- May 8, 2017
- Posted by: steve
- Categories: first home mortgage, first time buyers, mortgage articles
Buying your first home is exciting, but it’s also full of uncertainty. Read here to learn about mistakes to avoid with your first home mortgage.
Author Robert Shiller may have said it best, “We now come to buying a home, which is most families’ lifetime major purchase; so a lot of money and emotion is up for grabs.”
It’s true that buying a home will be the biggest financial commitment most people make during their lives.
So, it makes sense that there are a lot of feelings at play.
In fact, nearly half of homeowners admit that the home-buying process is stressful. Between paying too much, not budgeting for home repairs and the massive amounts of paperwork, it’s easy to see why.
Purchasing a home — and finding the right first home mortgage — is undertaking a journey that can test your patience and commitment at the highest levels. If you neglect to do the appropriate research and are unsure about what the process will look like, expect it to be even more taxing.
Everything about your financial history, past and present, will be under scrutiny. Also, what you don’t know about mortgages can threaten your dream of owning a home.
However, partnering with an honest and experienced lender who is well- versed in first home mortgages, can lessen the likelihood of excessive stress or mistakes happening to you.
Let’s dive in and learn the mistakes to avoid with your first home mortgage.
Not Taking the Necessary Steps, in the Necessary Order
First off, it’s easy to bypass the more “formal” steps of house buying.
Things like mortgage pre-qualification and mortgage pre-approval take time and an effort from you, the buyer.
You might ask yourself “Why do all that when I can be at open houses finding my new walk-in closet?”.
To which we’d answer, “Don’t be naive”.
Picking a magic number out of thin air and then going to look for houses in that price point is fun but not practical.
Enter your lender…
Yes, you will have to layout and discuss in detail your financial situation. But, you’ll have to do this sooner or later anyway. And, doing it sooner not only gives you a clear picture of how much house you can afford but it makes you look like a more serious contender to home sellers.
Take it from us, crushed dreams are no way to start this journey of home- buying.
The best advice is to know what your budget limitations are before you start shopping.
And who can you help you find out exactly how much you can afford? A mortgage lender. But not every lender is created equal. Which brings us to our next mistake…
Not Researching Potential Lenders for Your First Home Mortgage
Finding a reputable mortgage lender seems like an easy thing to do.
A quick search for the best interest rates and voila! you’ve found your company.
But it’s a competitive market and the rate advertised isn’t always the rate you end up with.
You need an experienced lender who can help guide you as you move through your first home mortgage process.
Great lenders for first-time buyers almost always offer mortgage options with low down payment requirements such as FHA loans.
They should also offer loans that cater to those borrowers with lower credit scores.
How can you find a trustworthy lender?
Ask your realtor for suggestions as well as those closest to you like friends and family for their recommendations.
Ask questions such as was the lender quick in resolving concerns, did they manage any hiccups that occurred, was paperwork sent and received promptly and did they secure the rate they guaranteed.
Most first time home buyers don’t know the ropes yet.
You should be able to trust your lender and their recommendations on mortgage types and the various options that best fit your specific situation. To do this, you need to find a seasoned mortgage professional you feel comfortable with.
Not Dealing with Credit Issues
Once you’ve found a reliable lender, the next step is to do a little digging…on yourself.
That’s right, one of the biggest mistakes first-time home buyers make is not researching their credit history before meeting with a lender.
Take a look at your credit report to make sure it accurately reflects your financial profile. If there is a dispute or inaccuracy you need to first address those before meeting with your lender.
Your first home mortgage loan rate is directly impacted by your credit score ranking. The higher your score, the more likely you are to repay your loans and the less risk you pose to your lenders.
While lenders can be pretty savvy, they are not miracle workers and if you leave unresolved issues on your report, their loan offers will reflect them.
That being said, most credit issues are relatively easy to fix and can save consumers thousands on their loans over their lifetime.
Not Knowing the Difference Between Pre-Qualification and Pre-Approval Processes
Unless you can afford to pay for your first home with cash, mortgage pre-qualification is where you begin your journey to being a homeowner.
This first step is fairly straightforward. You provide your basic financial picture to a lender such as a Palm Beach County mortgage company including your employment history, debt- to -income ratio and assets.
This initial step can be completed online or over the phone with a lender.
Pre-qualification is a great first step to take as it gives you a general estimate of what you would qualify for if you made an offer and chose to apply for a home loan.
What Is Pre-Approval?
A pre-approval letter tends to carry more weight in the eyes of a seller or their agent because it’s a more involved process. Your mortgage broker is required to run a credit check and verify all your supporting documentation in order to approve your loan amount.
It’s the next step in gaining your first home mortgage.
Going through the pre-approval process before starting your search signals to the seller’s agent that you mean business and aren’t a fair-weather buyer.
This letter can help you seal the deal quickly and at a favorable price point.
The documentation you need for pre-approval:
- Social security number: A lender needs this for any person (s) whose name is listed on the loan. It’s also used to pull your credit history.
- Proof of employment: Your mortgage broker will need your employment history for the past 24 months (at a minimum). Having steady employment means you’re able to repay the loan.
- Proof of income: Your two most recent pay stubs including your year-to-date earnings.
- Tax documents: W-2 statements and tax returns for the past two years.
- Bank information: Bank statements and balance information are necessary to ensure you have enough money to cover closing costs and down payment.
Keep in mind, a pre-approval is usually only valid between 60 to 90 days. Meaning, things such as your credit score can change so the loan and the terms aren’t written in stone…just yet.
Not Knowing What You Can Realistically Afford
When it comes to your first home mortgage, what the banks say you can afford and what you can actually afford in mortgage payments each month can be quite different.
It’s not just a matter of factoring your outside expenses plus your mortgage payments but also all those extra expenses that come with owning a home.
Factors that often get overlooked include:
- Homeowners insurance: property insurance that protects against damages to the house itself or assets in the home. Additional policies may be needed to protect from flood damage.
- Property taxes: Tax based on the government estimated value of the property.
- Utility bills: Water, sewer, gas, electric etc. These can fluctuate depending on the weather and time of year.
- HOA fees: Annual or monthly fee to pay for upkeep on premises.
- Home maintenance: Everything from changing HVAC filters to replacing an AC unit falls under necessary maintenance.
Keep in mind things such as homeowners insurance and property taxes usually increase each year.
When figuring out how much you can afford to spend on a home each month, don’t forget to add these expenses into your budget.
Final Words on Getting a First Home Mortgage
Getting approved for your first home mortgage is a big deal – so treat it like one.
If you do the research, find the right lender and know exactly what you’re signing up for, home ownership will be a joy, not a costly burden.
If you are would like more information about financing your first home, contact us today – we’ll help you find your perfect loan.