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First-Time Homeowner Mistakes — And How to Avoid Them

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First-Time Homeowner Mistakes — And How to Avoid Them

Buying your first home should be an exciting and wonderful experience. It is also a big undertaking that can lead to expensive but avoidable mistakes.

Since you’ve never been through the process before, it can be intimidating and you can quickly feel overwhelmed.

Fortunately, the real estate industry has professionals who can walk you step-by-step through the process.

The basic process is learning what you want in your home; what you can afford; viewing what is available; making an offer with earnest money deposited to an escrow account; and closing the deal.

With professional help, you still have the responsibility to understand there are potential mistakes that can occur depending on your personal circumstances. Here are some big ones. 

1. Credit issues.

Besides the down payment, having too many blemishes on a FICO credit report is the biggest obstacle to qualifying for a mortgage. Real estate professionals who will explain to you what needs to be repaired. But you should have an idea about where you stand before starting the mortgage process.

You should at least know if your credit score is 560 or 740. You should also know how serious any of your credit issues are. Do you have four late payments from six years ago? They come off the report in seven years. Did you file bankruptcy last year?

Some issues are easy to fix and will save you thousands of dollars on your loan.

2. Get pre-approved.

Pre-approval goes hand-in-hand with any credit issues that you may have. Many real estate agents don’t want to work closely with someone until they have been pre-approved for a specific dollar amount.

A mistake you might make is getting pre-qualified rather than pre-approved. Pre-qualification is based on the information you provide to a loan officer, often verbally and without verification. 

Pre-qualification is not a guarantee that a loan will be approved; you don’t want to commit money to an escrow account without being pre-approved.

Pre-approval does come with a guarantee. If you can’t obtain pre-approval, the loan officer can often give you tips about what steps you need to be taking.

3. Down payment assumptions.

This one might surprise you. Many first-time buyers believe they need at least 20% for the down payment. The truth is there are many mortgage loans available for 3.5% down or even zero down.

4. Work closely with a real estate agent.

Your agent is going to be your “go to” person throughout the entire buying process.

If you contact him or her without being pre-approved for a loan, they can steer you to a loan officer.

An agent will ask the right questions to learn what you want in a home and show you what is available.

Your agent helps write the first offer and makes a recommendation about your deposit to the escrow account.

They can help determine what contingencies belong in the offer and which ones might not be necessary in a competitive market. Your agent will track and advise you throughout the process. You need to choose a real estate agent you trust and will be comfortable working with.

5. Understand the contingencies in the purchase offer.

A signed purchase offer with earnest money in an escrow account is serious business. You’re making a commitment to buy the house based on certain contingencies.

Every house and every purchase offer is unique. You may want the sale to be contingent on the seller putting on a new roof or installing a new furnace.

Almost every offer has a contingency that you approve a professional inspection of the house. Often, your final financing approval is a contingency. Any dealbreakers should be included in the purchase offer as a contingency.

This is all part of the first-time homebuyer’s experience. Don’t let fear set in, but do go into the process with your eyes wide open.

Posted-In: MortgagesEducation Personal Finance General Real Estate Best of Benzinga

 

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