HOMEBUYING MISTAKES TO AVOID AT ALL COSTS
18 Aug, 2021
Buying a home can be one of the most exciting times of your life, but if you make a mistake, it could also be the costliest mistake you ever make. Knowing the homebuying mistakes to avoid can help you make the right investment and not have the dreaded buyer’s remorse.
Here’s what you should avoid.
Buying Before You Know What You Can Afford
We know it’s exciting to buy a house, but would you shop for a car before you know what you can afford? You’d be wasting everyone’s time including your own if you don’t know what you can afford first.
It takes only a little time to get pre-approved for a loan. This helps you understand how much you can afford and what homes you can buy. Why waste time shopping for homes outside your budget? Buying a home is stressful enough, don’t waste time looking at homes you can’t afford.
Pre-approval (offered to all Valley Mortgage customers at no cost) is much more valuable than the traditional pre-qualification letter offered by most bank and mortgage brokers.
Not Checking your Credit
The first thing lenders look at when you apply for a loan is your credit score. If you don’t know your credit score before you apply, you could get turned down or pay more for a loan than necessary.
Everyone gets free access to their credit report weekly until April 2022. Take advantage of it and pull your credit from all three bureaus (TransUnion, Equifax, and Experian). Look for anything you can ‘fix,” like late payments, overextended credit, or collections. Credit scores change monthly so there’s always time to improve your score. Keeping balances as low possible can increase your score significantly, especially if you keep the total balance under 40% of your maximum limits limit.
Not Considering Contingencies
When you sign a sales contract, it’s a legally binding agreement. You are usually on the hook to buy the home no matter what happens between signing it and the closing. If the appraisal comes back lower than expected or the home inspection turns up serious problems with the structure, you must still buy it or risk losing your escrow deposit, which could be 1% - 3% of the loan amount.
A contingency gives you a way out should something not work out as planned. For example, if the home appraises for less than you agreed to pay, an appraisal contingency allows you to back out of the contract, keeping your escrow deposit.
Not Looking at Multiple Homes
Buying a home is an emotional experience. Sometimes you may walk into a home and fall in love immediately. Don’t let emotions take over, forcing you to make an offer on the spot.
Instead, step back and give it time. Look at other homes and compare them to the home you fell in love with right away. With time and other homes to compare it to, you may find that the first home isn’t as great as you thought.
If it is, great, you can make an offer, but you’ll sleep better at night knowing you looked around and this was the best house for your needs.
Buying more than you can Afford
Because buying a home is emotional, it’s easy to pay more for a home than you can afford. Once you have your pre-approval, make sure the payment fits within your budget. Test it out for a month or two, taking the money out of your account each month to see how it feels.
You could have the mortgage payment for the next 15 to 30 years, so make sure it’s one you can comfortably afford. Buying more than you can afford only sets you up for financial issues. A home should be a good investment, not one that causes you to lose sleep at night.
Buying a Home when you have a lot of Debt
If you have a lot of debt, consider paying it off before you buy a home. A little debt is okay, but if you have maxed out credit cards, a car payment, student loans, and a personal loan, it may be hard to stay on track with your mortgage.
Lenders look at your debt-to-income ratio or how much debt you have compared to your monthly income. The lower the number is, the better loan terms you’ll get, but more importantly, the easier it will be to afford a mortgage.
Making Major Life Changes while Buying a Home
When you get pre-approved for a mortgage, you’re pre-approved based on your life at that moment. If you change anything, it could affect your approval.
Small changes may be okay, but anything large, like changing jobs, opening new credit, or damaging your credit score could change things dramatically.
To prevent this, consider keeping everything status quo until you close on the home. In other words, don’t do the following:
- Change jobs
- Apply for new credit cards or loans
- Make your payments late
- Rack up credit card debt
- Make large deposits in your bank account
- Make large withdrawals from your bank account
If something happens, talk to your loan officer right away. Don’t try to hide the changes. Underwriters double-check everything before you close on the loan including reverifying your employment and credit score. The more upfront you are about the changes, the better we can help.
Buying a home is exciting and overwhelming. Avoiding the mistakes above makes the process easier for you and everyone else involved. Don’t rush into buying a home, but instead, take your time, know what you can afford and what’s expected of you.
You and the lender take a big risk with the new mortgage loan. Make sure it’s the right fit for you and the home you’re buying is ‘the one.’ A home is the largest investment you’ll make in your lifetime – it may be your only home, or you may own several, but every home you buy is a large investment that requires plenty of forethought before moving forward.
Lot here to think about. Why not contact us for a no-cost, no obligation CONVERSATION. We can give you “the straight scoop” on what will or will not work in your situation. We are local and easy to arrange a conversation. Call us at Valley Mortgage 701-461-8450.