There are many common mistakes first-time home buyers make. Some are minor, while others can end up being costly. Fortunately, several of these mistakes are avoidable.
Mistake #1: Looking For A Home Before Getting Pre-Approved
When you shop for a home before approval, you run the risk of falling in love with a home that’s out of your price range — ruining the whole home buying experience before you start.
Instead, focus on the finances first. Make sure you have enough saved for a down payment and the closing costs and get your pre-approval before you start home shopping.
Mistake #2: Buying More Than You Can Comfortably Afford
Many falsely believe that the loan amount they are approved for accurately depicts how much home they can afford to purchase. However, the income and debt-to-income ratio data that lenders use to determine eligibility doesn’t take into account monthly expenses, such as groceries, utilities, gas, or insurance.
Instead, use the amount you’re pre-approved for as a starting point for calculating your actual “home-owning” budget.
Mistake #3: Forgetting About VA, USDA & FHA Loans
Since a conventional loan is the most well-known mortgage, many forget about the great borrowing opportunities afforded by VA, USDA, and FHA loans. These government-backed loans are often more affordable options, so not inquiring about them could mean missing out on significant savings.
Here’s a quick run-down on these loans:
VA Loan: Allows you to qualify with a lower credit score and higher debt. It may not require a down payment or mortgage insurance. (Available only to those with a Certificate of Eligibility from the VA.)
USDA Loan: No down payment required and may be able to roll closing costs into the loan.
FHA Loan: Beneficial for those who may have trouble qualifying for other loans. Qualify with a credit score as low as 580 and a 3.5% down payment.
Mistake #4: Draining Your Savings For A Down Payment
Don’t be tempted to drain your savings to come up with enough money to put down on a home. There are unexpected costs that come with owning a home. So if you don’t have money set aside to handle these expenses, you put yourself in a significant financial predicament that could cause you to be unable to keep up with your house payments.
Mistake #5: Forgetting About Moving Costs
With everything involved in buying a house, many first-time homebuyers oversee the moving expenses. So when you start looking for a home, also start saving for moving costs, including packing materials, rental trucks, and labor.
Mistake #6: Applying for Credit Before Closing
Lenders don’t just check your credit during the pre-approval process but also just before your scheduled closing day. So if you apply for credit before closing, causing your credit score to drop, your approval could also change. Instead, wait on opening any new lines of credit until after you close. Also, don’t close any accounts or be late on any payments, as these could negatively impact your score too.