First-time homebuyer mistakes that you should avoid

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Buying your first home comes with big decisions, and it can be as scary as it is exciting. It’s easy to get swept up in the whirlwind of home shopping and make mistakes that could leave you with buyer’s remorse later.

If this is your first time as a homebuyer — or if it’s been many years since you last bought a home — knowledge is power. Along with knowing where the pitfalls are, it’s important to get tips from knowledgeable sources so you know what to expect and what questions to ask.

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First-time homebuyer mistakes

Here are the most common first-time homebuyer mistakes and how to avoid them:

1. Looking for a home before applying for a mortgage

Many first-time buyers start viewing homes before talking to a mortgage lender. Without knowing how much house you can afford, you might waste time. You could end up looking at houses that you can’t afford yet, or visiting homes that are below your optimal price level. For many first-time buyers, the goal is to buy a house and get a loan with a comfortable monthly payment that won’t keep them up at night. Also, note that In such a competitive market, you could lose a property if you are not preapproved for a mortgage.

To avoid first-time homebuyer mistakes, use a mortgage affordability calculator to help you know what price range is affordable, what’s a stretch and what’s aggressive.

Also, try to get preapproved for a mortgage as soon as you can! Being preapproved sends the message that you’re a serious buyer whose credit and finances pass muster to successfully get a loan.

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2. Talking to only one lender and getting just one rate quote

First-time buyers often get a mortgage from the first lender or bank they talk to, and that’s a big mistake. You’re potentially leaving thousands of dollars on the table.

Shopping for a mortgage is like shopping for any expensive item: It pays to compare offers. Also, mortgage interest rates vary from lender to lender, and so do fees.

Make sure to compare rates, lender fees and loan terms. Don’t discount customer service and lender.

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3. Buying a home that exceeds your budget

Always create a budget and stick to it! In fact, when looking for homes, sometimes it is a good idea to aim low!

Remember, buying a home that you cannot afford puts you at risk of foreclosure if you fail to pay your mortgage. In addition, paying a higher monthly mortgage will cut from your other expenses.

So, have a monthly budget for home expenses in mind, and shop around for home that suits your budget. At the end of the day, you’ll be the one repaying your loan, and you do not want to struggle with a mortgage that you can’t afford.

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4. Not knowing your credit status

Mortgage lenders will look at your credit reports before deciding whether to approve a loan or not, and what interest rate to give you. If your credit report contains errors, you might get quoted an interest rate that’s higher than you deserve. That’s why it pays to make sure your credit report is accurate. Also, a bad credit can get your mortgage application delayed or rejected.

To avoid this, make sure to request a free credit report from any of these agencies before applying for a mortgage: Borrowell, Credit Karma, etc.

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5. Using all your savings

Spending all or most of your savings on the down payment and closing costs is one of the biggest first-time homebuyer mistakes. Remember that the down payment is not the only big chunk of money that you’ll pay for your home! If you’re buying a previously owned home, it almost inevitably will need an unexpected repair not long after. You need to have some savings aside for such repairs.

To avoid this, make sure to save enough money for the down payment and a few months worth of funding in case you encounter any emergency repairs. Remember that even though paying 20% down payment relieves you from paying mortgage insurance, it may still be worth it to pay a lower down payment and save some funding for future emergencies.

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6. Forgetting about FHA, VA and USDA loans

First-time buyers focus solely on paying as much as possible down payment to reduce the monthly mortgage payments. However, there are some governmental programs out there that make it easy to buy a home with zero or little down.

Make sure to look into one of the three government-insured loan programs backed by the Federal Housing Administration (FHA loans), U.S. Department of Veterans Affairs (VA loans) and U.S Department of Agriculture (USDA loans). Here is some information about each:

  • FHA loans allow for down payments as small as 3.5%. What’s more, the Federal Housing Administration can be forgiving of imperfect credit. When you get an FHA loan, you pay mortgage insurance for the life of the mortgage, even after you have more than 20% equity.
  • VA loans are mortgages guaranteed by the U.S. Department of Veterans Affairs. They’re for people who have served in the military. VA loans’ claim to fame is that they allow qualified home buyers to put zero percent down and get 100% financing
  • USDA loans can be used to buy homes in areas that are designated rural by the U.S. Department of Agriculture. Qualified borrowers can put zero percent down and get 100% financing. You pay a guarantee fee and an annual fee in lieu of mortgage insurance.

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