Assuming you won’t get approved for a mortgage
Ideally, you’d like to have as little debt as possible, an impeccable credit score, and a 20% down payment before borrowing money for a home. However, even borrowers with less can get loans in today’s market, thanks to options like Federal Housing Authority loans, which are meant to help out low-income and first-time buyers.
Interviewing only one lender
The fees and rates offered by lenders may vary substantially, and they all offer different service levels and different loan products. Be sure to at least chat with a big bank, a regional bank or credit union, and an online lender.
Not getting pre-approved early on
Getting pre-approved for a mortgage serves two important purposes: First, it gives you a realistic understanding of how much you can spend on the house. Second, it shows sellers that you’re serious and gives you slightly more standing if you’re competing for homes with all-cash buyers.
Make it less stressful by gathering up relevant financial documents like bank statements, tax returns, and pay stubs, and by checking your credit report for errors in advance. „Given the competitive interest rate environment and the competitive housing market, it’s a good idea to be prepared and organized before you start the process,“ says Keith Gumbinger, vice president of HSH.com.
Maxing out your mortgage limit
Just because a lender says that you can borrow a certain amount, doesn’t mean you should borrow that much. Staying below that limit will give you more financial flexibility to cover the added expenses that come with purchasing a home, as well as long-term changes to your income.
Create a budget that includes how much money you can spend on housing costs each month, and then use those numbers to figure out what your „real“ limit should be.
Letting your emotions control your decisions
Buying a home can be a long and frustrating process. These days, starter homes go quickly, and it’s common for first-time buyers to experience rejection on the first offers they make. In that kind of environment, it’s easy to fall in love with a house that’s out of your budget, or get caught up in the heat of a bidding war and end up paying more than you expected.
„It’s OK to get excited when you think you’ve found your house, but you don’t want to put yourself in a bad spot,“ says David Tina, President of the Greater Las Vegas Association of Realtors.
Waiving contingencies without understanding the risks
In highly competitive markets, it’s becoming increasingly common for buyers to make offers that aren’t contingent on financing or inspection. While waiving contingencies can make your bid more desirable to a seller, it can make the transaction much more risky for you. Have a conversation with your realtor and a lawyer before opting out of contingencies in your contract. In a worst-case scenario, you may end up losing your deposit.
Allowing your credit score to change before the close
A pre-approval letter is not a guarantee of funding, and if your credit score or income levels change drastically between the pre-approval and the closing of the loan, lenders may change their terms or rescind the offer entirely. While you’re home shopping, be sure to pay all your bills on time and steer clear of new credit accounts, even if that means you have to wait to pick out your furniture. If possible, try not to switch jobs until after you close, particularly if you’re moving into a new industry.
Not Getting Pre-Approved For A Mortgage
The first thing you’ll notice about mistake #1 is the word, “pre-approved.” As you’re preparing to buy your first home, you may hear the word “pre-qualification” being thrown around. You need to first understand there is a difference between a mortgage pre-approval and a mortgage pre-qualification.
A mortgage pre-approval is an in-depth look at a borrowers (buyers) financials by a mortgage lender or bank in order to evaluate the likelihood of getting a mortgage. A pre-approval will typically require a buyer to provide important financial documents such as tax returns, recent pay stubs, and bank statements.
A mortgage pre-qualification is a very general look at a borrowers financials by a mortgage lender or bank to evaluate the likelihood of getting a mortgage. The biggest difference between a mortgage pre-approval and pre-qualification is that a pre-qualification is often issued based on information that is provided by the borrower. This means that a buyer can provide a mortgage lender or bank with financial information that might be incorrect, which can ultimately lead to the mortgage being denied once the important financial documents are actually submitted to the lender.
New that we’ve briefly cleared up the difference between a mortgage pre-approval and a mortgage pre-qualification, one of the worst first time home buyer mistakes is not getting pre-approved for a mortgage. It’s vital to the success of buying your first home that you put yourself in the best position to succeed, especially if you happen to be buying a home in a sellers market.
A mortgage pre-approval places a buyer in the best light in the eyes of a seller because the chances a mortgage is actually granted is greater when a buyer has been pre-approved than it is when a buyer has only been pre-qualified.
As you’re starting out the mortgage process, make sure you know how to pick a mortgage broker or lender. There can be major differences between one mortgage broker to the next, so it’s important you select your mortgage broker or lender carefully.
Not Taking The Process Of Hiring A Buyers Agent Seriously
The most important person you’ll be relying on for guidance during the purchase of your first home is your real estate agent. There are dozens of reasons why to hire a real estate agent when buying a home and one of the worst first time home buyer mistakes is not taking it seriously.
First and foremost, it’s critical that you understand that not every real estate agent is the same. This means, even if an agent works for the same company, they’re not the same. If an agent works on a team, they’re not the same as other team members.
In order to have a successful first home purchase, you should understand how to interview a real estate agent when buying a home. Many first time home buyers neglect to even consider more than one agent and they’ll hire an agent because they’re a friend, family member, or the first agent they encounter at an open house. This can be a recipe for disaster!
While it’s possible that a friend or family member is a competent and successful real estate agent, it isn’t always the case. Since buying your first home is such a big deal, it’s critical you take hiring the right agent seriously. Even if you have a friend or family member who is a real estate agent, they should understand if you want to explore all of your options and interview a couple different agents.
Recently while selling a home in Irondequoit NY to a first time home buyer, who also happened to be one of my closest friends, they met with a couple agents to see if there was any other agents who were a better fit. They ultimately decided to work with me, however, if they decided a different agent was a better fit there wouldn’t have been any hard feelings.
Buying your first home is a huge deal and ensuring the agent who is guiding you through the process is extremely important. Not taking the process of selecting the right agent seriously is a huge mistake.