When looking for your first home (or second or third...) it is easy to get swept up in the excitement of house hunting and make a few mistakes that leave you with regret.
Buying a home is exciting but can be intimidating- after all it is one of the biggest purchases you will make in your lifetime. If this is your first home-buying rodeo, or you are back on the market after years of living in the same home, you want to be prepared to put your best buyer foot forward. Here are the top 5 buyer mistakes I have seen made during my career, and how to avoid them.
1. Looking For A Home Before Applying For A Mortgage
Many first time home buyers make the mistake of viewing houses before visiting a mortgage lender to determine what they can afford and what kind of loans they qualify for. To avoid disappointment it is key to see multiple lenders, compare your options and be pre-qualified before you hit the ground running. I recommend seeing at least 3 lenders and a mortgage broker to compare rates, lender fees and loan terms.
Not only does being pre-approved allow you to make educated decisions on what houses to look at, but it tells sellers that you are serious about buying their home and have the credit/financials to back it up.
If you have a poor credit score or recently suffered a damaging credit event it is important to find a lender such as Beyond the Bank Mortgage Co. that offer a wide variety of loans with more flexibility than a typical credit union or bank. Even if your credit is not perfect, being pre-approved is still attainable!
2. Buying More House Than You Can Afford
Buying more house than you can afford is a huge mistake. You might find a house that is over your budget, but overextending what you can afford can leave you in a financial pit. You never know when tough financial times could hit, and the reality is that you must always be prepared.
I recommend determining what monthly payment works best for your situation, rather than only looking at the overall feasible loan amount. Just because you qualify for a $250,000 loan, it doesn't mean that you will be able to meet the monthly payments. Sit down and list out your financial obligations before jumping into a house that stretches your means. Check out this tool to see an estimate of how much house you can afford.
3. Waiting For The "Unicorn"
Simply put, the perfect property does not exist. If you are always waiting for something better to come along you may be left empty-handed year after year. While it is important for a home to meet your needs, there is no one home that has every single feature you are looking for or that won't need a tad bit of work done. While realtors know that you want a house that crosses off every item on your wishlist, being nit-picky can leave you in the lurch.
Enter your house hunt with an open mind and be willing to be flexible with putting in a bit of sweat equity. Additionally, try not to fixate on the house over the neighborhood. Selecting the right town or neighborhood is just as important as the house itself.
4. Putting Off or Starting New Credit Issues
Mortgage lenders pull your credit report at pre-approval and then again before the home closing to ensure that your credit checks out. Not only can your past credit issues and current credit score effect your chances of being pre-approved, but any new loans, credit cards or credit events can jeopardize the closing of the house. It is a lesson that is often learned the hard way.
If you know you will be looking for a house in the next year or two, take time to correct your credit and save up money for the downpayment. It is important to map out a home-buying timeline so that you are prepared with debts payed, credit score boosted and a sizable downpayment saved. Once you are house hunting do not open new credit cards or make any large purchases. Additionally, be sure to pay your credit cards off in full and stay well below your credit limit.
5. Miscalculating Hidden Homeownership Costs
There are costs beyond just the sticker price of a home that you need to take into consideration before taking the plunge and purchasing a new home. It can come as a shock to some what is not only owed, but the costs of homeownership that add up.
A few things you need to consider beyond the sticker price of a home:
Monthly Principle
Interest Payment
Property Taxes
Mortgage Insurance
Homeowners Insurance
Maintenance and Utilities
Your real estate agent or mortgage lender can assist with crunching numbers to give you a better idea what homeownership will cost. It is recommended that for insurance you get multiple quotes and compare before making a decision. Additionally, aim to set aside 1-3% of your home's value every year to allocate to repairs and maintenance.