Sharply higher mortgage rates have caused a sudden pullback in home sales, and now sellers…
Buying your first house? Here’s what can go wrong
Buying your first home comes with many big decisions and can be as scary as it is exciting. It’s easy to get swept up in the whirlwind of home shopping and make mistakes that could leave you with buyer’s remorse later. Here are common mistakes that first-time buyers make — and how to steer clear of these missteps.
1. Looking for a home before applying for a mortgage
Many first-time buyers make the mistake of viewing homes before ever meeting with a mortgage lender. In some large markets, housing inventory is tight and competition is fierce. You might find yourself willing to stretch your budget to buy a property or lose a property because you aren’t preapproved for a mortgage, says Alfredo Arteaga, a loan officer with Movement Mortgage in Mission Viejo, Calif.
“Before you fall in love with that gorgeous dream house you’ve been eyeing, be sure to get a fully underwritten preapproval,” Arteaga says. Being preapproved sends the message that you’re a serious buyer whose credit and finances pass muster to successfully get a loan.
2. Talking to only one lender
This one is a biggie. First-time buyers might get a mortgage from the first (and only) lender or bank they talk to, potentially leaving thousands of dollars on the table. The more you shop around, the better basis for comparison you’ll have to ensure you’re getting a good deal. Compare rates, lender fees, and loan terms. Don’t discount customer service and lender responsiveness; both play key roles in making the mortgage approval process run smoothly.
3. Buying more house than you can afford
It’s easy to fall in love with homes that might stretch your budget, but overextending yourself can lead to regret — and worse. It can put you at higher risk of losing your home if you fall on tough financial times. Focus on what monthly payment you can afford rather than fixating on the maximum loan amount you qualify for. Just because you can qualify for a $300,000 loan doesn’t mean you can afford the monthly payments that come with it. Factor in your other obligations that don’t show on a credit report when determining how much house you can afford.
4. Moving too fast
Buying a home can be complex, particularly when you get into the weeds of the mortgage process. Rushing the process can cost you later on.
Map out your home-buying timeline at least a year in advance. Keep in mind it can take months — even years — to repair poor credit and save enough for a sizable down payment. Work on boosting your credit score, paying down debt, and saving more money to put you in a stronger position to get preapproved.
5. Draining your savings
Spending all or most of their savings on the down payment and closing costs is one of the biggest mistakes first-time buyers make, says Ed Conarchy, a mortgage planner and investment adviser at Cherry Creek Mortgage in Gurnee, Ill.
Homebuyers who put 20 percent or more down don’t have to pay for mortgage insurance when getting a conventional mortgage. That’s usually translated into substantial savings on the monthly mortgage payment. But it’s not worth the risk of living on the edge, Conarchy says. Aim to have three to six months of living expenses in an emergency fund. Paying mortgage insurance isn’t ideal, but depleting your emergency or retirement savings to make a large down payment is riskier.
6. Being careless with credit
Lenders pull credit reports at preapproval to make sure things check out and again just before closing. They want to make sure nothing has changed in your financial picture. Any new loans or credit card accounts on your credit report can jeopardize the closing. Buyers, especially first-timers, often learn this lesson the hard way.
The goal: Keep the status quo in your finances from preapproval to closing. Don’t open new credit cards, close existing accounts, take out new loans, or make large purchases on existing credit accounts in the months leading up to applying for a mortgage through closing day. Pay down your existing balances to below 30 percent of your available credit limit, and pay your bills on time and in full every month.
7. Fixating on house over neighborhood
Ask your real estate agent to help you track down neighborhood crime stats and school ratings. Measure the drive from the neighborhood to your job to gauge commuting time and proximity to public transportation. Visit the neighborhood at different times to get a sense of traffic, neighbor interactions, and the overall vibe.
8. Assuming you need a 20 percent down payment
While a 20 percent down payment does help you avoid paying private mortgage insurance, many buyers today don’t want (or can’t) put down that much money. The median down payment on a home is 13 percent, according to the National Association of Realtors.
Delaying your home purchase to save up 20 percent could take years, and you could limit cash flow that could be put to better use maximizing your retirement savings, adding to your emergency fund, or paying down high-interest debt.
You can put as little as 3 percent down for a conventional mortgage (note: you’ll pay mortgage insurance). Some government-insured loans require 3.5 percent down or zero down, in some cases. Plus, check with your local or state housing programs to see if you qualify for housing assistance programs designed for first-time buyers.
Read more at inquirer.com