The journey to becoming a first-time homebuyer can be exciting and worrisome at the same time. Even though most first-time homeowners try to stay well organized for this significant purchase, they risk making errors during the mortgage and home-buying procedures.
The best example is that some buyers go house hunting or make offers before being completely conscious of their financial standing. Therefore, it is advisable to ensure that your credit score, credit history, debt-to-income ratio, and general economic situation are all in a good position before you shop for a mortgage.
When purchasing a home for the first time, there are numerous procedures to follow. However, a single fault can delay or prevent you from becoming a homeowner! Below are a few common errors made by first-time homebuyers, together with some suggestions on how to steer clear of them for a less hectic home-buying process.
Getting A Mortgage Preapproval Only After The Purchase
Nothing is more disheartening than finding your dream house but not being able to afford the down payment and closing expenses to get the mortgage you require due to a low income or credit score.
To prevent such heartbreaks, you can get your mortgage preapproved. Lenders will consider your income, overall debts, and down payment funds, regardless of a high or low credit score, to decide whether or not you qualify for a mortgage. By getting a mortgage preapproval, you can set a budget for the houses you can afford and avoid looking at places that aren’t in that range. Most sellers will likely consider a purchase offer only if it includes a preapproval letter.
Choosing the Wrong Loan Program Application
The approval requirements for conventional loans are more demanding than government-backed loan choices, yet first-time buyers often opt for them when purchasing homes. If your credit and income fail to meet the requirements for the mortgage you apply for, you will be unlikely to receive the loan. Make yourself aware of the minimal mortgage requirements for the most common kinds of loans so you can make informed choices.
Getting a Mortgage Preapproval without Checking Your Credit Score
Your credit score highly matters for your mortgage preapproval process to purchase a home because it gives the lender insight into how effectively you handled your credit in the past. Moreover, they can determine which programs you will be eligible for along with the interest rate given to you.
Lenders generally use the second-highest score to assess your eligibility; therefore, check your credit history with credit bureaus. To boost your score, keep your credit card balances low, avoid opening multiple new accounts, and make timely payments.
Placing a Significant Cash Deposit Before or During the Loan Application Procedure
Refrain from depositing large amounts of cash you may have on hand during the process of getting a loan. In general, your lender will only permit using the money toward your home purchase if you don’t show where it came from. Therefore, depositing the money into a bank account at least three months before submitting a mortgage application is ideal.
Lenders typically examine the deposits listed on your last two bank statements. You may use the cash for your down payment or closing fees once it has been in the bank for 60 days without showing proof of how you saved this money.
Not Comparing Rates Among Lenders
Lending Tree research consistently shows that homebuyers who compare rates with various mortgage lenders can make major savings at the closing table and throughout the course of their loan.
This shows that it’s best to get loan evaluations from at least three different mortgage companies. If available, include quotes from mortgage brokers, lenders, or your neighborhood bank or credit union. Since mortgage rates fluctuate daily, make sure to get quotations on the same day for the most accurate comparisons!
Lacking Sufficient Funds for Down Payment & Closing Costs
Mortgage closing costs need to be paid along with your down payment. Generally, they fall between 2% to 6% of your loan balance. In addition, you must make the payment in cash, and you are not permitted to use borrowed funds, such as a personal loan or a cash advance from a credit card.
If the savings do not cover the closing costs, you have a few other options. You can request the seller to cover them, accept a gift from a family member, or inquire with your lender about a no-closing-cost option.
Putting Off Until You Save For a 20% Down Payment
According to surveys of first-time homebuyers, they tend to overestimate the required rates for a down payment. According to National Association of Realtors (NAR) facts, first-time buyers generally put down between 6-7% of the sales price. Even though a larger down payment can lead to a cheaper mortgage, first-time homebuyers’ down payment can technically be as low as 0%!
Choose a down payment that will result in a reasonable monthly payment without exhausting your resources.
Not Informing Donors In Advance Of The Gift Fund Requirements
If a generous family member gifts you some money for a down payment on a home purchase, inform them that they need to present financial records to show the source of the gift money. Alerting them beforehand can help in avoiding any unforeseen issues.
When you receive a gift, list the things your donor needs:
- A letter with their name, contact number, and address.
- Details on the bank account from which they will be sending the gift.
- A copy of their asset or bank statement proves they can gift you the money.
- A copy of the record showing that the money was transferred from their account to yours.
Not Considering the Neighborhood
Most first-time homebuyers get so preoccupied with locating a property that meets their requirements that they often fail to weigh the pros and cons of a broad neighborhood.
Ponder on the crucial elements of a community, such as walkability, low crime rates, proximity to your workplace, availability of well-reputed schools, etc. Focusing on the home’s features alone may land you in a situation where you are stuck in a community that does not fit you and your family!
Switching or Leaving Jobs While Applying For a Mortgage
Any lender will verify the status of your employment before signing on. Therefore, any change in your career or source of income might bring chaos. Ensure to continue in your existing job until closing, and be sure to notify your lender if your income changes.
