Buying your first home is an exciting milestone! But the process of homebuying can also be difficult to navigate if you’ve never done it before. It’s important to find a lender you trust to help guide you down the twists and turns on the exciting road to homeownership. It is also helpful to know some of the common mistakes first-time homebuyers make, so you can avoid them on your journey to owning your first home.
Looking for a home before applying for a mortgage
Many eager buyers make the mistake of looking at homes before ever getting in front of a mortgage lender. In some markets, there is higher buyer demand than inventory, making the market highly competitive. And in a competitive market, you could lose a property if you aren’t preapproved for a mortgage. It’s important to get pre-approved so you know what you can afford and don’t fall in love with something out of your price range. Additionally, pre-approval sends the message that you’re a serious buyer able to secure a loan.
Not exploring every type of loan
There are several types of loans offered to homebuyers, so make sure you explore all your options. While a Conventional Loan is the most common, there may be a home loan available that is better tailored to your needs. For instance, an FHA Loan may be a great option for first-time buyers and can require a lower down payment/ more flexible qualifying criteria. Or a VA Loan, which is offered to our Veterans and active-duty military personnel. And lastly, an RD (Rural Development) loan by the USDA (U.S. Department of Agriculture) will benefit those in more rural areas. These are less traditional loan types you should be aware of, as they will save you money if you qualify.
Not being aware of your credit and correcting mistakes
The better your credit, the higher chance you have of securing a loan and the lower your mortgage interest rate is likely to be. It’s important to keep a pulse on your credit score at all times, as it is a prominent financial marker. You’ll want to ensure that your credit score is maximized before attempting to secure a home loan. While different types of loans have varying requirements for your credit score, a credit score above 740 is considered very good to excellent. A score above 740 may secure you the lowest rates and give you the best chance of qualifying. Check for tweaks you can make to improve your credit score before diving into the homebuying process.
Ignoring the total costs of homeownership
Be careful not to buy more house than you can afford. Keep in mind you will need to budget for the additional costs that go along with homeownership. While homeownership is likely more attainable than you think, you don’t want to be strapped for cash because you only planned for a down payment and mortgage.
Be aware of other costs associated with owning a home, including:
- Closing Costs: Can include mortgage taxes, lender application fees, attorney’s fees, title insurance, appraisal fees, recording fees, etc. Just make sure your lender is clear with you upfront about what closing costs will look like.
- Insurance: A mortgage will require the purchase of homeowner’s insurance, and the cost can depend on your credit score and the age of your house, among other factors. If you’re near water, you may also be required to purchase flood insurance as well.
- Property Taxes: Find out what the taxes will be in advance, divide it by 12 and add that amount to your estimated monthly payment. Sometimes this is collected monthly via an escrow account and included with your payment.
- Utilities: You will need to budget for a higher utility cost than when renting since most rentals cover some costs, and as a homeowner you are responsible for all of these costs.
- Maintenance: Owning a home also means you’re responsible for anything that breaks inside your home such as water heater, plumbing, etc. Don’t forget outside things such as landscaping, mowing, and other upkeep items.
- HOA: If you’re part of a homeowner’s association, don’t forget to add these monthly dues to your mortgage payment when deciding how much you can afford.
Putting too much or too little down
You may either think you have to produce a larger down payment than is necessary, delaying your dream of homeownership and making it feel impossible to save up enough. Or, you may fall into the trap of not putting enough down, which could mean a sky-high mortgage payment (or the additional cost of PMI - Private Mortgage Insurance). In a way, you have to find the “Goldilocks” of down payments- not too big, not too small, but just right. Your lender can help you find the sweet spot that won’t drain your savings now but also won’t mean living paycheck to paycheck once in your new home.
44% of Americans who don’t own a home said a lack of down payment savings is the stumbling block. If you’re concerned about having enough for a down payment, ask your lender about down payment assistance programs that will help you break through the hurdle of not having cash to put down up front.
Not Asking Your Lender Enough Questions
Remember your lender is here to help you! Make sure to jot down all of the questions before you meet and are ready to ask them all of your questions and leave with as little confusion around the homebuying process as possible. It’s important to work with an approachable lender happy to answer your inquiries. They should be there to make the process easier on you.
Some questions to ask your lender include:
- What is the current interest rate?
- What are the lender fees?
- What is the minimum down payment to qualify?
- What kind of loan is it, and what are the pros and cons of each type?
- How long will the loan process take?
At Citizens Bank, our lenders are here to answer any questions you might have throughout the homebuying process. Let one of our lenders help you purchase your dream home today!