Avoid These Common Mistakes When Buying Your First Home

When I purchased my first home in 1989, I had no idea what I was doing. I was young and naive. I relied on my real estate agent and loan officer for everything. Big mistake. Although the vast majority of real estate professionals will adequately guide you through the process, you still must do your homework if you want to enhance your odds of encountering a smoother transaction, ensuring that you are being offered the best service, and save time and money.

When I found what I thought was the right house, I was so determined to sign the contract immediately that I overlooked the house inspection- a choice I paid the first moment that I flipped on the faucet in the lavatory.

The water was running and I was hearing it splash everywhere, and I was shrieking “What’s happening here!” When I looked under the sink, there was no pipe.

Rushing to make an offer is one of the most common faults first-time home purchasers commit. They instantly adore a property, don’t want to lose out, and end up plunking down more than they should. Big mistake.

Not Getting Pre-Approved From a Lender

Securing a pre-approval letter for a home loan is a perfect way to plan for a house, plus it discloses to the seller that you’re a serious buyer. Why should you care what the seller wants? After all, he is a complete stranger. True. But in a buyer’s market, you are more likely to get a lower price on the property if you are armed with a lender pre-approval, as opposed to a broker pre-prequalification.

It won’t be a significant amount, but enough to make it worth your time. A broker pre-qualification doesn’t carry much weight since mortgage brokers usually don’t have the capacity to underwrite mortgage loans. A broker pre-qualification is like monopoly money-it’s not the real thing!

Nevertheless, remember that the sum for which you are approved is the highest figure the lender thinks you are able to repay, according to your earnings and estimated home expenditures. That amount does not account for other unexpected charges such as makeovers or repairs, and typical recurring housing expenses.

You know how much your expenses are, so calculate your net income, subtract your expenses (including what you’re being told on the calculator is an expense), and find out how much remains towards the end of the month. The last thing you want to do is bury yourself with a mortgage obligation which is much too large to handle.

The following are common mistakes first-time purchasers commit and how to prevent them:

Not Being Aware of Your Own Credit Rating

A credit score represents the probability of a potential borrower repaying a future debt. A good FICO score shows character. A great credit score can boost your capacity to snatch lower interest rates and desirable loan terms. So, if your FICO score is sub-par, you need to focus on repairing your credit before you submit an application for a home loan (unless you have a huge down payment).

Dispute negative marks with the credit bureaus; study online articles at popular websites such as www.creditinfocenter.com that demonstrate credit repair techniques. If you don’t pay your bills on time, change your habits. And starting today, never miss a payment-this is crucial.

Not Planning for the Expenses of Owning a House

It still amazes me how many folks buy a home by barely scraping up enough funds to move-in. Home ownership requires a multitude of miscellaneous expenses, both foreseen and unexpected. These expenses may include, but are not limited to: real estate taxes, homeowner’s insurance premiums, mortgage insurance, HOA dues, home improvements, property damage, repairs, remodeling, and property tax adjustments and reserves (funds set aside in case of an emergency).

Not Considering Advance Payment Options

Loan companies normally will require you to acquire mortgage insurance if your down payment is less than 20 percent of the purchase price. Once you have 20% equity, your mortgage insurance will disappear. You must, however, obtain an appraisal and provide it to your lender. The premium for private mortgage insurance (PMI) could be as large as 3.25 percent of the loan amount. FHA first time home buyer PMI is currently 1.75%.

Paying Too Much Attention to Interest Rates

First time home buyers have a tendency to rush into the market whenever interest rates tend to drop. Although rates are significant, other factors have a greater impact on the total cost of house ownership such as the price of the property, speculation of future home prices, the type of home loan, the amortization span and payment choices.

Not Selecting Your Own Payment Timetable

Paying down your home loan sooner helps to save you interest charges, while a lengthier amortization span reduces your expenses and increases your cash flow. You are able to pocket a substantial amount of money in interest by choosing a shorter amortization span, paying out every two weeks rather than every month, or adding a small amount to your payment. Take advantage of a web-based home loan calculator that you may find on most real estate websites to run the figures.

Ignoring Closing Costs

The moment you compute closing costs, consider that you’ll need an extra 2 to 3 percent of the purchase price to pay for things like a house inspection, lender and broker fees, land transfer tax, real estate levy, property insurance, utility connections as well as transferring expenses.

Don’t be afraid to shop around. With the exception of government and lender fees, every cost that is related to the purchase of your home is negotiable. If your Realtor suggests a specific service provider, great. However, acquire estimates from a few others so that you can select the best choice. Good Luck!

Joseph is a real estate broker specializing in zero down first- time buyer programs. He can be reached via the following:

Landline: (562) 261-5353

Mobile: (562) 965-1894

[email protected]

Skype: live:impacrealty01

Linked-in profile: linkedin.com/in/joeh