Buying your first home is a major step in your life, as well as a big financial commitment. This is why it’s important to get yourself familiar with the process, in order to avoid the pitfalls that our Maryland mortgage lender team often see first-time homebuyers make. We’ve gathered the top mistakes that are often made to help make the process less stressful, and get you prepared for buying a home.
Pitfall #1 – Not Being Prepared
The first pitfall for first-time homebuyers is not being prepared for the mortgage process. A lot of paperwork is involved with applying for a mortgage. Mortgage lenders will need to evaluate things like your debt-to-income ratio, your credit score, and credit history to see if you qualify for a mortgage.
Taking the time to get all of your documentation together makes this process go more smoothly and can save you time. You will need to show proof of employment and income with pay stubs, tax returns, and any statements for financial accounts. Another part of preparing is to go over your credit report a few months ahead of time. You want to make sure there are no errors or surprises that could affect your ability to get a mortgage. Improving your credit score will not only help you to qualify for a mortgage, but it also helps get you the best terms and interest rates.
Pitfall #2 – Going Over Your Budget
Another big pitfall we see many first-time homebuyers make is spending more than they can afford. This can lead to frustration when you find you can’t cover the cost of a home you fell in love with or gives you a rocky start to owning a home. It’s important to go over your budget to see what you can realistically and comfortably afford each month. This will save you time when it comes to shopping for a home too because you won’t be looking at homes that are out of your affordability range.
You need to be flexible when shopping for a home as well. Prioritize your needs over your wants and don’t limit yourself to looking in one area. Otherwise, you may overspend on your budget. The advice here is to try to keep your monthly mortgage repayments at 28% or less than your monthly gross income. There are a lot of tools online that you can use, such as affordability and mortgage calculators.
Pitfall #3 – Not Understanding the Difference Between Pre-approval and Pre-qualification
These are two terms that some use interchangeably. However, they are very different and having the right one can make the difference between closing an offer or not. While both pre-qualification and pre-approval are an estimate of what an amount a lender is willing to lend you, pre-qualification will not guarantee that you get that loan. It isn’t as thorough as getting pre-approval.
With a pre-approval, an underwriter evaluates your financial details. You are given a conditional mortgage loan and a document that shows how much you have been pre-approved for, along with the interest rate and term you have been offered. Having a pre-approval can give you an advantage as well when it comes time to make an offer on a home. Sellers will know that there is less of a chance of the sale falling through because you already have that pre-approval.
Pitfall #4 – Not Getting a Home Inspection
I often see new homebuyers trying to cut down on expenses by not having a home inspection. While a property may seem fine to you, having an inspection done by a professional can help find things you didn’t know you should look for. This can save you buying a home that is a money pit that needs a lot more repairs than you thought. Having a home inspection also gives you the leverage needed to negotiate with the seller to either have them fix the problem or lower the price of the home.
Pitfall #5 – Not Budgeting for Additional Costs
When you are budgeting for a mortgage, you need to remember that there are other costs involved, such as the closing costs, and the cost of running a home. Closing costs include things like title insurance and attorney fees. That can be around 3% to 5% of the purchase price of the home.
Not budgeting for running a home is also often overlooked. It’s not just monthly mortgage repayments you will be making. You also have expenses like the regular maintenance of the home, utility payments, homeowner’s insurance, and property tax to think about. It’s important that you include these expenses when you are creating a budget for your new home.
If you would like more information about buying your first home, give our Maryland mortgage lender team a call today!