Buying a home is a significant investment, often the biggest in many people’s lives. It’s an exciting journey full of dreams and aspirations, but it can also bring some anxiety, especially for those new to the process.
Whether you’re a first-time homebuyer or getting back into the market, it’s crucial to be aware of common pitfalls. Let’s explore the ten most common homebuying mistakes and how you may avoid them:
The first step in your homebuying journey should be getting preapproved by a lender. This means they evaluate your finances and give you an idea of how much they’re willing to lend. Knowing this before house hunting helps you focus on homes within your budget, avoiding the heartbreak of falling in love with a house you can’t afford.
Preapproval also shows sellers that you’re a serious and prepared buyer. Skipping this step could mean losing your dream home to more prepared buyers who can move through the closing process more quickly.
Home loans come in various forms, each suited to different needs. Federal Housing Administration or FHA loans, for example, are accessible to eligible first-time homebuyers with lower down payments, VA loans offered by the Department of Veteran Affairs for eligible veterans, and Individual Tax Identification Number (ITIN) loans are available for eligible non-citizens. Picking an unsuitable loan type may lead to overpaying or financial instability.
It’s a common misconception that you need a 20% down payment to buy a home. While a larger down payment may lower your monthly payments and may help avoid private mortgage insurance (PMI), many buyers purchase homes with less money down, thanks to different loan programs. You may also explore down payment assistance programs that help cover the closing fees.
On that note, the cost of buying a home isn’t limited to the down payment. Closing costs, including lender fees, title insurance, and taxes, can add up. Additionally, moving costs, home repairs, and ongoing expenses like property taxes and homeowners’ association fees should be factored into your budget. Read more about upfront costs here.
Your credit score influences the mortgage rates and terms you’re offered. A higher score usually means more favorable rates. Start by checking your credit score and history well in advance. If necessary, take steps like paying down debt or disputing errors to improve your score. This preparation may save you thousands over the life of your loan.
Stability is key when applying for a mortgage. Lenders view a steady employment history as a sign of financial reliability. A recent job change, especially to a different field or for lower pay, may raise red flags for lenders and potentially delay or derail your loan approval.
A home inspection may reveal critical information about the condition of a home and its systems. This allows you to make informed decisions and potentially negotiate repairs or price adjustments. It’s becoming more common for prospective homebuyers to skip an inspection in an attempt to be more competitive, but skipping this step may lead to expensive surprises down the road.
It’s not uncommon for prospective homebuyers to receive a large sum of money from family or friends to help with the down payment and closing costs. Most of the time, this practice of “gift money” is allowed, but only when it satisfies specific lender requirements. Make sure you check with your lender about their qualifications.
The neighborhood plays a crucial role in your living experience and property value. Research factors like schools, crime rates, future development plans, and commute times. Visiting the area at different times and days may provide a clearer picture of what it’s like to live there.
You’re shopping around to find the right home – you should also shop around to find the right mortgage quote! Mortgage rates and terms may vary between lenders. By not shopping around, you might miss out on competitive rates or more favorable terms. Compare multiple quotes to ensure you’re getting the right deal for your financial situation. You can even check your credit score multiple times within a 45-day window without it affecting your credit score.
Navigating the homebuying process may be complex, but you don’t have to do it alone. With the support of a team like ours at The Federal Savings Bank, you can confidently embark on your homebuying journey while avoiding common mistakes along the way.
Start your path to homeownership today by starting the preapproval process and looking into mortgage quotes.
Subject to credit approval. Terms and conditions may apply. Subject to VA eligibility requirements. Property insurance is required on all loans secured by property.
Down payment assistance requirements are based on the mortgage insurer or guarantor’s guidelines. Borrower may fund down payment and closing costs. Down Payment Assistance Program, which assist eligible homebuyers with purchasing a home. Down payment assistance programs are not eligible for all potential homebuyers.
This article is intended for general informational and educational purposes only and should not be construed as financial or tax advice. For more information on financial planning or investment advice, consult a registered investment advisor or financial planner. For tax advice, please consult a tax professional.