7 MOST COMMON FIRST TIME HOME BUYER MISTAKES
People make mistakes. That’s human nature. And when it comes to buying a house, that mistake could cost you. Or even worse, you can’t ever buy a house. Do you know the most common mistakes most first time buyers make? Let’s dig in..
MISTAKE #1: NOT PAYING ATTENTION TO YOUR CREDIT SCORES AND REPORT
There are several important reasons why you should pay attention to your credit score and your report; identity theft being one of the main reasons. If you have never looked at your report, how do you know someone isn’t purchasing something using your name and social security number?
Experian has a great service you can subscribe to and monitor any activity involved with open accounts. You can even see your credit score projections. Which brings me to my next point, knowing your credit scores. You will be able to see your scores and how they relate to you qualifying for a mortgage.
MISTAKE #2: TOO MUCH CREDIT CARD DEBT AND CAR DEBT
One of the most common things we see that can put buyers out of qualifying range for a mortgage is too much credit card debt and big car loans. If you have a $800 / month car note and thousands in credit card debt this could definitely hinder your ability to finance a home.
Your income definitely plays a major role in this as lenders look at your debt-to-income (DTI) ratios. A good rule of thumb is staying below 40% DTI.
What do lenders look for? From a lenders perspective, 40% of your monthly income minus any debts you have like a car loan and credit card is what you can safely afford for a mortgage. So the number that is left over is what you can typically get approved for as a monthly payment.
For example, let’s say that you make $10,000 a month and have an $800 monthly car payment and a minimum payment of $100 a month in credit card debt. To calculate about how much of a monthly payment you could be approved for, you would take $10,000 x 40%. That equals $4,000. From that number you would subtract $800 and $100. That equals $3,100. As a rough estimate, $3,100 would be the monthly payment amount that you could get approved for.
So keep all this in mind when you think about purchasing that $80,000 truck.
If you want to play around with different numbers to get an estimate of how much home you can afford, view this mortgage affordability calculator and calculate by income.
MISTAKE #3: NOT WORKING TO BUILD YOUR CREDIT
If you have bad credit and you know you want to buy a house one day then now is the time to start your credit repair journey. Which can take some time. If you don’t have any credit established, then you should start small by opening a credit card at your bank. Start making payments and pretty soon you should have a good score.
Be responsible with it though, don’t go on shopping sprees showing creditors you are irresponsible with your finances.
MISTAKE #4: NOT BUILDING YOUR SAVINGS ACCOUNT
Some people just don’t know how much it costs to buy a house. And that’s okay. Even you didn’t plan on buying a house in Houston anytime soon, you should still make an effort to build up a safety net for yourself or family. Life happens and when it rains it can pour. So build up your savings account the best you can, especially if you plan on purchasing a house.
Studies have shown that 56% of all Americans have less than $5,000 to their name. Do your best to save money, you can do better than the other 56%.. Take a Dave Ramsey course if you need to.
MISTAKE #5: IMPROPER BUDGETING – BUYING TOO MUCH HOUSE
I want to make a statement about home buying that most real estate agents probably won’t tell you. Just because you get approved for a certain amount, doesn’t mean you need to spend that much.
For example, if you are approved for $500,000, that doesn’t mean we have to go that high. You know your finances better than anyone else and you should only go as high as you are comfortable with.
I will say though, a $500,000 house can cost more monthly in one neighborhood than in another. The reason being is the tax rate. Make sure that is something you pay attention to and have a conversation with your agent about, whether it’s us or someone else.
MISTAKE #6: NOT BEING EDUCATED ON LOAN TYPES
Different lenders have different products. Conventional, FHA, and VA (for military veterans) are the most common and they each have their pros and cons. While one loan type may be right for someone else, it may not be right for you.
The lender you decide to use should explain each type of loan you are eligible for and the pros and cons of each. They will make a recommendation on which you should use but it’s important to completely understand the type of loan you are signing up for.
If you are having a hard time trusting a lender, head on over to my homepage and click get pre-approved. We have lenders that we work with that we would trust with our kids…
MISTAKE #7: FREAK OUT OVER AN INSPECTION REPORT
The most common deal killer is the inspection report. And if it’s your first time buying a house, seeing this report can seem extremely overwhelming. To the point you just want to back out forever. However, it’s important to keep your cool.
If you hired the right agent that understands construction and how serious or minor an issue is, then that agent will be able to guide you through it.
Keep in mind it’s the inspectors job to note literally everything he/she finds wrong with the house, no matter how minor it may be. Like a squeaky door or a dent in the drywall somewhere.
When you get the report back, you and your agent should sit down and thoroughly review it together. You then will start to pick out the items that are most concerning to you.
If you need a more in depth review of what this looks like, be sure to check out our blog and video we did covering inspection reports.
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