Buying a house for the first time is exciting! Not only are you investing in real estate, but you’re embarking on a new adventure for you and your family! That being said, buying a house is often one of the biggest financial decisions you will ever make, and mistakes during the homebuying process can be costly. Here are the five biggest mistakes new homebuyers make, and what you can do to avoid them.
Mistake #1: Assuming You Need a Huge Down Payment
How many times have you thought, “I’d like to buy a house, but I just don’t have enough money saved up?” If this thought has ever crossed your mind, you’ll be pleased to know that a 20% down payment is not required for every type of mortgage loan! FHA loans only require a 3.5% down payment, which is much more affordable. With a lower down payment, you can get out of a renter’s trap (where you can afford the monthly mortgage payments, but don’t have a huge down payment saved up). Having a lower down payment also frees up cash for other expenses that may be associated with a home purchase, such as renovations or yard maintenance. FHA loans also have many other benefits, such as a lower qualifying credit score and a DTI ratio over 50%. Click here if you think an FHA loan may be right for you!
Mistake #2: Settling for the First Lender
Once you get your first mortgage quote, that’s probably enough, right? Wrong! The best way to save on your mortgage is to compare quotes from multiple lenders. Getting a mortgage rate that’s even just slightly lower could save you hundreds or even thousands over the life of your loan. Don’t settle for the first lender you get a mortgage quote from – compare multiple lenders to find the rate that works best for you! To make it easier to compare lenders all in one place, you can use a comparison service, such as RateZip.com, to view multiple quotes.
Mistake #3: Not Saving Enough for Unexpected Expenses
The saying “Expect the Unexpected” is especially true for homeowners. Everything seems fine, but then out of nowhere, you need a new hot water heater, or a tree branch falls on your roof, or the oven stops working. Homeownership comes with expenses around every corner, some of them planned and some of them not. You don’t want to drain your bank account purchasing your home only to not have any cash when you need it. Therefore, saving up before you buy your home (and continuing to save even after your home purchase) is critical. Find a high-yield savings account where you can keep an emergency fund, in case a household appliance breaks or you need a repair done. If you’re still saving for a home, a CD account could earn you interest and allow the funds to remain untouched for the term of the CD (especially useful if you’re saving up for a big expense!). Having enough money saved up will definitely help in the long run.
Mistake #4: Taking Out New Credit Before Closing
One of the worst things you can do before buying a house is opening a new credit card or getting an auto loan. This can negatively impact your credit score, increase your debt-to-income ratio, and cause the mortgage interest rates you’re eligible for to rise! Try to avoid taking out new credit in the months before a home purchase to avoid the dip caused by opening a new credit account. Instead, pay all your debts on time and consistently, so that your credit score is as good as you can make it. If you're struggling with your credit score or just want to keep a better eye on your credit, consider using ExtraCredit for unmatched credit coverage!
Mistake #5: Overpaying on Other Expenses
As you’re trying to save up for a new home, nothing is more frustrating than overpaying for other expenses when it’s not necessary. Take a hard look at your budget and see where you can trim costs. It’s often a good idea to cancel unused subscriptions and reoccurring expenses. It also pays to make sure you’re getting a good deal on your car insurance. Auto insurance can be expensive, so double checking that you’re not paying more than you have to can really help when budgeting. Click here to see if more affordable car insurance is an option for you!
Don’t fall for the above mistakes – stay smart when searching for your new home! Doing your research before making a home purchase can help you avoid potentially expensive pitfalls, as well as make you seem like an already experienced homeowner.