8 Mistakes Most First Time Home Buyers Make
Avoid these pitfalls and you will save time and money with your first home purchase!
- Using a Lender who doesn’t specialize in Special First Time Home Buyer Programs. Our partners, Cornerstone Mortgage, take pride in being educated and having access to exclusive loans and credit packages in the State of Minnesota. Only a handful of mortgage brokers have these programs available to them, including the CASA and MHFA programs. With a team effort, we will find the best financing for you individual scenario and make sure you can afford the monthly payments on your loan.
- Looking at Home before you get pre-qualified. So many Minnesota First Time buyers make this mistake. They think the first step to buying a home is to look at homes in their neighborhood, and then see how much they can afford. This is completely counter-productive. The first step should always be finding out what your buying power will be – especially in a tighter lending market. Think of it this way: would you go the grocery store to buy a full cart of items before checking how much cash you had in your wallet? If not, then you shouldn’t start looking at homes seriously until you’ve met with a lender and Realtor.
- Looking at homes above your Price Range. I’ve seen this one a lot lately. Many buyers think that they can buy 10-20% more house then they are able to, or that these homes will come down into their price range so they can purchase them. While home prices have fallen the past few years, it would be a waste of your time and emotions to fall in live with a house that’s $50,000 more than you can afford. You’ll get caught up in the moment and forget that while a 5 bed, 3 bath house would be very nice to live in, your price range and needs are really only for a 3 bed, 1 bath home. Don’t live in a fantasy world – stick to your price range and you won’t end up buying a home that could financially eat you alive in a few years.
- Not making a Monthly Budget of expenses and bills before taking on a Mortgage. Write down all your monthly bills: Car payments, Phone Bills, Insurance, Student Loans, Credit Cards, Cable Bill, and any other monthly expenses you take on including all utilities. Remember that if you are coming from renting an apartment, your heating, cooling, and electric bills will most likely increase with a bigger home. This is an area I see a lot buyers get in over their heads. Even if you don’t write down your monthly bills and expenses every 30 days, at least write them down while you’re considering making a home purchase, it can give you a good sense of where your money is going, and help you gauge how much of a mortgage payment you can realistically afford.
- Wishing you have a good Credit Score instead of actually finding out. When you apply for a pre-qualification with our lender, they will review your credit report, and may find some items that should not be on there, or haven’t been cleared from your prior history. If you’re looking to buy a home quickly, within a few months, this may prevent you from getting a loan right away. Make sure you leave about 6 months ahead of time to review your credit, and wipe any blemishes off your record to ensure the best interest rate and terms for your new loan.
- Buying a home for Emotional Value, and not considering Resale Value. Make sure you buy a home that will be easy to resell in the future. Even if you think you’ll be living there for 20 or 30 years, this is still a very important point. What does this mean? Don’t buy a home that is the biggest house on the block, or has features that do not conform to the rest of the neighborhood and community. You want to make sure it’s a standard house in the neighborhood because the more odd-ball features it has, the harder it will be to find a buyer in the future. Think how appealing it will be for as many potential buyers, and you’ll be set.
- Making other big purchases right before you buy your house. Don’t go out and buy a new car 3 months before getting a mortgage. Don’t open up 2 new credit cards within a 6-month period leading up to your home purchase. DO take some time to pay down any large balances on your credit cards and loans so that you will have a better credit rating. If you open up new lines of credit directly before you try to obtain a mortgage, lenders will see this as risky. You may be over extending your credit and it could drop your credit score to a point that would end up costing you hundreds of dollars a month. Wait to make any big purchases until after you move in and have made a couple house payments.
- Spending every penny you have on the Down Payment and Closing Costs. Leave some money in your checking or savings account for repairs, moving expenses, and maintenance costs in your house. Even if you’re buying a new property and think that nothing will break down on you within the first couple months, you’ll want to have some cash reserves in case something unforeseen happens. Simple fix ups like painting, adding light fixtures, or furnishings to the living room can add up quickly. Make sure you have enough money to pay for the acquisition of the house, and also be able to live comfortably in the home.
If you can avoid these Mistakes you’ll be a much happier and wealthier home owner.
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What does the Obama incentive program say about the first time home buyers regarding the purchasers breaking a lease to move into the purchased property?