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First-time home buyer mistakes are common, and while many are minor, some can be downright disastrous.
Buying a first home is exhilarating. For many people, it represents the culmination of a lifelong dream. But the road to homeownership isn’t always straightforward. It is often filled with complications and missteps that prove challenging to novice buyers.
In this article, we’ll explore six common first-time home buyer mistakes and the steps you can take to avoid them.
Mistake #1: Assuming you need to put 20% down
There’s a common misconception that a 20% or greater down payment is required to buy a home. A larger down payment can qualify you for a better interest rate and lower your monthly payment, so it’s a smart way to go if you can afford it. However, each mortgage loan type has a different credit score and down payment requirement, many of which are well below 20%. It isn’t prudent to devote your entire savings to a down payment, so assess your unique situation to make your decision. Be sure to ask your mortgage lender about first-time home buyer options and explore programs in your state. Federal Housing Administration loans have a minimum down payment of 3.5% and some conventional loan programs allow down payments as low as 3%. Or, you may qualify for a U.S. Department of Agriculture loan or one guaranteed by the Department of Veterans Affairs that doesn’t require a down payment.
Mistake #2: Procrastinating on your savings plan
Establishing and following a budget early on will yield greater savings in the long run. The more you are able to save, the more you can contribute to your new home. At a minimum, you will need cash up-front to cover the down payment and closing costs. It can take several years to save up to buy a median-price home in America, depending upon the location, so it’s wise to start saving now.
Mistake #3: Underestimating the importance of an accurate credit report
Mortgage lenders scrutinize applicants’ credit reports when deciding whether to approve a loan and determining the interest rate. If your credit report contains errors, you might get quoted an interest rate that’s higher than you deserve. That’s why it pays to make sure your credit report is accurate. You are entitled to request a free credit report each year from each of the three main credit bureaus. Examine it carefully and dispute any errors you find.
Mistake #4: Neglecting to consider all home-buying expenses
The down payment on your new home will probably account for the largest portion of your savings, but it’s not the only cost to consider. You will also be responsible for a number of closing costs, which may include:
- Loan origination fees
- Title insurance
- Homeowner’s insurance
- Private mortgage insurance (PMI)
- Property tax
- Escrow fees
Don’t forget to save money for moving expenses and initial upgrades to your new home, such as installing a fence or purchasing new appliances.
Mistake #5: Shopping outside of a realistic price range
It’s fun to look at beautiful homes. That’s why many first-time home buyers fall into the trap of visiting properties before finding out how much they are able to borrow. Then they’re disappointed to learn that their dream home is out of their price range. Talk to a mortgage professional about getting pre-qualified or preapproved for a home loan before you begin your home search. The pre-qualification or preapproval process involves a review of your income and expenses, and it can make your bid more competitive because you’ll be able to demonstrate to sellers that you can back up your offer.
Mistake #6: Unwillingness to compromise
Don’t fall into the perfection trap. If you’re insistent that every aspect of your new residence be flawless, it’s likely to paralyze the buying process. With any home purchase, compromise will always be necessary, and that is especially true for first-time buyers. A starter house is just that—a place to start. After a few years, you’ll have built up some equity and may have advanced in your career and possibly started a family. Your needs will change and then you will be shopping for a home that responds to those requirements. Armed with the right information, it’s easy to avoid these common first-time home buyer mistakes. Don’t forget to shop around to get the best mortgage rates and prepare yourself for the responsibilities of homeownership, too.
The helpful professionals at Certified Title can provide the valuable tools and information you need for all types of residential and commercial real estate transactions. To learn more, please contact our experienced team today.
About Certified Title Corporation: Since 1994, attorney-owned Certified Title Corporation has been furnishing residential and commercial real estate stakeholders across the nation with robust title insurance, settlement, and escrow services. Renowned for their industry-leading reliability and exemplary level of service and quality, the Maryland-based company helps clients from all walks of life achieve their asset goals. To learn more, call (888)486-5511 or visit https://www.certifiedtitlecorp.com/.