Updated Nov. 6, 2018.
Right now, you’re doing the most stressful thing you can do in modern life, and with a few tips, you can do it really well. About 40 percent of people consider buying a house to be the most stressful event they’ve faced — but it doesn’t have to be. Learning from other buyers’ mistakes can help you beat the first-time home buyer trap and even enjoy the process.
5 first-time home buyer mistakes most people are making (plus 2 bonus tips)
Whether it’s your first go-round, or your second, third, or fourth time buying a home, you’ve probably been given some misinformation. For the two in five house-hunters who feel highly anxious about finding the right place, knowing which mistakes to watch for can save you the headache.
Thankfully, these common mistakes can be easily avoided:
Go big or go home, but not when it comes to getting a home loan. If you start looking at houses without understanding what you can and want to afford — factoring in the possibility that your job could change in the future — you might fall in love with a house that’s above your price range. There’s a quick fix most people forget: Meet with your mortgage lender first to get prequalified. Even better, get a conditional approval to nail down your price range and show a potential seller you’re serious about buying.
“When you’re ready to buy, don’t shop empty-handed,” Cedric Stewart, team leader of Entourage RG at Keller Williams and 13-year veteran residential and commercial sales consultant, says. “Visiting a few open houses is great because it helps you get a feel for what homes in the market are like. However, falling for a home before you’ve been prequalified puts you in a bad position, especially in a hot market.” Where houses sell in a week or less, Stewart says, your dream home won’t wait for you to find all your docs and get prequalified.
Forgetting about your credit score.
Have you checked your credit score lately? We’re all eligible for a free credit report each year, but many people don’t take advantage of this real-life perk. Your credit score can directly impact your mortgage loan rates, for better or worse. Any errors on your credit report should be corrected immediately by contacting a credit bureau, so that nothing can hold you back from a good interest rate. To keep bills on time, and to keep your credit score up, consider tracking your income, bills, and expenses with the HomeBudget app.
Forgetting about the taxes.
You’ve probably heard that it’s ideal to put 20 percent down on a house, but nowadays, most loan officers are making recommendations on a case-by-case basis. Since your finances are totally unique, there may be different tax benefits to be had for putting more or less money down.
Factoring in taxes and down payment matters — it can influence how much you can afford to bid. “This is not 2009,” Stewart says. “Homebuyers shouldn’t expect to get a steal on any and every home for sale. Well-priced properties in good shape don’t last long in most markets and often have multiple offers.” According to Stewart, bidding below asking price in these situations is a recipe for disaster.
Chatting with your loan officer is an ideal plan of attack. Low and no-down-payment mortgage programs can ease the burden and help you land a house in your desired price range. There are also Down Payment Assistance (DPA) programs that vary by state, so check here first, before raiding your retirement. Many first-time buyers aren’t aware of these programs that may cater to renters and owner, have flex credit and income requirements, and can be easy to qualify for.
Forgetting about the APR.
Here’s yet another thing most people don’t know about the home loan process. Every mortgage lender can charge different fees, which is why it helps to shop around. On top of that, you’ll also be seeing an APR (annual percentage rate) that’s probably going to be higher than the first interest rate you saw on your loan. This APR includes your mortgage interest rate, plus a few other charges like loan points and fees. Comparing APR to APR (apples to apples) among lenders is the most effective way to compare the numbers on your loan.
Picking the wrong people to work with.
You might have gathered that choosing the right mortgage lender is kind of a big deal. A good lender can save you money and make the whole homebuying process a lot smoother. Comparing lender fees and APRs helps, along with asking about lender credits that may pay out several thousand dollars at closing. And sticking with a lender that does in-house processing, underwriting, closing, and funding saves time by keeping everything in one place.
Buying a house doesn’t have to be hard. Getting prequalified can be easy.
Picking the wrong type of loan.
If you feel good about your lender, then letting them point you in the direction of the right loan should be easy. A good loan officer can find you a loan that meets this simple rule of thumb: Your monthly mortgage payment should never exceed a third of your monthly take-home pay.
Nailing your ideal loan doesn’t necessarily guarantee smooth sailing, however. Marc Carver, Principal at The Carver Property Group, a technology-based, luxury real estate company, says that buyers also need to be aware of the prevalence of multiple offer situations. “This can often lead to buyers bidding up the price of a property beyond the subsequent appraised value. With cash buyers, this is not so much a problem as their purchase is not dependent on financing. However, in the case of most first-time buyers that are utilizing a mortgage for the purchase, the lender will require an appraisal.”
So, the amount approved for your final purchase will have to be in line with a home’s appraised value, Carver says. If it isn’t, then a loan may be denied. Circling back to number five, a skilled loan officer can guide you through market fluctuations to prevent delays and keep your mortgage moving.
Making big life changes during the financing process.
Life throws its share of curveballs, but when you’re trying to get a home loan with a low interest rate, it helps to stay put and hold off on any big decisions. Quitting or changing your job, buying a big-ticket item like a car, cosigning on another loan, charging up your credit, and switching bank accounts can all impact your home loan approval process. Up until closing day, it’s better not to mess with a good thing.
Once you get the keys to your new house, though, don’t let that complacency sink in. “Many people buy and have a list in mind of things that they would like to change, update, or upgrade, but after they get into the home and get ‘used to’ it, they forget that list. Then when they go to sell, those same things become impediments to the next buyer,” Christy Murdock Edgar of Writing Real Estate says. Edgar recommends making a list of all the things you don’t love about the house right after closing or during the final walkthrough. Then, refer back to it periodically to continue adding value to your home. Edgar says, “This will make it much easier on you when it comes time to sell.”
No matter how frustrating the house-hunt gets — even if you’re one of the 33 percent of first-time home buyers who break down crying — it’s comforting to know that help is available. Your loan officer can answer questions, clear the confusion, and get you home in 10 days.*
*10-day close not typical. Not all loans will close in this timeframe.
For educational purposes only. Please contact your qualified professional for specific guidance.
Sources are deemed reliable but not guaranteed.