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Avoid These Common First-Time Buyer Mistakes

Understanding your budget as a first-time home buyer is the first step before deciding to dive into the real estate market. But knowing what you can afford is not enough. First-time buyers often fail to realize the true expense involved until they’re knee deep in the process, and the pressure is on.  

Avoiding these common mistakes can make your first-time buying experience a pleasant and rewarding journey.  

Not Getting Pre-Qualified 
The home buying process starts with getting pre-qualified, not finding a home. If you don’t get pre-qualified first, you really don’t know what you can afford. Pre-qualifications don’t obligate you to a purchase. It’s simply an inquiry on your credit and other financials that lets you know what you can afford when you’re ready. Most pre-qualifications are good for 60 to 120 days. This keeps your expectations in line with your budget. 

Not Factoring in All Expenses 
Your future mortgage payment is not mortgage and interest only. You’ll soon learn this once you get pre-qualified. It will likely include homeowner’s insurance, private mortgage insurance (if you’re not putting 20 percent down), and property taxes. This can be a substantial increase in payment and could lower what you can afford. 

You’ll also want to consider homeowner’s association fees, increased utilities, lawn care, and pest control. 

Not Talking to a Professional 
As a first-time home buyer, you probably have little knowledge of the mortgage process. Don’t leave room for confusion when you can find a seasoned realtor and loan officer to make the transaction as seamless as possible. Get a referral to someone, do your research, read reviews, and find someone with experience. 

Not Having Enough Funds
You need more cash than you think at closing. With that said, you also don’t want to drain every bit of cash you’ve saved just to meet the requirements. 

Be prepared for 3 to 20 percent down (depending on your loan), closing costs, and $1,000 - $2,000 for pre-paid items like a survey, appraisal, and inspections. What you will need at closing will depend on the loan – a loan officer can give you a realistic view of these costs during the pre-qualification process.  

These funds should be separate from what you have saved in an emergency fund. One of the biggest mistakes a first-time buyer can make is to drain their emergency fund to scrape together the cash for closing. You leave yourself susceptible to many things that could go wrong. Keep as much as you can in savings so the first year of homeownership doesn’t have you eating ramen noodles for lunch every day. 

Not Pressing Pause on Spending
While you’re preparing to finance your first home, hit pause on spending. Don’t make the mistake of making purchases on your credit card, opening additional accounts, or any other financial transaction that could report to the credit bureau once you’ve been pre-qualified. Even if the contract is already signed and the closing day has been set, lenders will pull credit reports just before closing to make sure the borrower’s financial situation has not changed since approval. 

Believe it or not, even buying new furniture on credit before the deal is completely done can cause the deal to fall through. Don’t learn this lesson the hard way. Press pause, and resume when you’re in the clear.

Source: Bankrate


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