If you want to get on the right track for your first home purchase, you’ll want to avoid these common first-time home buyer mistakes.
Buying more house than you can afford
Though getting pre-approved for a mortgage can help you determine your maximum loan amount, it’s important to focus on your monthly payment. Experts suggest spending no more than 30 percent of your monthly income on housing, and most lenders won’t be able to pre approve you if your debt-to-income ratio is higher than 45%, so sit down and do the calculations. How can you calculate your debt-to-income? Total up your monthly debts, and then divide by your total monthly income.
Don’t forget that part of your totals should include the monthly amount for property taxes, homeowner’s insurance, and HOA dues. Depending on your down payment amount, you might need private mortgage insurance as well.
If you need help figuring your calculations, we can help. Your lender can breakdown the full estimate of costs you can expect each month.
Starting the home search before getting pre-approved for a loan
Pre-approval is quite possibly the most important step in the home buying process. First, it gives you a price range to start shopping in and a monthly payment to expect. The pre approval allows you to focus your list of potential properties and gives sellers confidence in your offer. If your local market is particularly hot or there are many bidders on a home you’re considering, a pre-approval letter can mean all the difference.
Delaying your home purchase because of the down payment
Down payments can seem overwhelming—many people don’t have tens of thousands of dollars all at once. If you feel this way, you’re not alone. Most people don’t put down nearly that much. While a 20 percent down payment will help you avoid private mortgage insurance, it’s not required to purchase a house. In fact, you can purchase a home with as little as 3 percent down (and in some cases, no down payment at all).
Waiting to buy a home until you have 20 percent saved up can be a dire mistake. Not only will trying to save that much limit your cash flow, but it will also impact how much cash you can put toward retirement, your children’s college tuition, paying down debts and other important financial goals. It also means more time paying rent and missing out on low interest rates.
If you’ve been delaying homeownership, we have low-down-payment mortgages, down payment assistance programs and other options to help you achieve your dream of home ownership.
Not learning about FHA, VA and USDA loans
A conventional loan might be the most common, but that doesn’t mean it’s right for everyone. Conventional loans come with the most stringent credit and income requirements of all and, in many cases, require bigger down payments, too. But there are other options:
FHA loans – FHA loans are mortgages backed by the Federal Housing Administration. They require down payments as low as 3.5 percent and lower credit score requirements to qualify.
VA loans – VA loans, or Veterans Administration loans, are mortgages designed for military members, veterans and their immediate families. They require no down payment (and sometimes no closing costs).
USDA loans – USDA loans are mortgages guaranteed by the U.S. Department of Agriculture. They for use on homes in designated rural areas and require no down payment whatsoever.
The right option for you depends on your income, credit score, down payment savings and other financial factors, as well as where you’re looking to buy. We can help you determine which option is best for your scenario.
Getting too emotional about a house
Getting too attached to a house can make it hard to negotiate — especially if there are other bids on the table. You don’t want to get stuck offering too much for a home because you became too emotionally attached to a place. Some things out of your control that could dampen the deal are:
Your appraisal might not measure up. Lenders can only finance based on the purchase price, so you could be left making up the difference between the appraisal and purchase price. See what happens if your appraisal comes in low.
You might stretch your budget too thin. Offering too much over your budget can mean a higher monthly payment and tight finances.
You may not make your money back. In the event you need to sell the home quickly, you could actually lose cash on the transaction due to your extravagant offer.
Avoiding these first-time buyer mistakes is will put you on the right track to homeownership. When you’re buying a home, there a lot of moving parts. Each one impacts the next. Before diving in, make sure you’re clear on your financials and get pre-approved for your loan. This will give you a solid foundation as you begin your home buying journey. Need help? Drop us a line!