Strategies for Avoiding Them
REALTOR, FAITH NICOLE 3-MINUTE READ
FEBRUARY 7 2023
1. Not Starting The Approval Process Early
The home buying process is often thrilling, which leads some people to rush into it without proper planning. However, shopping for a home before getting preapproval (initial approval from a mortgage lender) can be a costly mistake. Obtaining preapproval first has several benefits for home buyers. It helps them determine their affordable home price range by taking into account all the costs associated with owning a home, reducing the risk of human error. Preapproval letters furnish buyers with a dependable price range and the purchasing capability, enhancing their credibility in the eyes of sellers, which can be an advantage in bidding wars.
What is the difference between prequalification and preapproval?
Pre-qualification only provides a preliminary estimate of what you can afford, but preapproval verifies some of your financial information and offers a stronger backing to home sellers. Preapproval is not a final approval for a mortgage, but it can help make a stronger offer to sellers. My preferred mortgage lenders will offer you a "Verified Approval," which is an even higher level of initial approval where credit, income, and assets are verified with documentation.
2. Looking At Only One Mortgage Rate Quote
"Now I know what you're thinking, getting a mortgage quote can feel like a tedious task, as it requires some interaction with a professional lender and digging up financial documentation. But, let's face it, settling for the first quote you get is like choosing the first date you see on a dating app. Sure, it might save time, but another lender might have an offer that could end up saving you money in the long run. Hence, getting multiple quotes is the smartest way for buyers to select the right lender and secure a mortgage with the most favorable rates and terms.
3. Not Working With A Real Estate Agent
Is it possible to purchase a property without the help of a real estate agent? Yes. But is it advisable? That's a no-brainer. Real estate agents are seasoned professionals, and handling the buying process on your own won't save you any money since their services are free to buyers. Realtors are not only your bargaining chip, they also play a crucial role in ensuring you fully understand the terms and agreements involved in the biggest purchase of your life. Furthermore, having a real estate expert by your side can help alleviate stress and make the home buying journey much smoother.
4. Buying More Home Than You Can Afford
While an initial mortgage approval gives you an idea of how much house you can afford, it's not always within your budget. This is because there's often a difference between your debt-to-income ratio (DTI) and your overall monthly expenses. When a lender assesses your financial information to grant approval, they rely on your DTI to gauge how much of your monthly income is dedicated to debt payments. But DTI does not take into account all your expenses, like groceries, utilities, and health insurance, which can quickly add up. As a result, purchasing a home that uses up all your approved mortgage amount may make it challenging to handle other monthly payments. It's crucial to factor in any monthly expenses that may not have been included in the initial approval process. In addition to your current budget, consider the extra costs of homeownership such as closing costs, maintenance, and the possibility of increased utility bills.
5. Not Checking Your Credit Report
Neglecting to monitor your credit score during the home buying process could result in undetected errors that could affect your loan approval or lead to less favorable loan rates and terms. Lenders will check your credit score again just before the closing date, and any changes to your credit report could affect your loan. For example, if you apply for new credit cards or miss payments on existing ones before closing, your credit score could decrease significantly, making it difficult to secure financing.
6. Waiving A Home Inspection
"Forgetting to conduct a home inspection can be a costly mistake in the long run. Although some home buyers may feel tempted to skip the inspection in a competitive market, inspections play a vital role in safeguarding your investment from future headaches.
During the inspection, an expert will assess the condition of the home and identify any structural or system issues. With the report in hand, you'll have leverage to negotiate repairs or a better deal with the seller."
7. Not Saving Up Enough Money
"Down Payment: This is the initial amount you pay towards the home's purchase price. Traditionally, putting down 20% of the purchase price was the norm, but this is becoming less common these days. Some loan options such as VA loans or down payment assistance programs may require as little as no money down. Closing Costs: These are expenses that come with the home buying process and can include appraisal fees, title fees, lender fees, application fees, loan origination fees, property taxes, mortgage insurance, and more. The total cost for these can add up to be equal or more than the down payment, with a typical range of 3% to 6% of the home's purchase price. Note that in some housing markets, the seller may cover these fees. Homeowners Insurance: This type of insurance protects your home and its contents from damage and is usually required by the mortgage lender. The cost of the insurance can vary between companies, so it's difficult to predict. However, you can find this information on the Closing Disclosure document, which details your mortgage loan terms. Property Taxes: Paid monthly, these fees are based on the assessed value of your property. Home Maintenance: After you move into your new home, you may encounter opportunities for upgrades and repairs. Consider these costs beforehand. Utility Bills: While you may have an idea of utility costs from your rental experience, remember that they can vary based on location and the size of the home. Moving Costs: Moving can be costly, including the time, effort, and money it takes to pack and relocate your belongings. Plan ahead and consider the cost of hiring professional movers, if necessary. Homeowners Association (HOA) Fees: Depending on the type of home and neighborhood, you may have to pay HOA fees, which typically cover community amenities such as trash pickup and landscaping. These fees are common in planned neighborhoods, townhouses, multi-unit apartment buildings, or condominiums."
8. Neglecting First-Time Home Buyer Programs
It's important to know that first-time homebuyers can receive help with the cost of buying a home through programs and grants. These programs are offered by various state and local governments. There are also national programs that help low to moderate-income homebuyers purchase a home with zero down payment. For a list of $0 downpayment opportunity click here.
9. Waiting Too Long
"Being slow in submitting an offer can result in losing the ideal home, and being overly selective in your search could lead to missing out on other good options. Being overly specific in your search criteria may limit your results, so it's important to balance your preferences with practicality to avoid prolonging the process unnecessarily. It is vital to find a balance between your must-haves and being open to alternative options.
10. Letting The Media Tell You When To Buy
Aspiring homeowners should not rely on the media to determine when it is the right time to buy a home. The media often provides generalized information and can sometimes create fear and anxiety, leading to unnecessary hesitation and missed opportunities for those looking to buy a home. It's important for individuals to do their own research and seek expert advice, rather than solely relying on the media to make informed decisions about buying a home. Additionally, the media's focus is often on national trends, while local housing markets may have corrections for any misbalance. Ultimately, the right time to buy a home depends on individual financial stability, life circumstances, and long-term goals.
For expert guidance and personalized strategies in real estate investing, reach out to us at 832-314-2713. Let's embark on this journey together and unlock the full potential of your real estate endeavors.
Faith Nicole, Your Local Luxury Realtor®
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