MISTAKES TO AVOID
Buying a home can be an anxiety-ridden process, especially for anyone embarking on homeownership for the very first time.
There’s so much to do and so much you don’t know that “being overwhelmed” can seem like an understatement. You should be wary of falling into a few common traps that first-time buyers often fall into. If you’re aware of these potential mistakes and able to keep yourself from making them you’ll be saving yourself some significant stress on your home buying journey.1.
Not understanding your down payment options
The biggest headache for so many first-time buyers is the down payment. If you don’t have a certain amount to put down on your home loan, however, you might find yourself paying private mortgage insurance (PMI) on the lifetime of the loan. Depending on your credit score, the bank, and other factors, PMI could cost between 0.5 percent to 1 percent of the total loan amount. Most banks require at least a 20 percent down payment before they will waive the need for PMI on the loan. However, there are loans that allow you to put as little as 3 percent down on the home, which is much more reasonable for a first-time buyer, especially if you can accommodate the annual cost of $1,500 to $3,000 in PMI into your monthly payment amount. Veterans could be eligible for zero-down loan programs with no PMI through the Veterans Administration (VA) loan program. Some government organizations and lenders try to incentivize first-time homeownership by offering free down payment grants or loans to qualified buyers. Depending on your age, income level, credit score, and other factors, you could qualify for “free” money to wrap into your down payment.2.
Not getting prequalified for a loan
Between the amount of money you plan to put down on the home, the potential PMI and other cost factors, your monthly cost could be significantly more, or possibly less, than some of those online calculators. Before you trust those “estimated monthly mortgage loan amount” numbers that you see popping up next to your potential new dream home on Realtor.com, Zillow or a brokerage website, it pays to figure out what you can actually afford; that means getting prequalified for a home loan. This means you will need to talk to a mortgage loan officer and submit documentation in order for that loan officer to tell you how much money you can get for your home loan. The prequalification letter you’ll get as a result is much more credible and that means sellers will take it more seriously when it comes time to put in an offer. Be careful: A bank might approve you for a loan amount that’s realistically more debt than you can carry month-to-month. Consider that you’ll need to pay homeowners’ insurance, taxes and possibly flood insurance on your new property or PMI on your loan, and try to make sure you’re not setting yourself up for a total monthly payment that’s more than about one-third of your household’s take-home pay.3.
Not understanding what’s fixable and what’s a deal-breaker
This is another area where a good real estate agent can help. They see so many houses in various stages of repair and updating that they can show you where you can claim another foot or two for bathtub space or let you know that the ceilings are too low for any changes to make much of a difference. In markets where entry-level homes are getting snatched up as soon as they hit the market, knowing what’s acceptable and what isn’t, is a huge advantage and will help you make a more confident decision. None of these mistakes will keep you from buying a home of your own, but they could delay the process and cost you hundreds or even thousands of dollars at the end of the day.