Not thinking about your long-term plans
Many first time home buyers are quick to buy a home when they realize they qualify for programs that allow them to put down a smaller down payment and get a house sooner than they originally planned, but have you really thought about the long-term implications of buying a home? Here are a few questions to consider:
• How long have I been at my job?
• How likely am I to find comparable income in my area if I leave my current job?
• Do I like the school district I’m in if I decide to grow my family?
• Will I be able to afford repairs and maintenance on a home if I buy now?
• Can I make a larger downpayment without draining my savings?
Not getting pre-approved for a mortgage loan.
Mortgage lenders use a variety of factors to determine your approved mortgage rates. While you might have worked out your budget and have an idea of how much you can afford, you might only get approved for a much smaller mortgage. You don’t want to try to buy a house just to find out you aren’t approved for the loan you expected after you’ve fallen in love with a particular home.
Not knowing what you can really afford.
Lenders consider factors like your credit reports, debt-to-income ratio, and your income to determine how much they’ll loan to you. For better or worse, this could lead to the bank offering you a bigger loan than you anticipated. Many first time homebuyers mistake the amount for which they’re pre-approved as the amount they can afford. Since information like your credit score, amount of debt, and your income offer a limited snapshot of your financial situation, what you can actually afford might not match up with the size of your loan.
Once you’ve spoken to multiple lenders, figured out how much you’re pre-approved for, double checked your credit report, and taken a hard look at your budget, then you can make a more informed decision moving forward. Some first-time homeowners are surprised to learn they can even afford to build their first home. (See: How Much Does It Cost to Build a House?)
Not asking about first time home buyer loan programs.
Many first time home buyers qualify for loans with special interest rates and financing options that allow 0% down. These loans are granted by the Federal Housing Administration (FHA loans) and/or the United States Department of Agriculture (USDA loans).
Bonus: If you and/or your spouse have served in the military, you could qualify for a VA loan guaranteed by the U.S Department of Veteran’s Affairs.
Not being thorough during the buying process.
Don’t skimp on the home inspection, and consider hiring a real estate agent who will work for you rather than the seller. When you love a house and you’re ready to make it a home, it can be tempting to bypass anything that feels like it’ll slow down the process, but doing your due diligence early on can save you a ton of money and headaches down the line.
For more on making smart financial decisions and buying a home, see: