Getting the money together for a down payment on a new home doesn’t have to be hard. If you plan, save, and make use of potential resources, you’ll be on your way to owning a home in 2021.
Are you getting ready to buy your very first home? As a first-time homebuyer (FTHB), there are some pitfalls ahead. By knowing what to do and what not to do, you can avoid these five common FTHB mistakes.
In This Article:
- Five First-Time Home Buyer Mistakes to Avoid
- Advantages of being an FTHB
Five First-Time Home Buyer Mistakes to Avoid
Shopping for your first home can be so exciting, but don’t let your heart run away with your head. Take things step by step, and plan before you buy. Doing your research is the best way to avoid the most common mistake that FTHBs make. You can save money, time, and your sanity by simply not doing these five things:
1. House Shopping Over Your Budget
Find out how much budget you have for your first home, and resolutely refuse to look at homes outside that range. Buying more house than you can afford only leads to heartache and stress; trying to make mortgage payments that are outside of your ability can lead to shortfalls every month in other areas, missed mortgage payments in the future, and even foreclosure.
Instead, figure your monthly after-tax income. Subtract all of your monthly bills. What’s left over should be divided in half, and that’s how big a mortgage payment you can afford (the other half should go into savings in case you hit a rough patch. Instead of scrambling, you’ll simply be able to make your house payment up from your socked away cash.)
Tip: Not sure how your mortgage payment works? Calculate how much your expected monthly payment could be using our handy mortgage calculator.
2. Thinking You Don’t Have your Down Payment
Many “could-be” FTHBs wait too long to apply for a mortgage, losing thousands of dollars paying rent when they could be paying a mortgage on their own home instead. It’s normal to hesitate if you think you’re not ready, but if it’s the traditional 20% down payment you’re worried about, think again.
Most FTHBs can qualify for a special mortgage that doesn’t require anywhere near the 20% down of a conventional mortgage. You can apply for an FHA loan and pay only 3.5 to 10% down on the home of your dreams, as long as you pay private mortgage insurance (PMI) to protect the bank’s investment.
- Tip: Once you earn some equity on your home, you can always refinance to get rid of the PMI requirement and maybe even get a better interest rate!
3. Spending All of your Savings
So, you’ve got $80,000 in your savings account. Does that mean you should sink it all into a down payment? If you do, you could save a lot in interest over the years, but you’ll also be tying up all of your wealth in real estate.
This could give you trouble later if you need cash fast for an emergency. You could borrow against the equity, but that would cost you even more interest. You might
end up paying more than you saved by making a big down payment to start with.
- Tip: Limit your down payment as much as possible, and buy a few discount points on your mortgage to save on interest. Then stick your cash in an interest-bearing account so you have a cushion.
4. Crashing Your Credit
Getting ready to buy a home? Don’t start increasing credit limits, opening new lines of credit, or making big purchases on credit right before you apply for your mortgage (or right after!) You could wreck a perfectly good credit score and make yourself look like a risk to lenders.
Check your credit score well in advance of starting to shop for your first house, and try to raise your score if possible to qualify yourself for a better interest rate. This can help you immensely if you are applying for a loan product that rewards higher credit scores.
- Tip: know what a “good” credit score is. For buying a home in Seattle, WA, for example, you’ll need a score around 620, but you can get better rates with a score over 700.
5. Not Getting Preapproved
Many FTHBs make the mistake of home shopping before talking to a mortgage loan officer. In a competitive market, being preapproved can give you massive negotiating power, and move your serious offer on a home to the top of a seller’s stack. It doesn’t take a lot of work to apply for a mortgage online and find out exactly how much you’re approved to spend on the future home of your dreams.
At Sammamish, we do preapprovals routinely to help our homebuyers be prepared to put a confident offer in quickly as soon as they find their perfect home. You’ll get a preapproval letter after applying for and having all of your documentation verified and your credit score checked for your mortgage loan.
- Tip: Don’t fall into the trap of simply getting “prequalified.” This is a surface look at your finances, and doesn’t include verification of your employment, income, and assets. A preapproval lets you be taken seriously by sellers.
Advantages of Being a FTHB
As a first-time home buyer, you do have a few benefits over someone who is buying their second home. You can take advantage of loan programs that allow you to buy with a low down payment, with fair to poor credit, and even with funds provided as a gift from a family member or friend.
You’ll also be able to instantly increase your net worth when you become a homeowner. Even if it takes you a few years to build up equity, owning your own home gives you immediate financial standing and looks good to the credit bureaus. Just make sure you make every payment on time!
If you run into trouble with your mortgage, and you’re in a FTHB program backed or sponsored by the federal government, you’ll also qualify for special programs in case of an unprecedented event, like a pandemic. For example, Many FTHBs who were having trouble making their mortgage payments due to COVID-19 were able to get forbearance and avoid foreclosure or losing their credit rating.
Why Choose Sammamish Mortgage?
Are you a first-time home buyer? Navigating the homebuying process can be confusing and complicated. We understand how overwhelming it can feel, especially since it’s your first time dealing with things like escrow, appraisals, and closing costs.
We try to make the process as easy as possible, from making mortgage rates easy to find on our site, providing you with calculators, and letting you choose between initiating your application online or asking a loan officer to walk you through the steps. We’ll be with you every step of the way!
Sammamish Mortgage has been in business since 1992, and has assisted many home buyers in the Pacific Northwest. If you are looking for mortgage financing in Washington State, we can help. Sammamish Mortgage offers mortgage programs in Colorado, Idaho, Oregon and Washington.
Contact us if you have any mortgage-related questions or concerns. If you are ready to move forward, you can view rates, obtain a customized instant rate quote, or apply instantly directly from our website.