4 Mistakes To Avoid As First Time Homebuyers
I met with a newly married couple who are first time home buyers this week. They were very excited, nervous and had tons of questions. The first thing I did was to ensure them that they have successfully completed step one in the home buying process, hire a Realtor. Now is the time to educate them on mistakes to avoid as first time homebuyers.
Spending the maximum on housing- Every buyer should create a budget and know their limits. Consideration on how much to spend should include weekly expenses, gas, food, spending money, savings etc. I tell my buyers just because you've been approved for $200K doesn't mean you should spend that amount. We go over their budget and talk about what happens when life throws them a curve ball (the car needs repairs, the water heater goes, a baby is on the way!).
Not getting prequalified early on- Meeting with a Realtor or a lender for a buyer consultation and prequalification for a mortgage should be the first step towards homeownership. Every buyer needs to get prequalified early enough in the process so that they can make some changes if they need to make corrections on their credit report. Some buyers need time to save more money, increase their income or clean up their credit report. Its never too early to set up a "free" buyer consultation with a lender or Realtor.
Misunderstanding the importance of a high credit score- While most people know it's important to have a high credit score, not everyone understands how costly a low credit score can be. Mortgage lending is done with a tier of interest rates and terms based on consumer credit scores. A credit score of 720 or above will earn you the best rates and can potentially save you thousands of dollars. A score of 680-720 can get you good mortgage rates, while a score of lower than 620 is usually about the lowest score to qualify for most loans. Even after a mortgage approval you should avoid applying for new credit or taking on new debt, due to the possibility of a second credit check before settlement.
Choosing the wrong mortgage product- First time home buyers today tend to opt for a 30 yr fixed rate mortgage. While a 30 year fixed mortgage is a good conservative mortgage, there are other options which may make more sense. A 5/1 adjustable rate mortgage may serve you well if your company plan on relocating you within 5 years. Maybe a 15 yr fixed or a 10 yr fixed rate mortgage would work better for you. As always check out the various options available by your lender or bank.
By working closely with your Realtor and communicating frequently you should avoid making any of the 4 mistakes by first time homebuyers.