How To Avoid Common First-Time Home Buyer Mistakes
Buying a home for the first time can be as exciting as it is daunting. From mortgage packages to credit scores, even the most detail-oriented person is liable to miss something. There’s no magic formula for perfection, but there are ways that you can avoid the bigger mistakes. Here are a few tips to avoid home buying mistakes.
Check Your Credit Score
Your credit score is going to have a lot to do with the rates that you’re offered. The better it is, the more you’ll save over time. And yet, as important as this number is, millions of people are walking around with the wrong score! According to a study completed by the Federal Trade Commission, up to 1 in 5 people have a mistake on at least one of their credit reports. Challenging a mistake can end up saving you more money than you realize.
Get Approved First
A prequalification isn’t going to cut it here. To really distinguish yourself as a serious buyer, you should be preapproved by a credible lender. This will not only give you more confidence when it comes to touring properties and making offers, but it will also speed the process along by the time you do decide to make a move. Being preapproved is especially critical if you’re entering into a seller’s market — where competition is going to be stiff enough as it is.
Research All Loans
Just because your parents had a fixed-rate FHA loan, doesn’t mean that it’s the right one for you. Your loan should be based on where you buy, how long you plan to hold the property, and what your long-term investment goals are. From USDA to VA to conventional options, it pays to check into all potential options. You should also consider how your decision will affect you over time. The terms of an adjustable-rate mortgage might look tempting at first, but if rates go up, you could face a serious increase in monthly payments.
Explore Discount Points
Homebuyers can purchase discount points at the time of their loan. The idea is to pay specific fees to the lender in exchange for a lower interest rate. So more upfront costs but lower monthly mortgage payments. (You might hear a lender refer to this as ‘buying down the rate.’) One point is usually about 1% of the mortgage, so $5,000 for a $500,000 home.
Avoiding first-time mistakes starts with thinking like an experienced buyer:
Down payment: The general rule is to put down at least 20% so you don’t fall prey to private mortgage insurance. From there though, there’s a sweet spot to ensure that you put down the right amount. If you can’t swing a fifth in terms of equity (and many people can’t), you can talk to a lender to get more information on how best to structure your loan.
On-Going Costs: From HOA fees to yearly maintenance, it’s not just monthly payments that you have to worry about. Property taxes, home insurance, utilities: all of these costs can quickly add up on top of your regular monthly expenses.
Get Answers: You should be asking your lender as many questions as possible. From lender fees to communication policies, these answers can help you understand more about what it’s really like to do business there.
First-time homebuyers are often tempted with plenty of perks, but they’re also likely to make more home loan mistakes too. It’s important to look at the purchase from as many angles as possible to protect yourself (and your finances).