Purchasing a new home is challenging. You need to save money, find a home, and prepare to move. It’s important to prepare yourself well so that your home-buying experience is easy and even pleasant. Choosing a home should feel like bringing your dream to life because it is. Here are some mistakes you can avoid to help make your home-buying experience a good one.
Thinking You Need 20% for a Down Payment
The myth that you need 20% for a down payment is an old myth that just isn't true. We have multiple programs available for home buyers to help them with affordable down payments. In addition to things like FHA, many states and cities have additional programs to offer down payment assistance.
Waiting to Save Money
Too often, people wait to save money until they're "in a position to buy a home." Don't wait. Ideally, as soon as you begin working you should start saving money for your future. However, now is always a good time to begin saving, even if and especially if you still have at least a few years before you are looking to purchase a home. Saving is important because of another mistake people often make when purchasing a home.
Saving Only for the Down Payment
While it's important to save for your down payment, that's not the only up-front expense you have in buying a home. When saving you also need money for,
These are only some of the expenses that you'll need to look for as you purchase a new home. Remember, you probably have rent, and your rent costs will overlap with your home-buying expenses. You should include in your savings plan at least 1-2 months of rent for your current home to allow yourself time for moving and any delays that can occur between when you close on your new home and move out of your current one.
Getting Pre-Qualified Rather than Pre-Approved
Pre-qualifications don't look at everything, only your credit score (if that), and are often just a marketing tool to get you into the bank. Pre-approvals, on the other hand, look at your income, credit, asset documentation, and run it through underwriting. They give you an actual pre-approval meant to show that you're creditworthy and ready to purchase a home - you just need the home to purchase for final approval.
This is important because sellers and their agents are looking for pre-approval when selecting from potential buyers. Pre-qualification is meaningless in the actual buying process.
Purchasing More than You Can Afford
With interest rates going up, it's more important than ever that you purchase a home that you know you can afford. If you're working with a lender to get a lower introductory rate to help you transition from renting into home ownership, be careful. It may be tempting to purchase a slightly more expensive home. You want to be sure when your interest rate changes that you'll be able to cover the new payments.
Thinking You Know the Local Market
Even if you've spent your entire life in the neighborhood, and you're hoping to buy a home, that doesn't mean that you know your local real estate market. Too often I see people buying local to where they live (a good thing especially for families) without consulting a real estate expert, only to overpay for a home or get into a property or neighborhood that isn't good for their family. Talk to a real estate expert in your area, no matter how long you've been a resident or how much you know about the area. Experts look at multiple factors in helping buyers choose the right home for them. You will not regret taking the time to work with them.
Opening New Lines of Credit
Yes, having good credit is good for buying a home. The higher your credit score the lower your interest rates. If you're worried about your credit, you should keep two things in mind.
A lower credit score doesn't necessarily mean you can't get a mortgage loan. FHA loans typically start at 500 and some cities have programs to help buyers who have lower scores.
Rates given for credit go on ranges, not individual scores. If you have Good credit, you won't see a significant improvement in your rates unless your credit score moves up into the Excellent range.
These two points are important because potential homebuyers are often targeted with advertising for credit cards and other types of loans, often under the guise of "improving your credit." Unless you have poor credit, are a few years out from purchasing a home, and are looking to build up your credit score, you should not take out a new line of credit (and always be cautious about loans and credit cards that promise to improve your credit).
If you're entering the buying market now, do not open new lines of credit. This will impact your credit score and will affect your ability to get a good rate. It can also affect your ability to get pre-approved.
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