Top Ten First Time Home Buyer Mistakes
1. Don't check credit prior to purchasing a home. Many first time home buyers do not know their credit score and what their credit history really looks like. You would be surprised what is and what isn't on your credit report. Get your credit report and scores online.* Next, you will need to determine if you need to repair or fix anything on your credit which may prevent you from qualifying for the lowest rate and terms. A lower credit score could result in much higher monthly payment and cost you thousands of dollars in additional interest over the life of the loan.
2. Don't pay off debt and can't qualify. You must consult a loan officer to see if you have too many bills and you may have to pay off some debt 3 to 6 months prior to buying a home so the credit bureaus will report these items as being paid off and the higher scores will reflected on the credit report before you apply for a mortgage.
3. Don't buy a home you can't afford. Find out how much you can qualify for and what price range you should be looking in. You may get pre-approved for a higher mortgage payment but you shouldn’t over-extend yourself with a payment which may make you house poor.
4. Decide to rent versus own. Stop paying your landlord! Home prices and interest rates are very low and you could be losing the opportunity to build wealth. For example, a home today with a purchase price of $160,000 may be worth $170,000 or more next year and you lost $10,000! Also, you may get significant tax deductions on the mortgage and property taxes. Please consult your tax advisor for deductibiliy and tax savings in your particular finanical situation. Also, if you are waiting to save for a down payment, let me ask you, how much are you going to put away in savings while you are renting? Try some rent versus own calculations now.
5. Buy wrong size home. Check out the floor plan for space and functionality. Plan for changes in lifestyle such as marriage and you may opt for a 2nd bedroom. Think ahead about add-ons, amenities, and fix ups. Keep in mind, your payment will only go up about $50 per month for every $10,000 of purchase price based on current interest rates so buying a little better home may pay huge dividends later on.
6. Do not pass up on a good home because it isn't perfect. Sit down and make a wish list of features and prioritize which ones are really important to you such as a neighborhood, parking space, room size, etc. Be specific about what you want and really need. Let FirstHomeBuyers refer you a good Realtor who loves to work with first time home buyers and will help you find the best home which should meet most of your heart's desires. A Realtor represents your best interests and she will make sure you are getting the best deal on a home and she will negotiate terms with the seller such as closing costs credit and repair allowances.
7. Choose wrong lender. You must ask a prospective lender how long have they have been in the mortgage business and how much experience they have doing first time home buyer loans. If you miss one guideline on a first time home buyer program you may have no loan options at all, or worse, you will have to pay a much higher rate and mortgage payment.
8. Choose wrong loan program. There are many loan options and you may not want a traditional zero to low-down payment 30 year fixed if you will be living in home 4-5 years or less. An adjustable rate mortage may suit your financial needs if you plan on staying in the home a couple of years and the payment will be lower than the 30 year fixed rate loan.
9. Don't have funds for earnest money, closing costs, or reserves. Every seller is going to ask for money up front as a good faith deposit, and if you don't have it, you may lose out on the home. Closing costs can vary from state to state, so you must get a closing costs estimate from a lender ahead of time to determine if you need to stock away a little more money or get a gift from a family member. The USDA, VA, and FHA loan programs allow the seller to pay for some or all of the closing costs. Finally, some loans require you to have 2 to 3 months of mortgage payment reserves in the bank to bounce back on and these funds have to be in your account at least 60 days prior to closing.
10. Don't Get Pre-Approved. If you don't Get Pre-Approved and have a formal pre-approval letter in your hand, you may go out house hunting, find a home, write a contract, and find out later you don't qualify and your dreams of owning a home could be crushed.
Please contact us at 847-516-5743 or email dream@firsthomebuyers.net if you have any questions and we hope that we can assist you in the purchase of your new home.
