Buying your first home should be one of the most exciting and fun milestones of your life. That excitement and fun can be squashed quickly, however, when the reality of the process and what’s required of you turns out to be different than you expected.
The truth is, the mortgage process and the abundance of regulations surrounding it changes frequently. Really frequently. So, you need a professional who can guide you through the obstacle course. Someone that will educate, guide, and protect you along the way.
Here are 5 rookie mistakes you can avoid to help put you on the right path and set you ahead of the curve:
Rookie Mistake #1: Under/Over Estimating the Costs
Those who overestimate the costs typically do so in regard to the down payment. Many believe that if you want to buy a house you’ve got to have at least 10%, or even 20% for a down payment. This myth was born from a truth, as most are. If you do put 20% down (or otherwise start with a loan-to-value <80%) you avoid having to pay private mortgage insurance. This can save you a lot of money in the long run if you plan to keep the mortgage more than a few years.
The truth is, MOST programs allow a much lower down payment. The run of the mill Fannie Mae Conventional 30 year loan only requires 5% down. Other conventional programs for first time homebuyers allow 3%. FHA requires 3.5% and then there are programs from USDA and VA that offer 100% financing. Not to mention down payment assistance programs that exist in different forms all over the country.
One big problem with overestimating is that you may be waiting longer than you have to buy your home.
Then there are those who underestimate the costs. It’s important to understand, there are NO perfect loan programs. You may not fit into every single option. Programs that allow lower down payments typically have stricter requirements in other areas such as debt-to-income or credit score. You never want to assume that you will qualify for a particular program and build a plan around it until you’ve consulted with a lender.
Rookie Mistake #2: Going Solo
When I say going solo, I don’t mean Han.
Finding a skilled real estate agent that you trust is vital to a successful home purchase. Most first-time home buyers are pleased to learn that using an agent is at zero cost to them. The seller is responsible for paying the commissions of both their agent and yours. Not finding and utilizing a realtor is like going to court without a lawyer. If, like most, you’re a little overwhelmed by the number of realtors that operate in your area I suggest asking your Loan Officer for an introduction to someone they have worked with and trust.
Rookie Mistake #3: Expecting Your Dream Home
Perhaps you are in the position to go out and find the house that has absolutely everything you want. If you’re like most first-time home buyers though, there’s going to be some give and take. I hate to see people become disappointed when it turns out to be much harder than expected to find their ideal home in their ideal budget. I suggest to my clients that they make a list of everything they want. That ideal picture. Then to rank everything based on how essential it is and be willing to sacrifice the bottom few things if necessary.
The reality is, you don’t have to stay in your first home forever. The average first-time homebuyer only spends 2-5 years in the home. Use your first home purchase as a stepping stone. My suggestion is to buy as modestly as you can and use the extra funds to start saving.
Rookie Mistake #4: Shopping Primarily on Rate
Imagine planning a vacation to somewhere several States away and that you had to commit to a particular gas station for your fuel while there. You might think it would be clever to go ahead and call around to some of the stations there to shop for the best gas prices. This is sort of what shopping for a mortgage lender on rate is like. In most areas, the bulk of lenders are going to be extremely close on rate. You may have those outliers on both the high and low ends, but those are normally pretty easy to spot.
What’s the Big Deal?
Shopping this way means there’s no great way to know if you’re getting a useful quote. Most lenders can’t lock your rate until you have a ratified contract on a property. So if someone is giving you a quote without the ability to ensure you get that particular rate, they’re guessing. In some cases, not only is the rate not accurate, you’re the subject of a sales technique. Think about it. You call around to the gas stations and say, “I’m going to be in your town next month for vacation and need to commit to someone to buy my fuel. I want to make sure I’m getting the best deal, so how much is your gas?”
The gas station attendant says, “You’re not going to be here for a month, you say? Our gas is $1.18/gallon.”
That’s the best price you’ve heard from anyone in town, so you commit to get gas there. Now imagine showing up, now in the position to actually buy the gas, and the price is $2.05 (an oddly similar price to the other stations you’d researched). Their reason for the change? “The market shifted”.
Don’t Sweat It!
Save yourself the headache. Make sure you’re not dealing with someone on the far ends of the rate spectrum (either high or low), but ultimately you want to find a lender that has a comprehensive process and that you feel is going to provide you excellent service, educate you, and have your back through the process and after closing.
Rookie Mistake #5: Skipping the Home Inspections
This one is normally connected to underestimating how much money you’ll need. Some people think not doing all the recommended home inspections is a good way to save a buck. Save that buck in some other way. If saving money is high on your priority list, have professional inspectors make sure there’s nothing lurking below the surface. Ensuring that the home you’re interested in is safe, healthy and structurally sound can save you thousands of dollars down the road. Not only that, but when it comes to negotiations, having a professional’s report can help justify requests for repairs. Also, keep in mind that some loan programs require certain inspections to be done. Even if they’re not required, spring for them anyways. You’ll thank me later.
This is only 5 examples of areas people often have misconceptions and make mistakes. Without a trustworthy guide, there are many more traps that can be easy to find yourself caught in. So find a Loan Officer that cares as much as you do about your first home purchase.
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