confirm that the Bank of Mom and Dad is ready, willing and able to provide you with help for your down payment is before you start home-shopping,” says Dana Scanlon, a REALTOR® with Keller Williams Capital Properties in Bethesda, Md. “If a buyer ratifies a contract to purchase a home with an understanding that they will be getting gift money, and the gift money fails to materialize, they can lose their earnest money deposit.”
What to Do Instead: Have a frank discussion with anyone who offers money as a gift toward your down payment about how much they are offering and when you’ll receive the money. Make a copy of the check or electronic transfer showing how and when the money traded hands from the gift donor to you. Lenders will verify this through bank statements and a signed gift letter.
©2019 Bankrate.com
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