By Tracy Scott
You can’t wait for the weekend. Not because it’s a time to wind down from the work week but because it’s another opportunity to visit more model homes and open houses. Yes, you’ve caught the first-time homebuyer’s shopping bug. The selection in your area is endless, and with each new home you visit, the list of “must-haves” grows.
It’s easy to get excited and fall in love with each house you see. But, don’t let the trendy decor and spacious rooms cloud your judgment. In a rush to buy your dream home, you might be tempted to overlook essential considerations which could lead to costly blunders.
Here are some common mistakes to avoid as a first-time homebuyer.
Not Being Picky About Real Estate Agents
Friends, co-workers and family members have the best intentions. They offer their advice about where to live, what appliances you should have and may even recommend a real estate agent or two. Unfortunately, the referral may be made based solely on their relationship with that person, e.g., their cousin, aunt, boyfriend, etc. The referral may well be a competent professional, but you need more than that as you prepare to make the largest single purchase of your life.
To find a real estate agent who meets your needs, start by visiting open houses in your chosen area. Talk to real estate agents hosting open houses. Ask them about other homes in the area to get a feel for their knowledge of the local market.
A local market expert should not only know the types of homes that are selling fast but can give you the 411 on a property before a “For Sale” sign hits the front yard. You’ll want to select an agent who knows the area well so they can be in a position to help you make smart decisions when it comes time to place your offer.
Check their credentials. The letters after a real estate agent’s name can make the selection process easier. For example, an agent with a REALTOR® title will have completed ethics training and must continue to do so every two years to retain the designation. You’ll also want to check the real estate commission in your state to verify that the agent’s license is current. Review any disciplinary actions that may have been filed against them.
Skipping or Ignoring the Results of a Home Inspection
You may be tempted to bypass a home inspection if it’s not required in your state. Some first-time homebuyers will do this to save money and rely on a home warranty to cover any post-closing issues. Others will opt out because they think it’s unnecessary for a new construction. Whether it’s required or not, request a home inspection before closing. Otherwise, you may get stuck with an unwelcome financial surprise like faulty plumbing, dangerous electrical wiring, or basement dampness the week you move into your new home. Not every repair is covered under a home warranty.
Work with a real estate agent to submit a home inspection contingency offer. That is, the offer to purchase the home is contingent upon the results of the home inspection. If issues arise, you can work with the seller to resolve them by having the seller absorb the costs, agreeing to split the costs of repairs with the seller or exiting the deal altogether.
Spending After Completing a Loan Application
A new auto loan, additional credit card purchases, and new lines of credit should be avoided once you’ve applied for your mortgage loan. Purchasing furniture before closing might seem like a good idea since it will save time when you’re ready to move in. But, if you want to keep your loan approval, you should wait. Here’s why. Changes in credit utilization or adding new credit lines can lower credit scores and increase debt to income ratios (DTI). This could negatively affect the underwriting approval for the mortgage loan. Since your financial situation changed, the lender may change their mind about loaning you money.
Deciding Based on Qualification Not Affordability
Homebuyers may qualify for more home than they can comfortably afford. Your lender will look at your debt to income ratio (DTI), which is the amount of debt you have relative to your income, along with other factors to determine if you qualify for the loan. The amount that you’re eligible for will rely heavily on your DTI. The ratio ignores particular budgetary expenses like groceries, life insurance payments, retirement contributions, taxes or utilities. Without wiggle room in your budget, you might have a tough time making your mortgage payment each month.
Not Cleaning Up Credit
At least 90 days before you apply for a mortgage loan, work on cleaning up your credit. Your credit score influences loan approval, down payment requirements, interest rates, and the type of loan for which you’re eligible. A low credit score can cost you $1000s over the life of the loan. This is money you could instead use to meet other financial goals.
Request your credit reports from AnnualCreditReport.com. Review them for inaccuracies and follow the dispute policies for each credit reporting bureau: Experian, Equifax, and TransUnion. If you have a history of late payments, make at least 24 on-time payments before applying for your loan if your goal is to secure the best rates and terms available. Taking the time to establish a consistent history of paying your bills on time not only improves your credit score but will also allow you to reduce your debt load and make your home more affordable.
Shopping for your first home is exciting, but it can also be scary. Bypassing these common first-time homebuyer mistakes can mean less stress, more money in your wallet and help you avoid buyer’s remorse. Unsure if you qualify for a mortgage? Speak with an Atlantic Financial representative to discuss your home mortgage financing options.