First time home buyers are vulnerable towards making mistakes. There are many wrong steps which the first-time home buyers may take when they step into the mortgage market just like their parents, friends or siblings did when they first bought their home.

Let’s list down 12 common mistakes which first-time home buyers make when they enter the market to buy a home for the first time.

Not figuring out the size of house you want

It is just about wasting time if you do not have any idea how much house is affordable for you. It is important to decide the size of house you want to buy in order to avoid ending up looking for houses which you can not afford. Moreover, also avoid visiting places for houses which are below your optimal level. For the first-time home buyers, the main goal is to buy a house with easy monthly mortgage payments, therefore, it is always good to aim low.

Avoid Mistake

In order to avoid this mistake, make use of a mortgage affordability calculator which will help you in acknowledging which range of price is affordable.

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Getting quote for only one rate

It is always good to compare offers when shopping for a mortgage in the market. Normally when you go to buy a car, you always compare it with other cars. The rates of different mortgage lenders vary. Other than this, the closing costs and discount points also differ for different lenders. According to a survey conducted by the Consumer Financial Protection Bureau, approximately half of the borrowers do not shop for loans.

Avoid Mistake:

In order to avoid this mistake, it is important to apply for a loan with different mortgage lenders. This will help the borrowers to save great amounts on interest rates.

Not checking credit score reports and correcting errors

Another mistake that the first-time home buyers make is that they do not check their credit score reports and correct the errors in it. The mortgage lenders will definitely examine your credit score reports in order to decide whether to approve a loan and if yes then on what interest rate. If there are some errors in your credit score report, you will be quoted a higher interest rate. Therefore, it is important to check your credit score report and make sure it is free from errors.

Avoid Mistake:

In order to avoid this mistake, you might request a report every year and file a dispute for any kind of error.

Making a small down payment

In order to buy a home, it is not necessary to make a down payment of 20%. There are many loan programs which allow you to buy a house with a down payment of either 0% or 3.5%. It is normally a good idea but later the homeowners regret their decision. This is because the key here is that you need to make sure that your down payment is able to secure an affordable monthly mortgage payment.

Avoid Mistake:

In order to avoid this mistake, it is better for you to pay a bigger down payment amount that will allow you to have a lesser monthly mortgage payment. According to the survey conducted, 11% of the homeowners said that they should have waited and made a bigger down payment. One such downside of waiting to collect bigger down payment is that the mortgage rates and house prices will keep on rising which will mean that you will miss out on making home equity. Homebuyers should spend 3-4 years saving up for the down payment before buying a house. Therefore, the key here is to make a down payment that will help you secure lesser monthly mortgage payments.

Not looking for the first-time home buyer programs

Since you are a first-time home buyer, you might not have enough money saved for making bigger down payments and paying for the closing costs. This does not mean that you have to delay your home ownership in order to save up for a bigger down payment. If you look in the market, there are many programs which offer low down payment at competitive mortgage rates for the first-time home buyers.

Avoid Mistake:

In order to avoid this mistake, ask your mortgage lenders about options available to you as a first-time home buyer and look for different programs in your state. You may be eligible for the US Department of Agriculture loans and the loans which are backed by the US Department of Veteran Affairs as they do not require a down payment. The FHA loans have a minimum down payment of 3.5% whereas there are other conventional loans which offer down payment as low as 3%.

Ignoring VA, USDA, and FHA Loan Programs

There are many first-time home buyers which want to or not need to make small down payments. However, they do not know any government programs which makes it easy to buy a house with little or zero down payment.

Avoid Mistake:

In order to avoid this mistake, educate yourself about the following loan programs.

VA Loans:

VA loans are the mortgages which are guaranteed by the US Department of Veteran Affairs. These loans are for the people who have served in the military service. The loans backed by Veteran Affairs allow the qualified home buyers to pay zero percent down payment and get 100% financing for the house. However, the borrowers pay funding fees additional to the mortgage insurance.

USDA Loans:

USDA loans are backed by the US Department of Agriculture which can be used to buy homes in the rural areas, designated by the department itself. The metropolitan cities are excluded from the list however, some suburban areas are included. Qualified home buyers can choose to not pay any down payment. However, additional to the mortgage insurance, the loan requires annual fee and guarantee fee while taking up the loan.

FHA Loans:

FHA loans are loans backed by the Federal Housing Administration and offer down payments as low as 3.5%. However, even if your down payment is 20%, you will have to pay mortgage insurance for the loan.

Not Knowing Whether to Pay Discount Points

The mortgage discount points are fees that you pay upfront in order to reduce the interest rate on loan. Over the life of the mortgage, the interest rate savings can add up to a lot of money and discount points is one of the ways which can be used to gain those savings. However, you must be in the right position to buy them.

Avoid Mistake:

if you think that making a minimal down payment is necessary then do not buy the discount points. If you have sufficient cash on hand, the value of buying the discount points depends upon whether you decided to live in the home longer than the period of break-even. This is the time when the monthly savings you get from lower interest rates are exceeded by the upfront costs.

Emptying Your Savings

Buying a previously owned home will always require repairing in near future which might be unexpected for you. This might result in you paying for the repair cost of replacing a water heater or a homeowner insurance deductible after a bad weather.

Avoid Mistakes:

In order to avoid this mistake, it is important for you to save sufficient money in order to pay for down payment, closing costs and moving expenses. Moreover, you must have enough money saved up for repairing. Moreover, the lenders will also provide you with an estimate of closing costs. As for the moving expenses, you can call around and ask for an estimate.

Applying for Credit before Sale is Final

Taking out an auto loan before the mortgage closes or buying new furniture, appliances on credit is a mistake. It is better to leave your credit as much alone as possible. This is because applying for credit reduces your credit score points. While applying for a loan, the mortgage lender looks for your credit score report and debt-to-income ratio. Moreover, getting a new loan or adding to your monthly debt payments will only increase the debt-to-income ratio. This is not good from the perspective of a mortgage lender. During the closing week, the lender checks the borrower’s credit again. If the credit score decreases and your debt-to-income increases, the lender may make changes to the interest rate or the mortgage fees. This might even cause a delay in the closing of your deal or may cancel the mortgage.

Avoid Mistake:

Wait till closing before opening new credit accounts or to buy furniture or appliances. Until or after you have keys in your hand, do not buy things on credit.

Shopping for a house before a mortgage

Before finding out how much they need to borrow, the first-time home buyers start visiting properties. This disappoints them when they actually find out that they were exploring houses in a wrong price range.

Avoid Mistake:

In order to avoid this mistake, you need to talk to the professional mortgage lenders regarding getting pre-approved and pre-qualified for home mortgage. The process of pre-approval and pre-qualification requires a review of the buyer’s incomes and expenses. For example, if you qualify for a one-family house worth $500,000, it is a waste of time to see one-family houses worth $600,000.

Underestimate the cost of ownership

Once you buy a home the monthly utility bills keep piling up. However, if you are not ready then this will come as a surprise to you. Although, renters do pay similar bills but getting a new home can have higher costs.

Avoid Mistake:

In order to avoid this mistake, work closely with a real estate agent who can tell you how much the property taxes in neighborhoods and the insurance normally costs. See the seller’s utility bills for the last 12 months in order to have an idea how much of the cost will incur when you move in.

Miscalculating your repair and renovation costs

This is yet another mistake made by the first-time home buyers which is that they miscalculate their repair and renovation costs. Buyer can make two mistakes: they get an estimate of the repair from only one contractor and secondly their expectations are disturbed by the reality shows which makes renovation looks easier, cheaper and faster.

Avoid Mistakes:

in order to avoid mistakes, assume that all the repair estimates are low. Double the estimated costs in order to get a realistic view of all the costs. Go to more than one contractor in order to get estimated costs for repairs and renovations.

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