7 Steps to Avoid If You Are a First Time Buyer
Choosing a Dangerous Loan
1. Talk to a few mortgage brokers or a loan officer to receive information on various types of loan products – there are mortgage loans for practically every person and situation. However, if you don’t educate yourself on the various products, this increases your chances of selecting a loan that’s too costly.
2. For example, some buyers choose an adjustable rate mortgage to receive a lower interest rate early on, but they fail to realize that their rate and mortgage payment can increase in the future. Likewise, some borrowers pick a 15-year mortgage to pay off the debt faster, but then realize that they can’t swing the higher payments after a shift in their income.
Spending too much on a House
Lenders determine affordability based on the information listed on your credit report and your tax documentation. But sometimes, lenders approve applicants for a loan larger than they can afford.
Rather than being excited and accepting the higher mortgage loan, be smart and stick to your original price range. Splurging on a house provides immediate excitement and gratification – but your mood can quickly turn sour once the bills start rolling in. A big house typically equals expensive utilities, which can affect your disposable income and complicate your financial goals. I have had lender give my buyers a pre-qualification letter for over $900,000 when infact the buyer had trouble paying on his mortgage for a home priced at less than $750,000.
Omitting the Home Inspection
Home inspections are not required when buying a house, and in this day of low inventory, you may be tempted to forego that inspection so you can win the deal. Don’t do it! Serious problems can exist with the structure and foundation, electrical wiring, the plumbing, or the roof. An inspector can identify problems before the closing, and you can then ask the seller to fix these problems. If you are in competition, have the home inspection before you make the offer, so you know what if any, problems you are dealing with.
Not Shopping Around
Save money on your home purchase by talking with different lenders. Some lenders have special programs, such as Long and Foster’s discount for vets (see blog) or doctor loans which can benefit you tremendously. Even if you don’t qualify for a special loan, interest rates and closing costs vary among banks, and if you want the best rate and the cheapest costs, obtain multiple quotes. You don’t have to call 10 different banks, but it’s smart to request no-obligation quotes from at least three different banks or lenders. Compare each quote to determine the best option. Factors to consider include the mortgage rate, closing costs, down payment, pmi, and a potential prepayment penalty.
Not Visiting the Property Multiple Times
There’s nothing wrong with bidding on the first house that you see. However, plan to visit the property several times before submitting your offer. If a seller is motivated and ready to sell, he or she may rush the process or try to force you to make a hasty decision. But remember, once you sign the closing papers, there’s no turning back.
After the initial visit to the property, go home, sleep on it, and return a few days later. In the meantime, drive through and check out the neighborhood during the weekends and evenings. Are the neighbors rowdy? Is there loud music? Are the children playing in the streets or being noisy? Checking out the neighborhood when the majority of the residents are home can help you determine whether the area is a good fit for you and your family.
Limiting Your Search
The majority of buyers have determined that their house must be in a particular neighborhood or city. But why limit your search area? Some buyers want to live close to their place of occupation, or keep their children in a specific school district. Regardless, it’s worth checking out other areas. It’s possible for your child to excel in another school district, and the extra time that it takes to commute to work may present the opportunity to decompress before arriving home.
Borrowing money when you are in the home purchase process
I had a home buyer who went to Marlo Furniture. They assured him their program of no money down, no payments for six months would enable the couple to purchase a houseful or furniture to be ready when their home settled. The couple got the furniture just fine but failed to qualify for their loan because, of course, the debt was recorded and prevented them from qualifying for their home.