When it comes to buying your dream home, you need to prepare and do some research to make the process go smoothly. It also helps to know what pitfalls you need to avoid along the way. There’s a lot of advice floating around, and some of it may not be as beneficial as it first seems. For example, skipping a home inspection to save money. Never fear, our expert mortgage team is here with the top pitfalls most new home buyers make and why you should avoid them.
Pitfall One: Not knowing how much you can afford
If you have no idea how much house you can comfortably and reasonably afford, you could waste a lot of time and effort looking at homes that you won’t qualify for. Therefore it’s important to not only set aside a budget but to also get your finances in shape months before you start looking for a home. Budgeting will show you how much you can afford on mortgage payments each month, and there are many mortgage calculator tools online that can help you out with this.
Going over your credit report is also important. Take the time to fix your weaker areas－for example, paying off your high-interest rate credit cards can help raise your credit score. This will, in turn, allow you to qualify for more on your mortgage.
Pitfall Two: Only getting one quote
Just like shopping for a car or a home, you need to shop around for mortgage rates! Many first-time homebuyers make the common mistake of taking the first quote they are given, usually from their own bank. The problem with this is that your bank is only giving you quotes for their products and this can be somewhat limited.
What you should consider doing for getting the best rate is use a mortgage broker. Mortgage brokers have access to hundreds of lenders and mortgage products, which means you can find the best mortgage for your needs. It may also protect your credit score. When you apply with several lenders over a short period of time, it leaves a hard mark on your credit report, which can lower your credit score. With a broker, you are only making one application that they will then use to find you quotes, leaving a soft mark on your report that won’t affect your credit score.
Pitfall Three: Making a down payment that is too small
When it comes to making a down payment on a home, about 20% of the home’s value is the golden number. However, not everyone will be able to afford that much and will make lower down payments or choose a loan program that can allow them to make as low as a 3.5% down payment. However, the lower the down payment, the more you end up paying for a mortgage.
To save on your mortgage, the best thing to do is to start saving for a down payment a year or two before buying a home. The more you can put towards your down payment, the less you will end up paying on your monthly repayments and the total loan.
Pitfall Four: Not having a home inspection done
Some homebuyers will try to save themselves money by opting out of things like a home inspection. While you may be saving yourself a few hundred dollars at first, this could easily end up costing you thousands of dollars in the end. The purpose of a home inspection is to see if there are issues with the home that the untrained eye may not see, such as problems with the foundation of the home, mold and mildew problems, and so on. An expert knows what to look for, and what they find can make the difference between buying a home that you will love and buying a money pit.
Pitfall Five: Applying for a new line of credit before closing
This is a mistake that we often see first-time homebuyers make. Imagine winning the bid on a house, but getting rejected at closing because you made a large purchase or opened a new credit account. There are terms and conditions that you need to meet at closing, and some of these are not changing employment, not opening new credit accounts, and not making big purchases on your credit cards. When do any of these things, it lowers your credit score from what it was when you got that pre-approval. At closing, your credit report is pulled once more. If you have a lower score than before, it will change how much you are able to borrow and what rates you will get. Save the big changes until after closing.
If you want to know more about common pitfalls and how to avoid them, give our mortgage team a call today. We’ve got your back, every step of the way!