What Are the Most Common Mistakes That Home Buyers Make?
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Each year first time homebuyers make the same mistakes as their siblings, parents and friends when entering the market.
However, novice buyers today can break the cycle. These are the 12 most common mistakes first-time buyers make when buying a home. Here’s how to avoid them.
You could waste your time if you don’t know how much you can afford. It is possible to end up visiting houses you cannot afford or homes at a lower price than your ideal.
Many first-time home buyers want to purchase a house, and then get a monthly loan that is affordable. It’s okay to set a low goal sometimes.
This is how to avoid making this error: A mortgage affordability calculator will help you determine what price ranges are affordable, which ones are too high and which ones are more expensive.
Comparison shopping is key when looking for mortgages. The mortgage interest rate and fees vary depending on the lender.
According to the Consumer Financial Protection Bureau (CFPB), almost half of borrowers do not shop around for loans.
This is how to avoid making this error: Compare multiple lenders for mortgages. NerdWallet found that a typical borrower can save $430 on interest by applying to five different lenders in his first year. Each mortgage application received within the 45-day period will be counted as one credit inquiry.
When deciding whether or not to approve you for a loan, mortgage lenders will review your credit report. You might be charged an interest rate higher than your due diligence if you have errors in credit reports. It is important to verify your credit reports.
This is how to avoid making this error: Each year, you can request a free credit score from all three major credit bureaus. Any errors that you discover can be disputed.
To buy a house, you don’t need to pay 20% down. See item No. You can buy a house with no down payment or 3.5% down. While this is sometimes a great idea, homeowners may regret it.
NerdWallet conducted a survey and found that one-in-nine (11%) of the 35 year old homeowners agreed with the statement, “I should wait until I had a larger down payment.” This was the number one regret among millennial homeowners.
This is how to avoid making this error: Saving money should be a decision. You can get a lower mortgage with a larger down payment, which will allow you to make smaller monthly payments. However, saving more money can make it more expensive to purchase the house you desire. You may also find that your home costs and mortgage rates are rising. This could mean it becomes more challenging to get the home of your dreams. It is important to make sure that your down payment allows you to afford a monthly payment you are comfortable with.
NerdWallet also commissioned a survey to find out how long it took for them to save enough money for their down payment. It took millennials with a history of buying a house in the past five years on average 3.75 years to save up enough money to purchase. If it takes you three to four years or more to save, there are plenty of people who can help you.
You probably haven’t got a lot of savings for closing costs and the down payment as a first homebuyer. Don’t think you can delay your homeownership to save for large down payments. Many low-down payment loan programs are available, including state programs offering down payment assistance as well as competitive mortgage rates to first-time homeowners.
Yes, 11% say that they regretted not paying a larger down payment. However, the majority of millennial homeowners don’t regret making a larger down payment.
This is how to avoid making this error: Talk with a mortgage lender and find programs available in your area. A U.S. Department of Agriculture loan, or one that is guaranteed by the Department of Veterans Affairs may be available to you. These loans don’t need a downpayment. Federal Housing Administration loans require a down payment minimum of 3.5%. Some conventional loan programs may allow for down payments as low at 3%.
Many first-time buyers need or want small down payments. They don’t know all the details about government programs that allow them to purchase a house with little or no down payment.
VA Loans are guaranteed mortgages by the U.S. Department of Veterans Affairs. These loans are for military personnel. The VA loan’s claim to fame is their ability to allow qualified buyers to finance 100% of their home with zero down payments. In lieu of paying mortgage insurance, borrowers pay a funding fee.
USDA loans are available to purchase homes in rural areas. For qualified borrowers, you can make zero percent down payment and receive 100% financing. In lieu of insurance, you pay a guarantee and an annual fee.
FHA loans can be financed with down payments of as low as 3.5%. The Federal Housing Administration is able to forgive poor credit. FHA loans require that you purchase mortgage insurance throughout the loan term. This is even if you own more than 20% of your home.
Discount points on mortgages are charges you pay up front to lower your mortgage interest rates. Discount points can save you a significant amount of interest over the term of your mortgage.
This is how to avoid it: A minimum down payment can be a success. The value of purchasing points is dependent on how long you intend to stay in your home after the “breakeven” period. This is the amount of time that it takes to pay the upfront costs and get the monthly savings from a lower rate.
You will almost certainly need to repair a home that you have previously bought. You might need to repair a leaky roof or replace the water heater.
John Pataky is the executive vice president for EverBank’s consumer division. “That can be a growing pain when things break,” he said. They find themselves quickly in trouble if they don’t have enough money for an emergency.
Avoid this error: Make a downpayment, cover closing costs, move expenses and make repairs if necessary. You can get estimates from lenders about closing costs and call other people to find out how much it will cost you for moving.
You apply for a mortgage one day. You close the loan, or complete the process, a few weeks later and receive the keys to your house. This is crucial: It’s important to let your credit rest as long as you can. You shouldn’t open a credit card or buy appliances or furniture on credit. Also, don’t take out auto loans before your mortgage is closed.
This is why the lender will make a mortgage offer based upon your credit rating and debt-to income ratio. The percentage of your monthly income going to debt repayments is what determines your lender’s decision. Credit applications can lower your credit score by a couple of points. Your debt-to income ratio will rise if you apply for a loan or add to the monthly payments. The perspective of the mortgage lender is not favorable for either one.
The lender will review your credit within one week after closing. The lender may change your interest rate and fees if you have a lower credit score or your income has increased. This could delay your closing or cause you to lose your mortgage.
This is how to avoid making this error: Do not open credit accounts after the closing date. You can have these items in your possession before you open new credit accounts. However, don’t purchase them until you’ve got the keys.
You will have more fun looking at houses than you would discussing your finances with lenders. Many first-time buyers visit homes before they find out what their borrowing limits are. They are then disappointed when the property is not in their price range, or they can’t make an offer.
This is how to avoid making this error: Before you begin to look for a property, talk to a mortgage professional to get prequalified for or preapproved for a loan. Pre-qualification, or preapproval, involves reviewing your income and expenses. This can help you to be more competitive in your offer.
