The process of buying a home can be complex, and it's not unusual for first-time home buyers to make mistakes. Unfortunately, these mistakes can result in you paying more for your mortgage or having your dream home snatched away by a more prepared buyer. Here are two common mistakes many first timers make and how to avoid them.
Not Getting Prequalified
One mistake people make when purchasing a home is not getting prequalified. There are two reasons why you want to take the time to do this. First, you'll know up front what your upper limit is. Although you should already have figured out how much home you can afford before you begin shopping, getting prequalified will help you avoid making emotional, rather than pragmatic, decisions.
Additionally, a prequalification letter can put you ahead of competitors who are also looking at the home. Sellers are more likely to accept offers from buyers who essentially already have the money rather than take the chance on buyers who may be declined.
The second, and possibly most important, reason is to identify problems with your credit. If the bank declines your application or you get prequalified for less money (or a higher interest rate) than you were expecting, that may indicate you have credit issues. This will give you an opportunity to get your report and fix those problems before you get attached to a home you may lose because you have to spend time rehabilitating your credit score.
Draining Savings for the Down Payment
There's a constant refrain in the real estate industry that home buyers must put down a minimum of 20 percent before they'll be approved for a mortgage. This isn't necessarily true. You can put as little as 3.5 percent and still get a home loan. However, you will be required to obtain private mortgage insurance if you pay anything less than the 20 percent of the home's value.
While there are many good reasons you'll want to pay the 20 percent down payment, you shouldn't drain your bank account to do it. There are other costs you must pay when you purchase a home, so you may be hurting yourself in the short-term by handing over every penny you have to the bank. There may also be repairs and other home maintenance issues you'll need to take care of once you get into the home, and not having the cash on hand can prove problematic.
It's best to have a monetary cushion you can rely on when you buy a home, even if that means you must pay for private mortgage insurance. Remember, you only have to pay for the insurance until the balance on your mortgage equals 80 percent of the home's value, and there are things you can do to make this happen sooner rather than later (e.g. pay more on the mortgage the first few years).
For more advice, contact a professional from MCS Bank.
Share7 May 2017
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