Buying a home? This mortgage mistake can cost you

12 First-Time Home Buyer Mistakes and How to Avoid Them

Buying a home? This mortgage mistake can cost you

Every year, first-time home buyers venture into the market and make the same mistakes that their parents, siblings and friends made when they bought their first houses.

But today’s novice buyers can stop the cycle. Here are 12 mistakes that first-time home buyers make — and what to do instead.

Get answers to questions about your mortgage, travel, finances — and maintaining your peace of mind.

1. Not figuring out how much house you can afford

Without knowing how much house you can afford, you might waste time. 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. Sometimes it's a good idea to aim low.

How to avoid this mistake: Use a mortgage affordability calculator to help you know what price range is affordable, what's a stretch and what's aggressive.

» CALCULATE: How much house can I afford?

2. Getting just one rate quote

Shopping for a mortgage is shopping for a car or any other expensive item: It pays to compare offers. Mortgage interest rates vary from lender to lender, and so do fees such as closing costs and discount points.

“Mortgage applications within 45 days count as one credit inquiry.”

But according to the Consumer Financial Protection Bureau, almost half of borrowers don't shop for a loan.

» MORE: 5 tips for finding the best mortgage lenders

How to avoid this mistake: Apply with multiple mortgage lenders. A typical borrower could save $430 in interest just in the first year by comparing five lenders, NerdWallet finds. All mortgage applications made within a 45-day window will count as just one credit inquiry.

3. Not checking credit reports and correcting errors

Mortgage lenders will scrutinize your credit reports when deciding whether to approve a loan and at what interest rate. If your credit report contains errors, you might get quoted an interest rate that's higher than you deserve. That's why it pays to make sure your credit report is accurate.

See your free score anytime, get notified when it changes, and build it with personalized insights.

4. Making a down payment that's too small

You don't have to make a 20% down payment to buy a home. Some loan programs (see item No. 5) enable you to buy a home with zero down or 3.5% down. Sometimes that's a good idea, but homeowners occasionally have regrets.

In a survey commissioned by NerdWallet, one in nine (11%) homeowners under age 35 agreed with the statement “I should have waited until I had a bigger down payment.” It was one of the most common regrets that millennial homeowners had.

“The key is making sure your down payment secures an affordable monthly house payment.”

How to avoid this mistake: Figuring out how much to save is a judgment call. A bigger down payment lets you get a smaller mortgage, giving you more affordable monthly house payments.

The downside of taking the time to save more money is that home prices and mortgage rates have been rising, which means it could become more difficult to buy the home you want and you may miss out on building home equity as home values increase.

The key is making sure your down payment helps you secure a payment you’re comfortable making each month.

» MORE:  Down payment strategies for first-time home buyers

In another survey commissioned by NerdWallet, millennial homeowners described how long it took to save for a down payment. Among millennials who had bought a home in the previous five years, it took an average of 3.75 years to save enough to buy. So if it's taking you three or four years to save up, you have plenty of company.

» MORE: How to figure out the right down payment amount for you

5. Not looking for first-time home buyer programs

As a first-time home buyer, you probably don’t have a ton of money saved up for the down payment and closing costs.

But don’t make the error of assuming that you have to delay homeownership while saving for a huge down payment.

There are plenty of low-down-payment loan programs out there, including state programs that offer down payment assistance and competitive mortgage rates for first-time home buyers.

Yes, 11% of millennial homeowners say they regret not making a bigger down payment. But the vast majority don't express such a regret.

» MORE: Learn about first-time home buyer resources in your state

How to avoid this mistake: Ask a mortgage lender about your first-time home buyer options and look for programs in your state. You might qualify for a U.S.

Department of Agriculture loan or one guaranteed by the Department of Veterans Affairs that doesn’t require a down payment. Federal Housing Administration loans have a minimum down payment of 3.

5%, and some conventional loan programs allow down payments as low as 3%.

» MORE: Find a first-time home buyer program that’s right for you

6. Ignoring VA, USDA and FHA loan programs

A lot of first-time home buyers want to or need to make small down payments. But they don't always know the details of government programs that make it easy to buy a home with zero or little down.

How to avoid this mistake: Learn about the following loan programs:

  • VA loans are mortgages guaranteed by the U.S. Department of Veterans Affairs. They're for people who have served in the military. VA loans' claim to fame is that they allow qualified home buyers to put zero percent down and get 100% financing. Borrowers pay a funding fee in lieu of mortgage insurance.» MORE: The basics of VA loans
  • USDA loans can be used to buy homes in areas that are designated rural by the U.S. Department of Agriculture. Qualified borrowers can put zero percent down and get 100% financing. You pay a guarantee fee and an annual fee in lieu of mortgage insurance.» MORE: What you need to know about USDA loans
  • FHA loans allow for down payments as small as 3.5%. What's more, the Federal Housing Administration can be forgiving of imperfect credit. When you get an FHA loan, you pay mortgage insurance for the life of the mortgage, even after you have more than 20% equity.» MORE: All about FHA loans

7. Not knowing whether to pay discount points

Mortgage discount points are fees you pay upfront to reduce your mortgage interest rate. Interest rate savings can add up to a lot of money over the life of a mortgage, and discount points are one way to gain those rate savings if you’re in the right position to purchase them.

How to avoid this mistake: If making a minimal down payment is an accomplishment, the choice is simple: Don't buy discount points.

If you have enough cash on hand, the value of buying points depends on whether you plan to live in the home longer than the “break-even period.

” That's the time it takes for the upfront cost to be exceeded by the monthly savings you get from a lower interest rate.

» MORE: Calculate whether you should pay for discount points

8. Emptying your savings

If you buy a previously owned home, it almost inevitably will need an unexpected repair not long after. Maybe you’ll need to replace a water heater or pay a homeowner's insurance deductible after bad weather.

“That’s a growing pain for the first-time homeowner, when stuff breaks,” says John Pataky, executive vice president of the consumer division of EverBank. “They find themselves in a hole quickly,” if they don't have enough saved for emergencies.

» MORE: How to save for a down payment

How to avoid this mistake: Save enough money to make a down payment, pay for closing costs and moving expenses, and take care of repairs that may come up. Lenders will give you estimates of closing costs, and you can call around to get estimates of moving expenses.

» MORE: Calculate how long it will take you to save for a down payment

9. Applying for credit before the sale is final

One day, you apply for a mortgage. A few weeks later, you close, or finalize, the loan and get the keys to the house. The period between is critical: You want to leave your credit alone as much as possible. It’s a mistake to get a new credit card, buy furniture or appliances on credit, or take out an auto loan before the mortgage closes.

“Wait until after closing to open new credit accounts or charge big expenses to your credit cards.”

Here’s why: The lender’s mortgage decision is your credit score and your debt-to-income ratio, which is the percentage of your income that goes toward monthly debt payments.

Applying for credit can reduce your credit score a few points. Getting a new loan, or adding to your monthly debt payments, will increase your debt-to-income ratio.

Neither of those is good from the mortgage lender’s perspective.

» MORE: Why debt-to-income ratio matters

Within about a week of the closing, the lender will check your credit one last time. If your credit score has fallen, or if your debt-to-income ratio has gone up, the lender might change the interest rate or fees on the mortgage. It could cause a delay in your closing, or even result in a canceled mortgage.

How to avoid this mistake: Wait until after closing to open new credit accounts or to charge furniture, appliances or tools to your credit cards. It’s OK to have all those things picked out ahead of time; just don’t buy them on credit until after you have the keys in hand.

» MORE: What not to do during mortgage approval

10. Shopping for a house before a mortgage

It’s more fun to look at homes than it is to talk about your finances with a lender.

So that’s what a lot of first-time home buyers do: They visit properties before finding out how much they are able to borrow.

Then, they are disappointed when they discover they were looking in the wrong price range (either too high or too low) or when they find the right home, but aren’t able to make a serious offer.

» MORE: Calculate the estimated value of a home you're interested in

How to avoid this mistake: Talk to a mortgage professional about getting pre-qualified or even preapproved for a home loan before you start to seriously shop for a place. The pre-qualification or preapproval process involves a review of your income and expenses, and it can make your bid more competitive because you’ll be able to show sellers that you can back up your offer.

Neal Khoorchand, broker-owner of Century 21 Professional Realty in the South Ozone Park neighborhood of Queens, New York, pre-qualifies his clients before showing them properties.

“If you’re qualified for a one-family house for $500,000, we’re not going to show you a one-family for $600,000 — it would be a waste of time,” he says.

» MORE: What a preapproval is and why it matters

11. Underestimating the costs of homeownership

After you buy a home, the monthly bills keep stacking up. This can come as a surprise if you’re not ready.

“It’s not just your mortgage payment,” says Seth Feinman, vice president of Silver Fin Capital, a mortgage brokerage in Great Neck, New York. “You’re going to have the oil bill, the gas bill, you’re going to have a cable bill, you’re going to have all these things that the bank doesn’t care about when qualifying you for a mortgage.”

Renters often pay these kinds of bills, too. But a new home could have higher costs — and it might come with entirely new bills, such as homeowner association fees.

How to avoid this mistake: Work with a real estate agent who can tell you how much the neighborhood’s property taxes and insurance typically cost. Ask to see the seller’s utility bills for the last 12 months the home was occupied so you have an idea how much they will cost after you move in.

» MORE: Calculate the real costs of owning a home

12. Miscalculating repair and renovation costs

First-time home buyers are frequently surprised by high repair and renovation costs. Buyers can make two mistakes: First, they get a repair estimate from just one contractor, and the estimate is unrealistically low. Second, their perspective is distorted by reality TV shows that make renovations look faster, cheaper and easier than they are in the real world.

How to avoid this mistake: Assume that all repair estimates are low. James Ramos, owner of Re/Max Bay to Bay, a real estate brokerage in Tampa, Florida, recommends doubling the estimates to get a more realistic view of costs.

Seek more than one estimate for expensive repairs, such as roof replacements. A good real estate agent should be able to give you referrals to contractors who can give you estimates. But you also should seek independent referrals from friends, family and co-workers so you can compare those estimates against ones you receive from contractors your agent refers.

» MORE: Why you should budget for repairs even before you buy

Источник: https://www.nerdwallet.com/article/mortgages/first-time-home-buyer-mistakes-that-are-easy-to-avoid

Common Mistakes Home Buyers Make During the Mortgage Process

Buying a home? This mortgage mistake can cost you

The home loan process can be daunting — especially if you’re a first-time home buyer who doesn’t know what to expect. Fear no more. We took some time to discuss common home buying mistakes that happen throughout the mortgage process, to better prepare you for what not to do.

1. Failing to check credit scores in advance

Your credit score represents your overall credit history, and lenders consider it as a key indicator of how ly you are to repay your mortgage. So, the higher your score, the better interest rate you’ll receive simply because you’re considered a more trustworthy borrower. This can save you thousands of dollars in interest over the life of your loan.

Before starting the mortgage application process, be sure your credit score is healthy.  To accomplish this, lower your debt, make (debt) payments on time, and limit your credit applications. And of course, check your credit score. It’s something you can do for free without affecting your credit.

Curious how credit scores affect interest rates? Learn the basics and save a ton in the long run!

2. Starting the home loan process too late

An American Financing sales manager says, “One of the most common home buying mistakes is that people tend to start the process backward.  We always suggest getting financing approved before the home search. This allows us to assess your needs and get you quickly pre-approved.

Every now and then, customers call in and say that they want to put an offer in on a home, but are not approved. While it’s perfectly acceptable to find a home first, there’s only so much we can do in a short time before another buyer — with pre-approval — comes in and gets their offer accepted. This is especially true in hot, seller’s markets Denver.

That’s why we always recommend getting approval going 30-60 days prior to shopping.”

Let’s consider the stumble across your dream home scenario. Say you’re passively searching for homes and surprisingly come across everything you’ve always wanted and more. Talk about a piqued interest level.

The price point seems reasonable, so you begin actively researching mortgage lenders to see where you can find the best rate, hopefully in the shortest amount of time.

Only now you find out, your spouse’s less than perfect credit, or your rather high debt-to-income (DTI) ratio is limiting the amount to which you qualify. It can be heartbreaking. Avoid it altogether and learn upfront about what you can afford.

Not ready to start the home loan process? Consult a home affordability calculator.

3. Opening or closing lines of credit

Once you receive mortgage pre-approval or have an offer accepted, you may think it’s time to start shopping for new home decor. Do so in moderation. You don’t want to fall into the trap of signing up for a new credit card to cover these expenses. By opening a new line of credit prior to funding your mortgage, your credit score takes a hit, even if you don’t end up using the card.

Let’s say you end up using the card, and you charge hundreds or even thousands on it. You’ve now increased your debt, which affects your DTI. If you’re DTI is too high, you risk losing mortgage approval.

4. Not saving enough for a down payment

There are a lot of affordable loan programs that require 10%, even 3.5% down payment. Still, on a $300,000 house, that can cost over $10,000 (and does not include any mortgage origination fees or closing costs). Even with help from down payment assistance grants, home buyers still need some money down.

Let’s not forget: the more you can put down, the less ly your chances are of having to pay monthly mortgage insurance. And, the less you put down, the higher your monthly payment. You’ll want to strongly consider your financial situation and talk it through with an advisor or mortgage consultant before falling in love with a home that’s your budget.

5. Focusing too much on the rate

An American Financing sales manager says “a lot of home buyers — and even homeowners looking to refinance — spend too much time concentrating on the rate without regard to anything else. Don't be driven by interest rates. In a lot of cases, a lower principal balance with fewer fees has a lower payment than a lower rate with higher fees.”

Not to mention the fact that interest rates generally don’t move much. The right property comes along rarely enough that overemphasizing rates can cost you — especially now, where home prices continue to rise around the country.

To put things in perspective, rate increases raise monthly mortgage payments but not as much as home buyers expect. A quarter-point change isn’t ly to alter the monthly payment on your mortgage by more than $20-$30, at the most. For example: on a $200,000 home with a 30-year mortgage, the expected increase of a quarter of a point translates to paying roughly $30 more per month.

6. Buying more house than necessary

Another common home buying mistake is falling in love with a house you can barely afford. An American Financing mortgage consultant says that “buyers find the most long-term success when figuring out what they can afford, how much they can put into a down payment, and then sticking to the plan. Creating a budget and determining a comfortable monthly payment is key.”

Just because you are approved for a higher loan amount does not mean you have to overextend yourself.

Live within your means, and you'll be better prepared to avoid financial losses.  If something were to happen and you needed to quickly sell or rent the property — remember, markets change. If you bought the largest home in the neighborhood, that might not help when it comes to selling.

Buying a home is ly the biggest purchase you’ll make. A good rule of thumb is to spend 28% of gross income on housing.

7. Underestimating the added costs of homeownership

Don’t become house poor by purchasing too much home. You’re going to experience utility bills, potential issues ( a water heater or roof replacement), and even home furnishing costs. According to a recent report shared by Zillow and Thumbtack, small overlooked home expenses can cost homeowners an average of $9,080 a year.

Quick tip: Prevent issues by following a home maintenance checklist.

Take your time to prepare before committing to a home investment. Always remember you have options. Options in mortgage lenders, properties, realtors, and loan programs.

When you’re ready to experience the journey toward homeownership, choose to work with a company that has your best interests in mind and is focused on your schedule.

Be sure to ask the right questions before buying a home, and of course, enjoy the experience!

Want to learn more? Schedule an appointment with a mortgage consultant.

Let's talk soon!

Источник: https://www.americanfinancing.net/mortgage-basics/home-loan-process-mistakes

8 Costly Mistakes First-Time Homebuyers Need to Avoid

Buying a home? This mortgage mistake can cost you

Some of life’s most important (and costly) lessons are learned through trial and error. And, no matter how much they teach you in school, there will always be a handful of topics that never make it into the classroom.

For example, we’d wager no one ever taught you how to file your taxes, pick a health insurance plan, or even buy a car. Along those lines, it’s ly no one will ever teach you the ins and outs of buying your first home.

Quite frankly, we think that’s crazy.

To fix that, we’re going to offer some homebuying advice for first-timers by exploring the most common mistakes we see couples make as they shop for their first home.

Let’s get started by talking about a pretty big topic: money.

Mistake #1 – Overshooting Your Original Budget

Notice how we said original? That’s because it’s not uncommon for first-time homebuyers to set a budget and, over time … inflate it.

When buying a home, it is absolutely critical to remove all emotion from discussions of money.

While doing your research, you might fall in love with granite countertops or stone walls, but you must keep your budget firm – for multiple reasons.

Mostly because life is full of uncertainties. What happens if you change jobs, your salary dips, or the housing market takes another dive?

The easiest way to adhere to your budget is simple: before you begin your home buying journey, get pre-approved for a home loan.

Pre-approval on a home loan is a great validator if you’re planning to hire a realtor or homebuilder. Plus, when you know what you can actually afford, you’ll save countless hours (and emotional energy) by researching only the homes and plans within your predetermined price range.

Mistake #2 – Not Accounting for Additional Costs

First time homebuyers are usually surprised to learn the final cost to build or buy a home is a lot more complicated than taking out a loan and paying a mortgage. All kinds of costs need to be considered during your budgeting phase.

To start, there are:

  • Closing Costs – A lot of people get themselves into trouble by forgetting to budget for closing costs, the average amount being $3,700. We suggest budgeting 2-5% of your purchase price.
  • Property Taxes – Taxes vary widely from county-to-county, so do your research! This is less of an issue if you escrow for your taxes.
  • Homeowners Insurance – You MUST shop around for homeowners insurance. There’s a good chance you’ll end up paying more than you should if you get lazy and decide to just bundle homeowners with your car insurance provider.
  • Appraisal Fees – Typical homes cost about $300-500 to appraise, and the fee is typically attached to your closing costs.
  • Escrow Fees – Lots of people escrow their homeowner’s insurance and property taxes, which can be really convenient (as long as you make sure to factor those additional costs into your monthly mortgage payment).
  • Moving Costs – You not only need to get where you’re going, but also furnish it (at least partially) once you have the keys.
  • Homeowners Association Fees – HOA fees vary broadly; they can be next-to-nothing or very steep, depending on your neighborhood. Be sure to ask!
  • Annual Maintenance – A good rule of thumb is to annually budget about 1% of your home’s purchase price for maintenance work. You’re less ly to need that much with a new home, but it’s important to be prepared for things storm damage.
  • Home Furnishings – A lot of people become “house poor” by designating too much (or all) of their money for the actual home purchase and down payment. Seriously, it’s no fun getting the keys to your dream home knowing there’s no money left to furnish it (or even buy groceries). Another mistake is pouring your finances into all new furnishings as soon as you move in. Remember, a new home doesn’t necessarily mean you need ‘new everything else’.  Make smart, deliberate decisions and add to your new home over time!

Mistake #3 – Skimping on Your Down Payment

You want your down payment to be as large as possible, and there are several reasons why, but the three biggest are:

  • Higher Mortgage — With a low down payment, your monthly mortgage payments will be higher.
  • Less Equity — You’ll have less equity in your home, making it harder to stay in the black if you need to resell.
  • Private Mortgage Insurance — Until your equity in the home exceeds 20%, you’ll ly need to pay Private Mortgage Insurance (PMI) ON TOP of your regular insurance policies.

Mistake #4 – Ignoring Your Own Plans for the Future

Where are you in life? Your career? Where do you want to be in a few years? Ask yourself these types of questions before committing to a home purchase.

Are you planning on moving in the near future? If so, you should probably keep renting.

If you’re not sure about your timeline, a good rule of thumb is to not buy a home unless you can commit to living there for a minimum of 2 years — or just long enough to build equity and avoid a potential loss at resale. Because, while paying rent isn’t fun, neither is being trapped by premature homeownership.

What will your family look in the coming years? If you’re planning on having more kids, that’s one thing; but if you already have children (or teenagers), don’t let them affect your long-term decisions on a new home. Be realistic. They’ll be leaving in a few years, and you don’t necessarily need specialized space for just for them.

Look beyond the short-term and focus on finding a layout that suits your long-term needs.

Mistake #5 – Compromising on Your New Home’s Function

We all love home renovation and house hunting television programs, but they’ve done a lot to skew the average consumer’s perception of what’s important in a home. Oftentimes, first-time homebuyers will fall in love with aesthetic features of their new home while overlooking (or compromising) on its overall functionality.

For instance, don’t spring for quartz countertops if the bump in price forces you to compromise on a particular drawer configuration that makes more sense for your needs. Get it? A lot of the time, overall function is more important than material upgrades.

Similarly, don’t build a two-bedroom home if you’re planning on having a big family!

Here’s a tip for those planning to build a home: go ahead and price all the features you might want.

By absorbing certain costs into your mortgage, there’s a good chance you can afford the more expensive, functional additions instead of paying for them out-of-pocket years later.

For example, adding a fence at our Kinway neighborhood costs $4,500 out-of-pocket, but that only translates to a little more than $20 per month on a mortgage payment.

Mistake #6 – Failing to Get on the Same Page As Your Partner

This is especially true when it comes to home selections.

We see it lot. One party is set on all kinds of high-end options while the other … simply isn’t. A lot goes into preparing to talk with a homebuilder, but clear communication with your partner prior to the home selection process can save you (and your relationship) a lot of unnecessary stress.

Needs vs. Wants List

It’s important to understand that you’re probably not going to get everything on your wish list. So, in order to figure out where compromise is most ly to occur, we suggest creating a two-column ‘Need vs. Want’ list.

  • Column 1 is for your “must-haves” — things lot location or number of bedrooms.
  • Column 2 is for everything else, or the “nice-to-haves”. This could be details such as countertops, square footage, or foundation type.

Mistake #7 – Setting Unrealistic Timelines

It doesn’t happen all the time, but some prospective homebuyers visit our office ready to sign a contract with full expectations that construction will start within a week – or less. Obviously, that’s not going to happen.

If you want to build a new home, understand it usually takes 4-to-6 months to plan and build one.

If your time requirements are more immediate, but you still want a new home, we suggest talking to your homebuilder to see if they have any move-in ready, new construction homes available for purchase.

Mistake #8 – Not Considering Future Resale Value

It’s important not to overestimate your future appraisal value.

Be sure to ask yourself, ‘when the time comes to put your new home back on the market, will it be easy to sell?’

A little-known fact a lot of new homebuyers don’t know is that exterior features don’t necessarily add to your overall appraisal value.

For example, that stone upgrade might look amazing, but even though it cost you 20% more than brick, it will appraise the exact same as brick. That 20% difference is now a sunk cost. This general rule applies to stamped concrete, larger porches, and decks. All of which will improve your quality of life, and are sound investments if you’re planning your forever home.

Everyone Makes Mistakes

The easiest way to avoid them is educating yourself.

To recap:

  1. Set your budget before shopping around, and don’t deviate … no matter how big your eyes get.
  2. Don’t forget to factor in all the costs associated with buying a home. It’s a lot more than just the down payment.
  3. Speaking of which, don’t skimp on your down payment. You’ll pay for it later.
  4. where you see yourself in 2-5 years, make forward-thinking decisions about your home design and its location.
  5. Remember, the overall function of a room is more important than spending money on high-end materials.
  6. Stay on the same page as your partner about your new home and what it will look by communicating constantly.
  7. It takes 4 to 6 months to build a new home, so plan accordingly.
  8. Do not overestimate the resale value of your new home. Remember, exterior finishes won’t raise your appraisal value.

When you’re ready to make the jump to home ownership, always remember that there’s a lot of money on the line … YOUR money.

Stay smart!

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Источник: https://www.reinbrechthomes.com/blog/8-costly-mistakes-first-time-homebuyers-need-to-avoid/

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