5 First-Time Homebuyer Mistakes To Avoid
Buying your first home is very exciting! But, it also comes with many big decisions to make, and it can be very overwhelming if you don’t have the proper guidance. Here are 5 mistakes that first-time homebuyers can make that you should avoid.
1. Looking For A Home Before Applying For A Mortgage:
It’s important to talk to a mortgage lender and get pre-qualified before searching for a home. Not only will the pre-qualification tell you how much you can really afford so you don’t waste time seeking homes outside your price range, but it could be what stands between you getting into the home of your dreams or losing out on it.
In competitive markets, you could lose out on a property if you aren’t already pre-qualified and someone else who wants it is.
2. Assuming You Need A 20 Percent Down Payment:
The long-held belief that you must put down 20 percent is (often) a myth. While a 20 percent down payment does help you avoid mortgage insurance, many buyers today don’t want to (or can’t) put down that much money. In fact, the median down payment on a home is 12 percent, according to the National Association of Realtors, and 6 percent for first-time buyers.
Delaying your home purchase to save up 20 percent could take years and could constrain you from hitting other financial goals like maximizing your retirement savings, adding to your emergency fund, or paying down high-interest debt.
3. Not Looking For First-time Homebuyer Programs:
As a first-time homebuyer, you probably don’t have a ton of money saved up for the down payment and closing costs. But don’t make the error of assuming that you have to delay homeownership while saving for a substantial down payment. There are plenty of low-down-payment loan programs out there, including state programs that offer down payment assistance and competitive mortgage rates for first-time homebuyers.
4. Overlooking FHA, VA, And USDA Loans:
Look into one of the three government-insured loan programs backed by the Federal Housing Administration (FHA loans), U.S. Department of Veterans Affairs (VA loans), and U.S Department of Agriculture (USDA loans). Here’s a brief overview of each:
FHA loans require just 3.5 percent down with typically a minimum 580 credit score. FHA loans can fill the gap for borrowers who don’t have top-notch credit or little money saved up. The major drawback to these loans is mandatory mortgage insurance, paid both annually and upfront at closing.
VA loans are backed by the VA for eligible active-duty and veteran military service members and their spouses. These loans don’t require a down payment, but some borrowers may pay a funding fee. VA loans are offered through private lenders and come with a cap on lender fees to keep borrowing costs affordable.
USDA loans help moderate to low-income borrowers buy homes in rural areas. You must purchase a home in a USDA-eligible area and meet certain income limits to qualify. Some USDA loans do not require a down payment for eligible borrowers with low incomes.
5. Applying For Credit Before The Sale Is Final:
The lender’s mortgage decision is based on your credit score and your debt-to-income ratio, which is the percentage of your income that goes toward monthly debt payments. Applying for credit can reduce
dit score by a few points. Getting a new loan, or adding to your monthly debt payments, will increase your debt-to-income ratio.
We can help you navigate the home buying process and avoid common missteps. Contact us today to get started on your path towards homeownership.
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