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For the last few years, it’s been a great time to buy. Home prices have been low, and mortgage rates are in the realm of the ridiculously low. However, it’s a good idea to remember that a home purchase is a big deal. It’s one of the largest financial commitments you can make — and you want to do it right.
If you are first-time homebuyer, you might be surprised at the pitfalls that can beset you.
Here are 5 mortgage mistakes to avoid as a first-time homebuyer:
The very first thing you need to do, before you apply for a mortgage (or even begin house hunting) is to check your credit. Your credit situation will determine whether or not you are approved for a loan, and it will set your interest rate. If you have fair credit, you won’t get the best interest rates available. Over time, that can lead you to paying tens of thousands of extra dollars on your loan.
Do yourself a favor and check your credit report. Fix any errors that could be costing you, and work on improving how you appear on paper. You’ll get a better deal, and pay less over time.
2. Failure To Season Your Assets
Underwriters look carefully at your assets, and where the money is coming from. You need to show that you have long-term assets capable of making the down payment, paying any closing costs, and making the regular payments. Long-term assets that have been available to you for a while are known as “seasoned” assets. Make sure that your bank accounts have been built up, and that you have a history of assets in investment accounts and retirement accounts. Simply transferring money in from your parents just before you apply for the loan won’t do you any favors.
3. Forgetting To Consider The Entire Cost Of Owning A Home
Many first-time homebuyers forget that there is more to the cost of owning a home than paying principal and interest. In fact, you also have to consider the cost of homeowner’s insurance and property taxes. Consider these items as you evaluate a home’s affordability. Also, realize that you might have other costs that you didn’t have as a renter, including higher utility bills and costs related to maintenance and repairs.
4. Quitting Your Job
Now is not the time to quit your job. Along with your credit, a lender is going to want to know that you have stable and reliable income. The truth of the matter is that the lender is on the line, putting up the money. If you can’t make payments, the lender is on the hook for the large amount of money paid for the home. If you have considered changing jobs, wait until after you close on your mortgage. The lender will want to see that you have a good history with your employer.
5. Applying For More Credit
Not only should you check your credit before you apply for a home mortgage loan, but you should also be wary of applying for more credit.
Before your loan closes, the lender will likely pull your credit again. If you have applied for additional credit, you might be rejected at the last minute and your deal could fall through.
One of the most basic mistakes first-time homebuyers make is shopping for a home before you know how much you can afford. This is a common mistake made by home buyers when shopping for a mortgage.
You should avoid actions that could significantly decrease the cash or assets you have under your name. This means waiting to purchase big-ticket items such as a car, boat, or furniture until after you have completely closed on your mortgage loan.
Putting down 20% of the home's purchase price is a traditional and ideal down payment option. For a $400,000 home, a 20% down payment would be $80,000. This option may help you avoid private mortgage insurance (PMI) and can lead to more favorable loan terms.
FHA loans require a down payment of 3.5%. For a $500,000 home, this amounts to $17,500. Closing costs should also be taken into consideration. These include various fees and taxes and generally fall between 2% and 2.25% of the listing price.
suspicious personally identifying information, such as a suspicious address; unusual use of – or suspicious activity relating to – a covered account; and. notices from customers, victims of identity theft, law enforcement authorities, or other businesses about possible identity theft in connection with covered accounts ...
A big purchase is anything that's outside normal spending. So a homebuyer can still buy groceries, make car payments, pay for their yard service, and go to restaurants. The mortgage lender will, however, flag any unusually large expenses.
According to the 28/36 rule, you should spend no more than 28% of your gross monthly income on housing and no more than 36% on all debts. Housing costs can include: Your monthly mortgage payment. Homeowners Insurance.
The most common regret, the outlet found, has to do with an abode's location, followed by having “bad neighbors,” and in third place having a high interest rate.
A recent study reveals that 93% of homebuyers have regrets over their purchase. That's one stunning conclusion of a survey by Clever Real Estate of recent homebuyers about the state of the housing market.
If you discover material defects after the real estate transaction has closed, you may have an action for breach of contract. A qualified, local real estate attorney with experience in housing and construction defects can help you understand your rights and draft an appropriate demand letter.
Yes, you can use your credit card before your closing date, but do your best to keep your purchases small and pay off your balance swiftly. In other words: Hold off on purchasing that new furniture, paint or other items in anticipation of your new home until after you've got the keys in hand.
How soon after closing can I use my credit card? If you already have a credit card (or opened a new card shortly after closing on a home mortgage loan) there's no need to wait before using the account.
Income Limits: Some first-time homebuyer programs have income limits, which means that buyers with higher incomes may not qualify for assistance. Potential for Higher Closing Costs: Some first-time homebuyer programs require buyers to use certain lenders or real estate agents.
You could end up looking at houses that you can't afford yet, or visiting homes that are below your optimal price level. For many first-time buyers, the goal is to buy a house and get a loan with a comfortable monthly payment that won't keep them up at night.
Of COURSE they're going to want you to think you can afford that bigger loan! Don't believe them. Figure out your monthly budget and go by that. In the same vein, you're going to have to pay for so much more than just the down payment.
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The very first thing you need to do, before you apply for a mortgage (or even begin house hunting) is to check your credit. Your credit situation will determine whether or not you are approved for a loan, and it will set your interest rate. If you have fair credit, you won’t get the best interest rates available. Over time, that can lead you to paying tens of thousands of extra dollars on your loan.