Updated: Mar 9, 2021
So, you are thinking about buying a home and not really sure where to begin? Right now more than ever, you need to do some research upfront before taking the leap of homeownership.
Here are the top 5 common mistakes that first time home buyers make.
1) Taking on new debt while you are under a contract
When you are first starting out looking for homes, you’re going to be working with a lender to figure out what type of loan you qualify for. Lenders will want to look into how much you can afford, the best interest rate they can get you, and your financial background.
One of the big things they are looking at is your debt to income ratio which is basically how much debt is going out and how much debt is coming in. They want to make sure that you can make the monthly payments with the debt you already have in place.
Once you go under contract, you basically want to live in a hole until the closing is over. If you go out and accumulate new debt after going under contract, it could throw everything off.
A quick example here would be If you go out and buy a brand new car or buy all new furniture on your credit card before closing. The lender will do another credit check to make sure everything is about the same as when they approved you to begin with. If you make a big purchase, it could eliminate you from getting the loan. It's best to make large purchased until after the closing!
2) Being unrealistic
I tell this to clients all the time, there is no such thing as a perfect home. When you find the home that you like, there are going to be some things that you are just going to have to compromise on. I usually say if you can check 4 out of the 5 boxes, then usually that's a good indication that the home is a good fit. Here are some quick things to consider when looking for a home:
Commute time to work
Type of school districts
How big the house is
Try not to focus on cosmetic things, because those are things that you can change. You really want to focus on things you cant change like the layout of the house or the houses location.
3) Not getting pre-qualified for a loan
I get it, you want to go look at houses now. But what you want to do before you go house hunting is to get pre-qualified. You will want to know what type of loan you are going to get, what your payments will look like, what your interest rate will be and if there are things you need to work on to get a better rate, etc.
If you go out house hunting to find the home of your dreams and then realize you can’t actually get approved for that house, its going to be heartbreaking. Here is why you have to get pre-approved before you go house hunting:
To make sure you know your budget
If you can't get approved for the loan, the lender will be able to let you know why and should be able to put together a time line of when it would be best for you to purchase a home and what you would need to do to get pre-approved.
4) Relying on Zestimates and Zillow
Everyone uses Zillow which is fine. I don't think the public realizes that Zillow is just a marketing firm. They are not Realtors. I am here to tell you that Zillow is wrong most of the time!
Zillow can be a great resource if you want to look at houses or pictures or some basic data about the neighborhood. They are not the best tool to used to find the value of a home. Zillow has no way of knowing the house sits on a wooded lot or has been completely renovated, etc.
5) Working with an internet lender
I can't stress this enough. It is typically best to work with a local lender. It is so easy to hop online and fill out forms and get pre-approved from some random bank out in another state. Great! When it comes down to getting that loan to the closing table, this is where the headaches can come in.
What you need to understand is, the role of the lender plays such a huge factor in the home buying process. You will want to work with a lender who is responsive and communicates well and also gets paperwork done on time. If you are working with an internet lender, they could be in a different time zone which doesn’t work well at all. Local lenders know all about the state laws and regulations where as an internet lender could be in a different state and have no clue how our property taxes work, etc.
DO NOT QUIT YOUR JOB BEFORE CLOSING! I don’t care how bad you hate your job, don't do it. I don't care if the printer at work always freezes up and you want to take your anger out on it like in the movie Office Space, but you need to maintain that job until after the closing. Lenders will verify your employment all the way through the closing and if you no longer work here you said you did on your application, that can cause huge problems, delays and possibly cost you some money and losing out on your house. In some cases, you may be able to switch jobs before the closing, you will just want to clear this up before hand. If you try and pull a fast one, you will become homeless!
Those are the 5 most common mistakes most home buyers make today. I hope that I helped you learn something today and hopefully you can avoid making those mistakes when you go to purchase a home.
What other questions do you have about the home buying process? leave those in the comments below!