Buying a home for the first time can be a wonderful — and intimidating — experience. With so much information out there, it’s easy to feel overwhelmed. However, there are ways to streamline the process, both from an emotional and financial perspective.
These are 5 of the common mistakes first-time homebuyers make and how to avoid them.
1. Not Getting Pre-Approval
Not starting the process early and getting pre-approved can throw a wrench in the homebuying process, Joe Parsons, branch manager with Caliber Home Loans in Dublin, Calif., said. That’s because it’s incredibly useful for homebuyers to know how much home they can reasonably afford so they can adjust their expectations (and budget) accordingly. Another reason a pre-approval is valuable is because this gives prospective home buyers an opportunity to check their credit, one of the key factors that determines the terms and conditions of your loan. If you’re unsure of your credit standing, now’s the time to find out. You can view two of your credit scores, free of charge, on Credit.com.
Once you’ve submitted your tax returns, pay stubs and bank statements “at a minimum,” Parsons said, the loan officer will compile that entire application package and underwrite the file. “He’ll then generate an approval based on the findings of the automated underwriting system that we all use,” Parsons explained. “At that point, homebuyers can confidently be able to get a pre-approval letter and shop and make an offer on a property, knowing that their financing is already in place.”
2. Putting Off Credit Issues
“The other thing that I see first-time borrowers failing to do is not deal with credit issues that may keep them from getting the loan,” Parsons said. Those issues may include paying off debt, raising their score or waiting to open more credit cards.
As we mentioned above, your credit score is one of the key factors that affects the terms and conditions of your mortgage, so it’s integral to know where it stands. “Someone with a 620 score will pay almost a full percentage more than an otherwise identical borrower with a 740 score,” Parsons said, referring to the fixed or variable interest rate tied to a mortgage. “Credit issues may be easy to fix, which could save the borrowers literally thousands on their loan,” he said. “I consider that to be a major mistake.”
3. Making Assumptions About the Down Payment
It’s not uncommon for first-time homebuyers to assume they need more money for a down payment than they actually do, Parsons said. “I often hear people asking, ‘can I get away with less than the normal 20% down payment?’” And the answer is yes Sometimes homebuyers are required to put as little as 3 or 4% down, he said. Also, “as the market continues to appreciate” and rates follow suit, your down payment money could depreciate with it, he warned. In other words, “waiting costs money.” (You can read more about how to determine your determine your down payment on a home.)
4. Not Finding a Great Real Estate Agent
Finding a knowledgeable real estate agent who has your interests at heart is imperative for first-time homebuyers who are new to the process. After all, that person is responsible for steering you toward your dream home. And you likely have lots of questions.
“There’s a matter of skill and experience that go into the mix,” Parsons said, so it’s important to “spend some time with the [real estate agent] as a counselor.” That means your real estate agent should go beyond identifying what you can qualify for based on assets and income but also be able to pinpoint what you’re seeking in terms of criteria like neighborhoods, lifestyle, safety and school districts. To that end, finding someone with “current market knowledge,” as Parsons put it, is as important as ensuring they have top credentials. (You can learn more about the ins and outs of getting a real estate agent.)
5. Not Researching Mortgage Lenders
Finding a great mortgage lender isn’t something that sounds like fun, but Parsons said it’s a must in this competitive market, especially for first-time homebuyers who don’t know the ropes yet. A seasoned mortgage lender can help you set goals and secure a loan that’s within your budget. What’s more, once you find one you trust, you can feel more confident in their rates and their steps to help protect your finances.
Dealing with someone who’s trustworthy is paramount, Parsons said, so it helps to start with referrals from friends and family and ask the right questions. For instance, find out if the lender surprised someone with hidden fees or if they were responsive and easy to work with. You may also ask if they locked in the rate that they promised. Questions like these will give you a sense of whether the lender is worth your time — and your money.