Buying a home for the first time can be a wonderful—and intimidating—experience. With so much information out there, it’s easy to feel overwhelmed. There are ways to streamline the process, both from an emotional and financial perspective. It’s also important as a first-time homebuyer to understand all the mistakes commonly made during the process and learn ways to avoid making them. One of them is the issue of home warranty for buyers.
5 Common Mistakes Homebuyers Make
First-time homebuyers can make a few mistakes during the home-buying process. It’s no wonder. It’s their first home-buying experience, especially if it with the home builders, then it might a bit trickier.. Here are few of the more common mistakes new homebuyers make. Check them out and walk into the process with a little knowledge on your side.
- Not Getting a Pre-Approval
Not starting the process early and not getting pre-approved can throw a wrench in the home buying process, said Joe Parsons, branch manager with Caliber Home Loans in Dublin, California. It’s useful for homebuyers to know how much home they can reasonably afford. With that knowledge they can adjust their expectations and budget accordingly as given in the site http://www.threemenandatruck.net
Another reason to get pre-approved is because pre-approval gives prospective home buyers an opportunity to check their credit—one of the key factors that determine the terms and conditions of your loan. If you’re unsure of your credit standing, now’s the time to find out. You can get your Experian credit score—free—on Credit.com.
“Once you submitted your tax returns, pay stubs and bank statements ‘at a minimum,’” Parsons said, “the loan officer will compile that entire application package and underwrite the file. He’ll then generate an approval based on the findings of the automated underwriting system that we all use,” Parsons explained. “At that point, homebuyers are confidently able to get a pre-approval letter and shop and make an offer on a property, knowing that their financing is already in place.”
- Putting Off Credit Issues
“The other thing that I see first-time borrowers fail to do is not deal with credit issues that may keep them from getting the loan,” Parsons said. Those issues can include paying off debt, raising their credit score or waiting to open more credit cards.
Your credit score is one of the key factors that affect the terms and conditions of your mortgage, so it’s critical to know where your score stands. “Someone with a 620 score will pay almost a full percentage more than an otherwise identical borrower with a 740 score,” Parsons said, referring to the fixed or adjustable interest rate tied to a mortgage. “Credit issues may be easy to fix, which could save the borrowers literally thousands on their loan,” he said. “I consider that to be a major mistake.”
Track Credit Issues
Along with your free Experian credit score on Credit.com, you can get a free credit report card. Your score and report card are updated every two weeks, to let you track where you stand. Your report card includes tips on how you can tackle each of the five key factors that go into your score—payment history, debt usage, credit age, account mix and credit inquiries.
Credit.com Credit Report Card
- Making Assumptions About the Down Payment
It’s not uncommon for first-time homebuyers to assume they need more money for a down payment than they actually do, Parsons said. “I often hear people asking, ‘Can I get away with less than the normal 20% down payment?’ The answer is yes. Sometimes homebuyers can put as little as 3 or 4% down. Also as the market continues to appreciate and rates follow suit, your down payment money could depreciate with it,” he warned. In other words, “waiting costs money.”
- Not Having a Good Real Estate Agent
Finding a knowledgeable real estate agent who has your interests at heart is imperative for first-time homebuyers. After all, that person is responsible for steering you toward your dream home. And you likely have lots of questions.
“There’s a matter of skill and experience that go into the mix,” Parsons said, so it’s important to “spend some time with the [real estate agent] as a counselor.” That means your real estate agent should go beyond identifying what you can qualify for based on assets and income but also be able to pinpoint what you’re seeking in terms of criteria, such as neighborhoods, lifestyle, safety and school districts. For that, finding someone with “current market knowledge,” as Parsons put it, is as important as ensuring they have top credentials.
- Not Researching Mortgage Lenders
Parsons said that finding a great mortgage lender is a must in a competitive market, especially for first-time homebuyers who don’t yet know the ropes. A seasoned mortgage lender can help you set goals and secure a loan within your budget. What’s more, once you find one you trust, you can feel more confident in their mortgage rates and the steps they can take to help protect your finances.
Dealing with someone who’s trustworthy is critical, Parsons said, so it helps to start with referrals from friends and family and ask the right questions. For instance, find out if the lender surprised someone with hidden fees or if they were responsive and easy to work with. You may also ask if they locked in the rate that they promised. Questions like these can give you a sense of whether the lender is worth your time—and your money.
More Helpful Tips for First-Time Homeowners
It’s also important to have money set aside after purchasing your home in case you end up needing to make unexpected repairs. You don’t want to end up emptying your savings to make repairs. Save enough cash for your down payment, add in in the moving expenses, closing costs and other mortgage lending fees, then set up a savings account to build an emergency fund for other unexpected expenses.
Don’t ignore the many programs available for first-time homebuyers.
VA loans are guaranteed by the U.S. Department of Veterans Affairs and can be used by those who served in the military.
USDA loans are for qualified borrowers and allow them to put down 0% down and still secure 100% financing.
FHA loans have smaller down payment requirements of approximately 3.5%, and you may still qualify for an FHA loan even if you find yourself with less-than-perfect credit.
Frequently Asked Questions About Buying a Home
What Do Buyers Look for in a Real Estate Agent?
If you’re considering buying a home, you’re probably going to want some help. A real estate agent is a licensed professional who can provide guidance, resources and know-how. Typically, homebuyers seek someone who is knowledgeable about the area they’re interested in and who can offer objective and helpful information. There are some hoops to jump through, especially as a first-time homebuyer, so you want someone who knows the process inside and out. You can learn more about finding a good realtor on Credit.com.
How Does the Interest Rate on a Mortgage Work?
How the interest rate on a mortgage works depends on the type of loan.
Fixed interest rates for fixed-rate mortgages stay in place for the life of the loan. So if interest rates drop, you can try to refinance at a lower rate, but you’ll never have to worry about your rate going up.
With adjustable-rate mortgages or ARMs, your monthly payments change over time. Common ARMs have a fixed rate for a set period, after which the interest rate adjusts each year.
For example, a 5-year ARM has a set rate for the first five years of the mortgage, then switches to an adjustable rate for the remainder of the mortgage term. It’s advisable to check the index noted in the mortgage agreement for these adjustments. Learn more about the difference between fixed-rate mortgages and adjustable-rate mortgages.
What’s the Due Diligence in Real Estate?
As a first-time homebuyer, you’ve probably heard the phrase, “Use your due diligence.” What it means is that you should take caution—review documents, check your credit score, know your budget, shop the marketplace and have some reasonable idea of what type of financing you qualify for—before buying a home. Purchasing real estate is a risky investment, so the pressure is on you to do your homework beforehand.
Do First-Time Homebuyers Need a Down Payment?
Lenders typically prefer that homebuyers have at least 20% of the purchase price as their down payment. However, many other options exist for people—especially if they’re first-time homebuyers. An FHA loan, for example, only requires a 3.5% down payment, but you also have to pay for mortgage insurance to help offset the cost if your loan defaults.
What’s Down Payment Assistance?
As previously mentioned, there are several ways for first-time homebuyers to get down payment assistance. In addition to FHA loans, there are also other state and local down payment assistance and loan programs available. Often, these assistance programs have requirements that are usually based on the price and location of the home. There are also maximum household income limits and gross monthly incomes for down payment assistance programs.
What’s Private Mortgage Insurance or PMI?
PMI is a type of mortgage insurance homebuyers are often required to pay if they have a conventional loan and made a down payment of less than the traditional 20%. For those with a 15-year FHA loan, the lender can cancel the PMI payments once the debt for the home is paid down to 78% of the home’s total value.
Who Pays for Closing Costs?
Closing costs involve all the different fees and expenses that happen during the closing or settlement process of home buying. Most of the time, you’ll find that the buyer pays most of the closing costs involved with the transaction, but there are a few that the seller might be responsible for. Closing costs typically fall between 2% and 5% of the cost of the new home. These fees may include attorney fees, loan origination and credit report fees, inspection and appraisal fees, title search fees, and escrow deposits—to name a few. Closing cost assistance may also be available for low-to-moderate income borrowers. These programs free up cash to put toward the down payment of the home instead.
Do You Know Your Credit?
Your credit score can have a huge impact on your mortgage and the interest rate you pay. If you don’t know your score, find out what it is. Mortgage lenders most often use your score when determining credit risk of potential borrowers. Mortgage lenders also use the score to help determine the interest rate you pay on the loan.
If your score is lower than you’d like, consider checking all three of your credit reports before applying for a mortgage. Once you obtain all three credit reports, review each. Dispute any errors or fraudulent activity you find and make sure all the other details of the report are correct and accurate.
If your score is right where you want it, happy house hunting!