Buying a home is most likely the largest investment you will make and it comes with many big decisions! Here are the top 10 mistakes buyers make when buying a home and how you can avoid them:
Top 10 Homebuyer Mistakes to Avoid
1. Shopping for a house before you are approved for a mortgage.
This immediately puts you behind the ball if a home hits the market that you love, or if you have been wasting time looking at homes you can't afford. Most sellers in Arizona require a Pre-Qualification Form filled out by a lender with any offers. A buyer that is prepared and pre-approved for a mortgage can snatch that home from you.
This can also cause you some heartache! You may fall in love with a home and then find out you don't qualify for it. Or you could qualify for it, but end up with a payment much higher than you are comfortable with. One tough scenario is if you end up with a lender that is not attentive and does not follow through because you didn't have the time to get a referral or shop around. If this lender cannot complete the loan you could lose out on the house and you won't get reimbursed for the home inspection fee or the appraisal fee.
Solution: Take the opportunity to shop around and find a lender that offers a wide array of programs, great rates and great customer service. Get fully approved right away with a lender. Take a look at your payment options and determine a home price that fits your budget and lifestyle. Your lender will also let you know any errors on your credit that you can fix to help your buying position. Having a lender on your side from the beginning can help put you in the buying strongest position so it will be easier to beat the competing buyers.
2. Talking to just one lender or bank.
A lot of buyers simply contact their bank for a new mortgage. The more you shop around the better you can compare the rates and fees. Remember that not all lenders are created equal and it could cost you money as well as a new home if the lender cannot complete the mortgage in the timeframe allowed in the Purchase Contract. It's important to talk to a RealtorⓇ and ask for lender recommendations. They know of lenders they have worked with before and who can get the job done for you. Your bank may not be as attentive as a local lender, and with a large bank you may end up dealing with multiple people in departments in multiple states.
Solution: Shop around with at least three lenders. Ask your RealtorⓇ for a recommendation for lenders that they have worked with successfully in the past.
3. Not being realistic about your budget.
It's very easy to fall in love with homes that stretch your budget or that are above your budget! It's crucial that keep yourself in check and stick with your budget. Having a higher mortgage payment than you can actually afford puts you at risk for losing your home.
Solution: Focus on what your monthly payment and monthly costs will be and determine what you feel comfortable with and what you can afford. You may qualify for a certain loan amount, but can you realistically afford the payments? Make sure to factor in other obligations besides the mortgage payment as well, such as HOA fees and maintenance fees.
4. Using up all of your savings to buy a house.
This is one of the biggest mistakes buyers make. Regardless if a buyer is putting down 3.5% or 20%, some buyers drain their savings, their retirement savings and other investments to come up with the downpayment and closing costs. With no savings to fall back on, it puts you at a higher risk for losing your home if something should happen, such as a loss of job or illness.
Solution: Make sure you have three to six months worth of living expenses in an emergency fund/savings account. Having less than that is risky. Take a look at your budget and cut back on unnecessary expenses in order to save up for a down payment and closing costs, but don't drain your savings. Talk to a lender about low down options.
5. Making a big purchase right before closing on their new home.
This one is a biggie! Lenders pull credit again just before closing to ensure the buyer still qualifies for the loan and that nothing has changed in their financial picture. Some buyers learn this the hard way and suddenly cannot qualify for the home due to buying a new car, or new furniture or new appliances.
Solution: Do not make any large purchases before the home closes and you have the key! Here are common things that buyers do before closing that cost them their new home: Top 5 Mistakes Home Buyers Make Before Closing
6. Making decisions about buying a home based on emotion.
Obviously there is going to be some emotion involved in buying a new home. You need to feel good about the house and see yourself living there. However, some buyers lead with emotion and forget their original goals. Some examples are over bidding on a property, fixating on the house over the neighborhood, or moving too fast on a home out of fear of missing out.
Solution: Try not to get too emotionally attached to properties as you view them. Make sure you have a game plan together that you can refer to when you start to get emotional. Having a good Realtor to keep you on track is very helpful. Remember the key items that you are looking for in a home and what your budget is.
7. Waiting until you have 20% down to buy a home.
Most buyers think they need 20% down to buy a home. While putting 20% down does save you from paying monthly mortgage insurance, there are numerous loan programs available the require less than 20%.
Solution: Talk to your lender and find out what low down programs you qualify for. You can put as little as 3% down for a conventional loan and 3.5% down for a FHA loan. Buyers using VA financing are eligible for zero down. Some downpayment assistance programs may still be available. There are options out there, check it out!
8. Waiting for the perfect house.
The perfect house does not exist, yet some people are not willing to make compromises and instead wait for their unicorn to hit the market. Meanwhile housing prices are rising and there is a risk that the rates will rise too. Eventually they could be priced out of the area they want and miss out on a great home!
Solution: Unicorns do not exist, find a home that checks most of your boxes and fits within your budget. Be willing to consider fixing up a property to make it fit what you want in a home. There are mortgage available that allow you to roll the cost of repairs and remodeling into your mortgage. An awesome lender can help you with this!
9. Thinking you can't qualify.
Some people think they cannot qualify for a mortgage, however, there are tons of mortgage programs available that may fit their needs.
Solution: Talk to an awesome lender! FHA offers mortgage loans with just 3.5% down with a minimum 580 credit score. In addition, there are loan programs that can offer down payment assistance. Worse case, your lender can let you know what steps you need to take to qualify for a mortgage in the future.
10. Not considering the hidden costs of homeownership.
The cost of owning a home is more than just the mortgage payment, there are numerous other costs that a new homeowner will encounter.
Solution: Talk to your Realtor and your lender and have them help you determine what costs you will encounter. Your mortgage payment will likely also include taxes and homeowner's insurance, make sure to shop around for insurance quotes. If you are moving from a smaller home or apartment, your utility bills will most likely increase. Call each utility company to get the estimated costs. In addition, most recommend setting aside 1% to 3% of the homes market value annually to cover repairs and maintenance expenses. A home warranty plan can help offset some of these costs. Click here for more information abut home warranty plans: Should You Buy a Home Warranty Plan?
Knowledge is power! It can help you save time, money and your mind! I'd be honored to help you get a game plan together and help you through the home buying process. Even if you are months away from buying a home, it's never too early to start planning. Click on the link below to request a phone consultation. I look forward to connecting!