As a homebuyer, understanding the financial responsibilities of buying a home can be really challenging. Most newer homebuyers are not aware of all the costs associated with purchasing and owning a home – but are quickly made aware of them if they are working with a good real estate agent. Homebuyers now have to deal with low inventory in local markets and rising home prices. Here are 7 tips to help ensure that you don’t make these financial mistakes when buying your first home.
Not Keeping Track of your Credit
As first-time homebuyers, you want to make sure you and your partner do not have any issues with your credit history. If you have credit issues created by late payments, large debts, or debt collection action can get you less than ideal interest rates or terms offered by the mortgage lenders.
Ask your bank or you can find free credit reports online to see your current credit history. If you happen to have a low credit score. You can boost your score in the short term by paying your bills on time, paying more than the minimum payments on your debt, and not maxing out your available credit.
You Don’t Need To Borrow The Full Amount That Your Lender Is Offering
When a lender offers you a mortgage you do not have to borrow the full amount that the lender is offering. A general rule of thumb is to borrow around 20 percent less than what the lender is offering. So if the lender has approved a $1,000,000 mortgage, you should consider only looking for homes priced at $800,000 or less.
This will help to protect you financially. The mortgage amount offered by the lender is usually the most that the mortgage lender is comfortable lending to you in terms of what they think you can financially bear on a monthly basis. This means that you could end up maxing out your loan and barely managing your monthly payments — and you don’t want to be financially uncomfortable.
Think Twice About Getting A Short-Term Adjustable-Rate Mortgage
A short-term mortgage can cost you an arm and a leg every month. Yes, you will end up paying off your loan quickly, which will help relieve your debt. But is it worth the financial distress? Not to mention that an adjustable rate means that you’ll never know how much your mortgage payments might be especially in today’s market— it could vary from month to month.
Historically a variable rate mortgage was a sure bet however, rates are not what they were. A longer-term fixed-rate mortgage is a much safer investment. With a long-term fixed-rate mortgage, you will know exactly what you’ll be paying month to month, making it much easier to budget. A long-term mortgage is not as bad as it might sound. You may be making payments for 5 to 7 years, but remember those monthly payments aren’t going to seem like that much over time since they will remain constant through the life of the loan, even with inflation.
Not Shopping For Better Mortgage Rates
As a new homebuyer, you can leave a lot of money on the table by not shopping around for better mortgage rates. By applying to a few different lenders it will allow you to see what you can afford and compare loan products, closing costs, lender fees, and interest rates. By looking at multiple lenders you can put yourself in a better position to negotiate the best possible deal.
When you start shopping for a mortgage make sure you pay attention to the fees and pre-payment options. Some lenders will have punitive fees or prevent you from making lump sum payments over the life of the mortgage.
You can check with your own financial institution, credit union, or mortgage broker. FYI, if you have served in the military, or you are a first responder or teacher you may qualify for loan programs.
Changing Jobs
Changing jobs may be great for your career, but it may cause some complications to your mortgage approval. Lenders want to see you have a stable income and employment for at least two years. Any changes in your income and employment can cause delays to your closing.
Mortgage lenders recommend waiting for the career change until after the loan closes. If you are not able to wait then make sure you communicate with your lender as soon as possible.
Financing or Leasing a Car
Your car may be on it’s last legs but wait until AFTER you take possession of your new home.
I’ve seen clients get into a new car and then come to me to help them get a home. The first thing we do is talk to a lender and they end up paying out the car or re-selling it as it significantly drags down their borrowing ability.
Make Sure That You Speak To The Neighbors First
There’s a good chance that you are going to be living next to your new neighbors for a very long time, so you will want to make sure that you don’t end up regretting investing all of your hard-earned money into a home where you and your neighbors don’t get along.
As a real estate agent, I always speak to the neighbors, when possible. If I’m out showing a home to clients or holding an open house and I happen to see someone tending to their garden, taking out the trash, or walking their dog, I’ll ask them if they like living in the neighborhood. You will be surprised at some of the answers that you’ll get if you just take the time to ask. I once helped a client dodge a huge bullet when the neighbor told us of the group home that was a few doors down the street. My client had young children and she decided to look at other homes in the area that would be more family-friendly.
There’s not much you can do if you end up buying a home next to a group of young adults that throws wild parties twice a week or if your neighbors have dogs that bark throughout the night. This is not a situation you want to find yourself in as a new homebuyer since you won’t be in a good financial situation to be able to get out of it.
Buying a home can be both exciting and nerve-wracking at the same time. But because there is so much on the line, financially speaking, you will want to make sure that you do your research and speak in detail to your real estate agent in order to prevent yourself from making any potentially costly mistakes, whether it’s borrowing the full amount of the mortgage you’re offered, or not shopping around for better mortgage rates, or using all of your personal savings to buy your new home.
If you still have questions about buying or selling a home, call or text me anytime!
