If you’re ready to buy your first house, there are some things you should know before you start your search, and what mistakes to avoid. You probably already know you’ll probably need a mortgage loan, which means finding the right lender. You’ll also need a real estate agent, unless you’re going to try and do it on your own.
Some of the big steps of the home buying process include getting approved for your mortgage loan through your mortgage banker, finding the right property and making an offer (which is where a real estate agent really helps), and closing. Of course, there are a lot of other steps in between, from your loan application to the home inspection, but your mortgage banker will guide you through every step.
Let’s talk about some common mistakes that first-time homebuyers often make and how you can avoid those same mistakes.
Mistake 1: You think your mortgage payment is your only cost
You might have read that what you’re paying in rent will loosely translate to a mortgage payment. Why rent when you can buy, right? While this is mostly true, buying a home usually comes with other costs, too. For example, many loans require a down payment. A conventional loan traditionally requires a 20% down payment. There are other costs, too, including closing costs and prepaid items.
But don’t let a down payment or closing costs discourage you from buying your first home! There are loan options that require very small down payments and some that require no down payment at all. Each loan type has different requirements and qualifications, so talk with your lender about your loan options. There are also down payment assistance programs and closing cost assistance to help cover extra costs. Plus, when you work with a real estate agent, you may be able to negotiate when it comes to closing costs. It’s not uncommon for the seller to cover some or all of your closing costs.
Mistake 2: Falling in love with a home before you know what you can afford
Despite what you may think based off HGTV, you usually can’t go house shopping before talking to a mortgage professional first. After all, when the people on TV go house hunting, they usually give the REALTOR® a budget. That means they’ve probably already been pre-qualified or pre-approved.
Your first step should be to meet with your mortgage banker before shopping for a house. They’ll ask for some basic information and tell you right away how much you qualify for and what loan programs may be your best fit. This meeting is cost-free and is a great way to get some basic information and find out where you stand financially. If you decide to move forward, you may be able to get a conditional approval through upfront underwriting, which tells you exactly how much of a loan you qualify for in just a few hours. Upfront underwriting can also be helpful if you’ve found a house you want before talking to a mortgage banker. Including a pre-approval letter with your offer could help your offer stand out, especially in multiple offer situations.
Talking to your mortgage banker first may also be a good idea if you don’t have a great credit score. Your mortgage banker will be able to walk you through different loan options, each of which have different credit score requirements. If your credit needs a little work before you’re ready to buy, your mortgage banker will be able to chat with you about ways to help improve your credit.
Mistake 3: Opening a new line of credit or making big purchases before closing
Once you find the perfect property and the seller accepts your offer, you will sign a contract. From there, you’ll have a home inspection, appraisal and final walk through, among other steps, before you reach the closing table. Closing usually comes about 30 days after you and the seller sign your contract. Naturally, you’ll want to celebrate! Just don’t celebrate by making another big purchase.
When you make a big purchase, like a new car, or open a new line of credit, like getting a new credit card, it affects your credit score. While your lender has already pulled your score to qualify you for a loan, they will pull it again before you close to make sure you are still financially eligible. A new purchase and credit change could keep you from closing.
When you’re ready to buy your first home, be sure to do your homework so you’re prepared for all the things being a home owner can bring. If you do your research and use your mortgage banker and real estate agent as your go-to sources, you’ll be able to find a great home and start enjoying the benefits of home ownership. For more home ownership tips and tricks, check out the Atlantic Bay blog.