Make it easier on yourself and learn some of the common mistakes new home buyers make…before you spend tens of thousands of dollars on a home that doesn’t fit your needs.
1. Failing to understand how much you can afford
If you don’t know how much home you can afford you’ll waste not only your time, but that of everyone else involved in the process.
Do yourself a favor and understand exactly how much you’ll be comfortable in spending for a home.
If you’re renting and are following a budget, you know what you pay in rent and utilities. While this is a good starting place, you’ll need to factor in costs for maintenance, taxes and insurance.
Sometimes, you’re better off buying less than you can afford, especially if the idea of a large mortgage payment makes you lose sleep.
If you don’t have a budget you should start one…now. Then, use a mortgage affordability calculator to get an idea of what you can afford.
2. Failing to get pre approved
Getting preapproved is a smart move.
Not only will you discover how much you might get, you’ll have leverage when you put in an offer over another potential buyer who isn’t preapproved.
You’ll also save time when house hunting because you’ll only be looking at ones that are within your budget.
A mortgage broker will have several different lenders that have authorized them to originate loans. This saves you the time and hassle of shopping with different lenders.
3. Not checking your credit first (and fixing any errors, etc)
Before getting preapproved it’s smart to run your own credit report.
Because you can:
- ⬥ Avoid any surprises (credit bureaus do make mistakes)
- ⬥ Clean up any errors in your report
- ⬥ Have the credit bureaus add any good credit that’s missing
- ⬥ Resolve any credit problems before you try to get pre approved
4. Not enough of a down payment
Traditionally, a 20% down payment has been the benchmark that home buyers shoot for.
However, some loan programs will let you buy a home for a much lower down payment…or none at all.
While a zero down payment sounds good, it may mean a higher payment. Conversely, the more you can put down for your new home the lower your payment should be.
Of course if you opt for a short repayment term your payments will be higher, but overall you’ll pay less interest.
Bottom line, you’ll want to opt for a mortgage payment that will be easy for you to afford. Keep that fact in mind when deciding on how much deposit you want to save.
5. Not accounting for extra expenses
It doesn’t matter whether your home was newly built or not something will need repaired or replaced at some point.
This can be a shock at first if you’re used to the landlord taking care of things. That’s why you should include an estimate of home maintenance costs when determining how much you can afford.
6. Failing to anticipate your future needs
It’s highly unlikely that your first home will be where you live forever.
That’s why it’s important to consider what your plans are for the next five to ten years.
For example, if you’re a couple right now, but you plan to start a family soon buy a home with that idea in mind. If you buy too small a home and need to sell there’s no guarantee you’ll get the price you want.
In the end this means you could end up paying more for the home than if you’d bought the larger home to start with.
7. Not shopping around for the best mortgage
You wouldn’t buy a car from the first car lot you see, so why would you get a mortgage from the first bank you visit?
Interest rates and terms will vary among lenders as do discount points and closing costs. This means you could save literally thousands of dollars over the life of the loan by shopping around.
Note: Don’t be afraid of loan shopping hurting your credit; mortgage applications made within 45 days of each other will count as a single credit inquiry.
Finally, make it easy on yourself and be conservative in your estimates of what you can afford – even if the bank says you can get a bigger loan.
You never know what life will throw at you. That’s why making your mortgage payment easy to pay is a smart idea.