Buying your first home is exciting. Many young people view home ownership as the definitive mark of adulthood, the final milestone on a decades-long journey.
And while becoming a homeowner is cause for celebration, you’ll want to ensure you keep your enthusiasm in check just a little while longer.
Keep a level head and you’ll easily avoid these common rookie mistakes first-time buyers make.
Homebuying doesn’t begin with home searching. It begins with a mortgage prequalification, unless you’re lucky to have enough money to pay cash for your 1st house.
Often, first-time homebuyers are afraid to get prequalified.
They fear the lender may tell them they don’t qualify for a mortgage or they qualify for a loan smaller than expected.
“So they pick a price range out of the sky and say, ‘Let’s go look for a house,'” Anderson says.
And that’s not how it should be done.
Yes, it’s more fun to go look at houses than to sit in a lender’s office where you have to expose your financial situation.
But that’s a backward approach.
Get pre-approved, and then find a home. It’s just one way to make sure your home purchase is a financial decision versus and emotional one.
First-time buyers commonly think that they can invest everything they’ve saved into a home, fix it up, and then sell it for a large profit in a few years.
However, a home is a fixed asset that is hard to sell off quickly.
Economics professor Art Carden says that for people looking to start an investment, a stock or bond is a better option than a house, as “I’ve never had to call a plumber because a mutual fund started leaking.”
If you haven’t looked at your credit report for a long time, it can be a daunting task to request this information.
Fortunately, your credit report is free from AnnualCreditReport.com and it will prepare you for what lenders are going to see.
By taking this important step, you will be able to determine any delinquent accounts or balances owing that have gone to collections, and hopefully have these cleaned up before they can become a problem for your mortgage.
The American Society of Home Inspectors says 10 percent of home purchases happen without an inspection.
Quite simply, buyers decide it’s better to save the fee for the down payment – but often, issues arise later that can result in multi-thousand-dollar repair bills.
Foundation problems can be especially nasty, sometimes requiring a teardown.
Before signing a contract, make sure you have a licensed home inspector view the property.
If you have a good history as a tenant, the next step will probably be the easiest of all, but it’s very important in order to prove you’re a responsible candidate for home ownership.
Once you’ve acquired a Verification of Rent from any applicable landlord in the previous year, you’ll want to ensure that you have money in the bank.
While RRSP’s can make a good impression, make sure you have liquid assets available so you can convince the lender your home investment is manageable.
There are a lot of things to know when it comes to buying a home, but if you’re a first time buyer the most important thing is to ensure that your finances are organized and that you’re not diving into more house than you can afford.
By taking the time to determine your debt-to-income ratio and looking into your credit, you can ensure a positive first-time buying experience.
While it’s good to start researching neighborhoods, mortgage terms, and home valuations online, keep in mind that online estimates are just that – estimates.
Not all mortgages are created equal, and the many differences between loans can result in significant changes in the overall cost.
For example, just because a lender is giving you a mortgage without an origination fee, that doesn’t make it a good deal – you could be paying a lot more in interest rates.
Always make sure you thoroughly check and understand loan terms before signing anything.
When you qualify for a mortgage, your lender will tell you the maximum home purchase price they’ll fund, based on your annual income as well as your debt-to-income ratio.
However, just because you can afford a $500,000 two-story townhouse, that doesn’t necessarily make it a good idea to buy said townhouse.
You’ll want to give yourself a cushion in the event that you lose your job, have children, need to pay medical expenses, or go back to school.
First-time buyers often make a variety of mistakes when buying a home, but a mortgage advisor can help you to make the right decisions – decisions that set you on the best possible path toward homeownership.
While you may have a price in mind for what you’re willing to pay for a home, it’s important to determine your debt-to-income ratio before putting in an offer.
Your DTI ratio can be determined by taking your total monthly costs, adding it to what you would be paying for a home and dividing it by your monthly gross income.
If it’s a housing price that will work for you, this amount should equate to less than 43%.
New to the home buying game? You’ll need a reputable real estate agent, a good loan officer or broker, and perhaps a lawyer.
“Venturing into this process alone, without professional help, is not a good idea,” says Steve Anderson, a broker and owner at Re/Max Benchmark Realty in Las Vegas. While every rule has its exception, generally, 1st-time should not try to deal directly with the listing agent.
“If you are getting divorced, are you going to go to your husband’s attorney for help? Of course not,” he says. “Same here. If you go to a listing agent, they are only going to show you their listings. You must find a buyers’ agent to help you.”
If you hire an agent without a referral from friends or family, ask the agent to provide references from previous buyers.
The same goes for loan officers or mortgage brokers.
“It’s very hard for 1st-time homebuyers because they don’t know who they are dealing with,” Anderson says.
It’s crucial to find a professional who will give you truly independent advice. Sometimes that means hiring a lawyer.
You are about to make what may be the biggest investment of your lifetime.
Make sure it’s done right, and work with a realtor! Let's talk - Pat Kalamatas 312.217.4398 or firstname.lastname@example.org