The housing market is hot and interest rates are still at record lows. Many renters or people that have never owned a home before are now seriously considering making their first real estate purchase. While it is an exciting (and stressful) journey, first time home buyers must be extra diligent as they have never done this before and may not know what to expect. This article highlights four costly mistakes that many home buyers unfortunately make:
- Calculating the mortgage payment as your sole monthly expense. As a first time buyer, it is understandable to put all the focus on how much your monthly mortgage payments will be. While that may cover the mortgage, taxes, and insurance, there are numerous other monthly expenses that must be budgeted for including but not limited to the electric and gas bill, water, maintenance, lawn care, and assessments if applicable. These bills add up and could push you over your budget. Realtor Mag has an article in which they quote attorney Rafael Castellanos who sums it up when he says, “They have an idea of what their mortgage payment is going to be, but they don’t realize there’s much more to it,”
- Not Getting Pre-Approved. This is often overlooked by first time buyers. Getting “pre-approved” basically means that you spoke with a mortgage broker and based on your financials (income, debt, credit, and some other calculations), you have been unofficially approved for a loan at a specific price point. This process will pinpoint the price range you should be looking in. It also helps prevent the unfortunate scenario where after falling in love with the perfect house you find out that you cannot afford it.
- Not Using a Real Estate Professional. Contacting a Realtor® should be one of the first calls of a first time home buyers. The real estate process is long, tenuous, and grueling and it is best to go through it with a professional. While most people only purchase 1-2 properties in their lifetime, Realtors® are involved in the process daily and know exactly what to expect. They will also prove to be a valuable asset when it comes to referring attorneys, inspectors, and mortgage brokers. Best of all, many times agents do not charge the buyers a fee as the commission may be paid from the sellers. This varies from state to state.
- Taking Out New Loans Before The Deal Closes. This is important. As stated above, a mortgage broker will usually pull a buyers credit as part of the pre-approval process. Unbeknownst to many buyers and real estate professionals, the lender will pull the buyers credit again right before closing to make sure the borrowers financials have not changed in the interim. Taking out a loan to buy a new car or to purchase new furniture will have an adverse effect on your credit score and can jeopardize the transaction. Don’t take out any lines of credit until you have left closing with the keys.