Common mistakes made by first-tome home buyers are common and typically happen due to lack of guidance from their selected Real Estate Agent. Buying a home in the bay area is exceptionally challenging due to doubled interest rates in the past two years, reaching around 8%. Navigating the intricate home loan process, especially for first-time buyers, is now more complex than ever and selecting a good real estate agent can by more challenging.
Hopefully the list of common blunders home buyers make will help guide you from making the same mistakes they did.
Common Blunders:
- Focusing Too Much on Interest Rate:
- Homebuyers often make the mistake of fixating solely on lower interest rates, unaware of hidden fees that can inflate overall costs.
- The crucial advice is to request a comprehensive estimate covering all fees associated with the mortgage, not just the advertised interest rate.
- HOWEVER, the bottom line is your monthly payment. If you can’t crack that monthly nut then best look for a cheaper house and upgrade to a bigger house in the future.
- Assuming 20% Down Payment:
- A pervasive misconception is that a substantial 20% down payment is a prerequisite for homeownership.
- Contrary to this belief, recent studies show that the average down payment for first-time buyers is approximately 6%, accompanied by additional closing costs.
- Assuming Instant Loan Approval:
- In the age of instant gratification, many borrowers wrongly assume they can secure a mortgage within days or even minutes.
- However, the reality is that even with modern technology, lenders may still require time-consuming steps, and some home tours might be contingent on having pre-approval.
- Thinking Pre-Qualification Equals Approval:
- While getting pre-qualified is a positive step, it falls short of guaranteeing loan approval.
- Full approval, involving a meticulous financial review, is recommended, particularly in the current competitive market, allowing for quicker closing times.
- Not Considering First-Time Homebuyer Programs:
- Uninformed buyers may overlook available programs designed to ease the financial burden of homeownership.
- These programs can offer assistance with closing costs, down payments, lower interest rates, and, in certain cases, tax credits.
- Failing to Check Credit Score:
- Neglecting to assess and improve one’s credit score before engaging with mortgage lenders is a common oversight.
- Simple actions, such as paying off a credit card, can significantly impact credit scores, affecting the offered interest rates.
- Picking the Wrong Loan Type:
- Homebuyers are urged to familiarize themselves with various mortgage types and their respective advantages and disadvantages.
- Consulting with professionals after researching available loan options empowers buyers to make informed decisions.
- Underestimating Fees Beyond Down Payment:
- The focus on the down payment often overshadows additional costs, including closing costs, title fees, appraisal expenses, and upfront homeowners insurance.
- Buyers are cautioned against overlooking these ancillary costs, which can collectively range from $5,000 to $12,000.
- Not Preparing for a Low Appraisal:
- Many first-time buyers underestimate the possibility of a low appraisal, which may result in the lender offering a loan based on the appraised price, not the agreed-upon contract sales price.
- Buyers are advised to consider this scenario and ensure they have the financial means to cover the potential shortfall.
- Not Shopping Around for the Right Lender:
- All lenders are not created equal, and the importance of finding a reputable, accessible lender cannot be overstated.
- Local lenders, known for their reliability and accessibility, are often preferred over online counterparts due to their proven track record.
🌶 Hot Take-Away:
Eric Karwowski underscores the paramount importance of thorough research and due diligence for first-time homebuyers. The emphasis on partnering with a trustworthy lender and comprehensively understanding the financial landscape contributes significantly to the likelihood of a successful and financially sound home purchase.