Your first time buying a home is a huge stepping stone in life. While looking for your very own place can be super exciting, the financial planning part might be a bit overwhelming. Most investors will apply for a mortgage, and if that’s your first time, you want to make sure you do it right. Understanding the most common mistakes will teach you things you need to avoid doing during this stressful, yet exciting time.
Discuss with different lenders
One of the most common mistakes first time buyers make when getting a mortgage is only talking to one lender. While it can be tempting and feel secure to contract a mortgage with your regular bank, the one you’re using since years, only talking to one lender is a mistake that could end up costing you thousands of dollars in the long run.
Talking to and considering multiple different lenders and banks puts all the options on the table. From there, it will be easier to compare different deals and see which one offers the most benefits. It’s recommended for first-time homeowners to talk to at least three different lenders and a mortgage broker, like Breezeful to really understand the options they have available.
Take your time and plan your investment
Buying your first house and applying for your first mortgage is incredibly exciting but that does not mean you should rush into your purchase. Remember that you are buying a home that you will stay in and pay for over many, many years.
If you rush the process, you risk not being able to save up enough money for a down payment or closing cost. On top of not having enough time to save up, rushing through a mortgage also results in you skimming over the credit report details that scores you much better loans.
So, if you’re considering investing in real estate, make sure to plan it out at least a year in advance. It can take months and sometimes years to repair poor credit, and saving up for a down payment can take even more time.
Do not spend all your saving in the down payment
Life savings have to be used eventually. And while it might seem like a great idea to spend all your savings on a down payment and closing costs, it is not. Indeed, for mortgage planners it is one of the most common mistakes first-time buyers make.
When getting a mortgage, if your down payment is 20% or more, you don’t have to get mortgage insurance. Many people think that this is a sweet deal, but in the end, it would be much better to shell out for insurance and keep some of your savings.
When closing a deal or making a down payment, make sure to have at least 6 month’s worth of living expenses saved up in your account. Mortgage insurance isn’t ideal, but it’s much better than living without a retirement fund or savings to fall back on.
Paying attention to credit before engaging with a lender
Most people know that a credit score is very important when applying for a mortgage. Before lenders approve a loan or mortgage, they pull out the credit report of the buyer and check their records.
In the months leading up to applying for a mortgage, make sure not to apply for new credit cards, take out new loans, and make large purchases through your credit account. Pay bills on time and in full, including credit balances to at least 30% below the limit.
This increases your credit score and gives you a better chance of securing a mortgage.
Start looking for a home after having been preapproved
Experts suggest getting preapproved for a mortgage before looking for a home. The market is very fierce right now, with more buyers demand than affordable homes. Not being preapproved for a mortgage can result in first-time buyers losing the house of their dreams.
Looking at homes before applying for a mortgage might also result in buyers looking at homes they might not be able to afford. So, to give you an edge in the market and ensure that you’re shopping within your means, get preapproved for a mortgage before looking at houses.
Avoiding some or all of these five mistakes when purchasing your very first home will take away a lot of risks, disappointment, and stress from your shoulders during the whole process.