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Avoid These 11 Mistakes First-Time Home-Buyers Commonly Make!September 25, 2020
Buying your first home can be wonderfully exciting; however, this process can be full of apprehensions too.
After all, in such situations it is quite easy to get caught up in the moment and make mistakes that you will end up regretting later.
Listed below are some common errors most first-time home buyers make, and how you can avoid them.
1. Searching for a home before applying for a mortgage
More often than not, this leads prospective buyers to eye homes they cannot afford.
In many cases they even lose the chance of owning a property they like, simply because it's off the market by the time they get approved for a mortgage.
The best way to avoid such situations is to obtain a fully underwritten approval before you start looking for your dream house.
This will prove to house agents that you are a serious buyer and that your finances are in good enough shape to allow you to get a loan.
2. Communicating with only one lender
Many first-time home buyers, instead of shopping around, decide to settle for the first lender that they speak with - which means that they often pass up the chance to get the best deal.
The ideal thing to do is to speak with at least three lenders and a mortgage broker, compare rates, fees, and loan terms, and also evaluate their customer service and responsiveness to ensure that the whole home-buying process goes smoothly.
3. Opting for more than what you can afford
Just because you qualify for a $200,000 loan doesn’t mean that you will be able to meet the monthly payments associated with it.
So, make sure you don’t stretch your budget during the home buying process – else you may risk losing your house if you fall on tough financial times.
4. Rushing the process
If you rush into the home-buying process without first saving up for down payment and closing costs, fixing items on your credit report, and having a clear conversation with your realtor and lender about what to expect, you may get into trouble later on.
Hence, plan your home-buying activity ideally a year in advance, and make sure you have all the prerequisites in place before you make any moves.
5. Using up all your savings
You should never use up all your savings on down payment and closing costs.
Instead, make sure you have at least three to six months of living expenses in an emergency fund – this will act as a cushion if you run into unforeseen expenditures.
6. Not being careful with credit
Lenders pull credit reports before approval and also just before closing to make sure nothing has changed, so make sure you keep your financial picture constant during this time.
New loans or credit card applications could change your credit score and debt-to-income ratio, so avoid these at all costs, as they may jeopardize your chances of final approval.
7. Choosing house over neighborhood
Never choose a neighborhood you hate just because it contains a house you love.
After all, you can always add a third bathroom to your house later, but you will not be able to lower your neighborhood crime stats or improve the local school ratings.
8. Assuming you need to put down a 20% down payment
You can buy your own home by putting as little as 3 percent down for a conventional mortgage.
Some government-insured loans require 3.5 percent down or zero down.
So, make sure you find out about all options before spending years accumulating 20%.
9. Waiting for the perfect property
This is equivalent to looking for the proverbial needle in a haystack.
A better option is to keep an open mind regarding what’s available in the market, and then put in some sweat equity to find the house closest to your dreams.
10. Overlooking the hidden costs of home ownership
Apart from principal and interest, you will also have to pay property taxes, mortgage insurance, homeowners insurance, hazard insurance, repairs, maintenance, and utilities, so make sure there is space for these in your monthly budget.
11. Overlooking the homebuyer’s rebate
In most U.S. states, homebuyers can get a rebate of up to one percent of the home’s sales price that comes out of the buyer's agent’s commission.
So, be sure to find out if your agent is willing to provide this rebate at closing.
Consider that on a home worth $200,000, you can save $2,000 – it’s not a chance that should be passed up.
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