Buying your first home is one of the most exciting decisions you’ll make in your life! It comes with a lot of responsibility, but a lot of excitement too. Before you jump in and buy your first home, know the most common first-time homebuyer mistakes people make.
Not Getting Pre-Approved
The pre-approval is like your ticket to homes for sale. Sellers want that piece of paper that says ‘yes, they are approved to get financing.’ Getting pre-approved is easy and it makes sellers much more willing to consider your bid.
What to do: Find a lender and get pre-approved. Get quotes from a few lenders (three is a good number) to find the best offer.
Spending too Much on a Home
It’s tempting to want the very best (and I want that for you too) but buying more than you can afford only creates financial problems. Just because a bank says you qualify for a certain amount doesn’t mean you have to spend that much.
What to do: Before you buy a home, play with the numbers. See how a mortgage payment fits into your budget. Don’t be afraid to borrow less than you qualify for.
Not Leaving Money in your Savings Account
Putting everything you have down on a home leaves you without a cushion. What happens when the A/C breaks or there’s a plumbing leak? When you own a home, you’re responsible for the maintenance and repairs. It’s an eye-opener when that first repair hits.
What to do: Leave some money in your savings account as a buffer, especially if you can’t contribute to your savings for a while after buying a home.
Ruining your Credit before you Close
Lenders pull your credit a couple of times during the loan process. They pull it during the pre-approval process, sometimes again during underwriting (if more than 60 days pass from the pre-approval date) and again before closing. If you hurt your credit score during this time, you could lose your approval.
What to do: Keep your credit as stable as possible. Keep paying your bills on time, don’t apply for new credit, and don’t use your credit cards.
Making Large Deposits in your Bank Account before Closing
Lenders source every deposit on your bank statement. They track where the money originated to ensure you didn’t borrow it. If you suddenly have large deposits on your bank account, it could delay underwriting and eve cause you to lose your loan.
What to do: If you have large deposits, wait until they are in your account for at least 2 months before applying for a mortgage. Lenders consider funds in your account for 2 months ‘seasoned’ and they usually don’t source them then.
The more time you spend preparing for your first home purchase, the easier the process goes. Finding a home is the fun part, but qualifying for financing and finalizing the transaction requires careful planning and avoiding the top mistakes first-time homebuyers make.