If you’re buying your first home this year, you’ll need to be extra savvy. Though competition is fierce on affordable housing, interest rates are still historically low. If you can get a home, now is a great time to do it! When you’re on the hunt for our first home, be sure to avoid these common first-time buyer mistakes:
Thinking you need 20% down payment
Unless you are getting a jumbo loan, you don’t need a 20% down payment. If you chose to put down 20% for a conventional loan you won’t have to pay private mortgage insurance. But the minimum down is 3%. And other loan options may offer as little as 0% down. Of course, the more money you put down the lower your interest rate and payments will be. Talk to your home lender to see what they recommend your down payment be.
Not working with a local home lender
There are a lot of home lenders out there. The reason we recommend a local lender is they have more flexibility with down payments, minimum qualifications, and the type of loan programs they can offer. As an extra bonus, they have connections in your community with realtors, inspectors, builders, and title companies. Local lenders live and work in your community, so they have more of an incentive to give you a positive experience since word-of-mouth (and not national ad campaigns) are how they get new business.
Assuming you won’t qualify
Many renters don’t think they’ll be able to get a loan due to their credit or amount they have saved for a down payment. There are many different home loans, and each has its own qualifications. Some are designed for people with low credit, some offer 0% down payment, and others allow your family to gift you money for your down payment. Rather than assume you won’t qualify, make an appointment with your local home lender to see what programs they have available. They are the experts and will be able to tell you the best way for you to purchase a new home.
Underestimating repair costs
Before you buy a home, hire a good home inspector to get an idea of what repairs it needs. Roofs, floors, appliances, windows… all your home’s features wear out. If you purchase an older home as a starter, you might have to pay more money to keep it in working order. The International Association of Certified Home Inspectors has a great document showing the estimated life expectancy for components in your home. If you’re working with a local lender, they’ll be able to recommend inspectors in your area.
Shopping for a house before you get pre-approved
The best way to start your house hunt is by calling or visiting your loan officer. Together, you’ll set a budget for your home purchase and you’ll get an idea of what your monthly payments will be. They’ll run your credit report and pre-approve you for a home loan. In a competitive market, a pre-approval letter will let the seller know your offer is legit and will almost certainly get funded by your lender.
Not taking advantage of local first-time homebuyer programs
Many states (and some communities) combine closing costs and down payment assistance programs for first time homebuyers. Some states offer tax credits you can use on your federal tax returns too. Your local lender is an expert on the current grants and programs you can take advantage of to save money.