Buying a home is a big decision and can be complex with many moving pieces all at once. For those who have never done it before this can be stressful, overwhelming, and cause buyers to make mistakes along the way. Don’t worry though, after you read this post, you’ll know all the top mistakes home buyers make and how to avoid them.
MISTAKE #1: ASSUMING YOU NEED 20% DOWN IN ORDER TO BUY A HOME
One of the biggest mistakes home buyers make is assuming they need to put down 20 percent of the purchase price. While it’s true that putting down 20 percent can help you avoid paying private mortgage insurance, there are many loan programs available that allow you to put down as little as 3%. In fact, in special circumstances, if you qualify, you can get down payment assistance grants which are completely free and will help you cover the majority of your down payment. If you’re in Milwaukee reach out to me, there are programs that offer between $5,000-$16,000 in down payment assistance.
MISTAKE #2: WAITING TO START SAVING
Another mistake home buyers make is waiting too long to start saving for a down payment. Like many things, the sooner you start the better. Start by simply setting a small amount of your income to be automatically deducted into a savings account each month. That way it’s out of sight and mind. You don’t have to consciously think and remind yourself to do it because it’s automatic. Before you know it, you’ll have accumulated a nice amount for you to use.
MISTAKE #3: SAVING FOR A DOWN PAYMENT ONLY
It’s very common to assume that the downpayment is the only thing a buyer needs to save up for when it comes time to purchase a home. There are what is known as closing costs as well that buyers should budget for. This includes inspection costs, appraisal costs, lender origination costs, home insurance, and title work. All of these extra costs can be estimated at 3-4% of the purchase price. Note that some of these costs require to be paid upfront before closing and some are due only at the time of closing. On top of that if your home needs some light repairs, painting, and furnishing, don’t forget those as well.
MISTAKE #4: BUYING MORE HOMES THAN YOU CAN AFFORD
It’s easy to get caught up in the excitement of buying a home. Just because you are approved with a large loan amount for your potential home, doesn’t mean that you necessarily need to use it all up. Be realistic with your financials, only you can know what you can and cannot comfortably afford. The last thing you want is to be house-rich, but cash poor. Meaning yes you can “afford” a nice big house, but after your monthly house payment your bank account is mostly spent already and now you can’t live a comfortable lifestyle. Everyone has a different lifestyle they want to live, so you’ll have to determine for yourself what that balance is for you.
MISTAKE #5: SKIPPING A PERSONAL CREDIT REPORT CHECK
If you’re financing a home, credit is of the utmost importance in being able to not only get approved for a loan but also being able to obtain the best borrowing rates and terms. Make sure you check your credit report and score before you start the home-buying process so you can address any mistakes or issues. If you find any, dispute them and get them removed. If your credit score is low, work on ways to improve your score before applying for a mortgage loan. In addition, not all credit reporting companies are equal. Make sure you get a report and score from one or better of all three of the main credit bureaus.
MISTAKE #6: CONSULTING WITH A SINGLE LENDER
It’s important to shop around and compare mortgage rates and terms from multiple lenders. Don’t make the mistake of going with the first lender you talk to without comparing offers from others. In addition, different lenders have different lending guidelines they follow as well as programs that they can offer. Some are qualified to provide down payment assistance programs others are not. You can get pre-approved at multiple lenders, as long as you do it all within the same 1-2 week period it will only look like one credit pull.
MISTAKE #7: MISSING OUT ON FIRST-TIME HOME BUYER ASSISTANCE
There are many programs available to help first-time home buyers with down payment assistance, closing costs, and more. Make sure you research and consult with your agent as well as all loan officers you talk to about these programs. Definitely consider taking advantage of any that you qualify for, if it makes sense for your situation.
MISTAKE #8: GETTING MORTGAGE PRE-QUALIFICATION WITHOUT PRE-APPROVAL
Pre-qualification is a quick and easy process that gives you an idea of how much you can afford to spend on a home. However, it’s not the same as pre-approval, which is a more in-depth process that involves a credit check and verification of your income and assets. Make sure you get pre-approved before you start shopping for a home.
MISTAKE #9: SHOPPING FOR A HOME WITHOUT A PRE-APPROVAL
Shopping and touring homes without a pre-approval in hand are like shopping without knowing if you actually have money in the bank. Even if your finances are solid, it is critical to get pre-approval so you at least know what your max allowable budget is. This will help you fine-tune your home search to shop in the correct price range so you don’t waste time looking at homes you can’t afford. Lastly, in this competitive market, homes are moving as quickly as they are coming onto the market. If you don’t have pre-approval, you can’t submit an offer that is credible to a seller. Meaning you have no chance at home even if you find one.
MISTAKE #10: NOT HAVING CLEARLY DEFINED HOME SEARCH CRITERIA
It is critical to know what features you absolutely must have in your home, which would be nice to have, and absolutely would hate. One of the most important is defining the top locations you’d want to live in, as this will not be easily changed as well as setting your budget required as location and budget are often tied together. Having this home criteria defined will help you have a clear picture of what it is you’re looking for. If there are more decision makers involved, your spouse, then this becomes even more important that all parties are on the same page to reach a mutual agreement quicker.
In conclusion, buying a home is a big decision and it’s important to avoid these common mistakes. By being informed and prepared, you can make the home-buying process smoother and more successful. Please drop any questions or comments that you might have and I’ll get back to you.