On the market for a new home of your very own for the very first time?
Congratulations! Taking the first step toward home ownership is a big deal… and given that buying a home is the largest single purchase many of us will ever make, it can feel more than a little overwhelming.
Fortunately, a little bit of research can go a long way. Below we’ve gathered a few of the most common first-time homebuyer mistakes — and the steps you can take to avoid them.
Mistake #1: Overestimating your down payment
Traditional knowledge has it that you need to save up 20% of the total home price for a down payment — a task that can seem truly daunting, given that the median existing-home sale price was more than $350,000 in August of 2021 per the National Association of Realtors.
Fortunately, this particular rule of thumb is out of date, especially for those new to the housing market. Government-backed mortgage programs like FHA loans may be able to help you get the key to your dream house for as little as 3.5% down, or even $0 down if you qualify for a VA loan. While a lower down payment may mean you’re required to take out PMI (private mortgage insurance), the extra monthly cost could be worth it to start potentially building equity.
Mistake #2: House shopping before you’ve been pre-approved
We get it: house shopping is super exciting, and it’s tempting to dive right in as soon as you’ve got the idea in your head.
But especially given how competitive the market has been lately on the buyer side of things, it’s a good idea to already have a pre-approval letter ready to go before you go to even one open house.
Getting pre-approved by a lender will not only tell you exactly how much house you can actually afford (which will help you target homes in the right price range) — it’ll also make it a lot easier to put in a serious offer quickly once you find the right property. Chances are the seller is going to have multiple offers to choose from, so you want to be able to prove you’re ready to make the leap right from the beginning.
Mistake #3: Rushing the home-buying process
Again, it’s understandable: buying a home is exciting, and you probably want to get the keys to your new place as quickly as possible.
But any home purchase is a major decision, one that you should never rush into — especially if you’re not quite sure you have your financial ducks in a row to do it. Even in a competitive market, giving yourself extra time helps ensure your credit report is looking spiffy by the time you apply for a home loan; paying down credit cards and other existing debt doesn’t happen overnight, but can make a major difference to your loan officer when the time comes. (Your credit score does have an effect on the mortgage rates you qualify for, so the higher, the better.)
When it comes to home-buying, it’s not just the sticker price you have to worry about. Along with your monthly mortgage payment, there are other costs of homeownership to consider. You’re also going to be responsible for closing costs, property taxes, homeowners insurance, and, critically, renovations and repairs — and even relatively new homes often require more fix-it projects than new owners initially bargain for.
You may want to take advantage of a lower required down payment available with many lending programs to instead save up a nice buffer for maintenance costs, both expected and unexpected.
Mistake #4: Not shopping around for the right lender
You’re probably ready to pour a lot of energy into shopping for the right house — but are you looking around for the right lender, too?
Given that most mortgages have a term of 30 years, your relationship with your home lender is going to be a long-term one. You want to make sure you’ve got the right fit.
Shopping around for the right mortgage lender may help you find the right loan for you — and if you’re a non-traditional buyer, you might have to shop around for a mortgage you can qualify for at all.
Fortunately, banks like Quontic Bank are here to help. As one of only 3% of U.S. banks with a CDFI, or Community Development Financial Institution, certification, we’re equipped to offer prime mortgage loans to self-employed borrowers, foreign nationals, and others who can have a hard time qualifying on the conventional loan market.
Have questions? We’re standing by to help — give us a call or shoot us an email today!