Most first-time home buyers have an extensive to-do list that covers all the important steps in the process. Equally important, however, is a list of what not to do when buying a home. Missteps before and during the mortgage application process can end up costing thousands of dollars in added interest costs and in extreme cases can even prevent prospective homeowners from obtaining financing for their dream home. Here are seven things to avoid when planning the purchase of a new home.
1. Don’t skip the home inspection
Designed to identify serious problems and areas of concern, home inspections are required by most mortgage lenders. Even if your lender doesn’t require a home inspection, it’s well worth the additional cost to avoid unforeseen problems after closing.
2. Don’t finance any other large purchases
Lenders may be wary of individuals and couples who appear to be taking on too much debt at one time. By delaying the purchase of vehicles, boats and other major items until after the mortgage application has been approved, you can increase the chance of snagging a lower interest rate.
3. Don’t make too many major life changes
Job changes, switching to self-employed status and frequent changes in place of residence should be avoided in the months leading up to the mortgage application. Sudden changes in financial status, location and income can create questions about your overall reliability and may result in higher interest rates. Even switching banking institutions may raise red flags, so try to remain consistent during the period preceding your mortgage application.
4. Don’t charge anything
By keeping a large available balance on your credit card accounts, you can achieve a better debt-to-credit ratio that can significantly reduce the interest rate mortgage lenders are willing to offer you. Additionally, the added flexibility will prove useful after closing when unexpected expenses are nearly certain to arise.
5. Don’t overestimate your future income
When deciding on a price range for your new home, it is tempting to assume that you will make significantly more money in the future and will be able to afford larger payments at that time. As recent economic events have proven, however, this is not a safe assumption. Making a conservative estimate of financial resources and basing your decision on current income levels rather than projected future income can ensure that you buy the house you can really afford now and in years to come.
6. Don’t overlook added costs of home ownership
Don’t forget to set aside funds for home repairs, exterior maintenance, insurance and property taxes. While home insurance and property taxes can sometimes be included in the monthly mortgage payment, starting and maintaining a savings fund for household emergencies can save new homeowners a great deal of stress and worry.
7. Don’t try to go it alone
Finding the right real estate agent can be challenging, but in many cases these knowledgeable experts can provide valuable information on school districts, neighborhoods and general market data that can save you time and money when looking for your new home.
While every home buying process is different, these general rules of thumb will help make your experience less stressful while ensuring that you get the right loan at the right interest rate for your new home.
You can make the home buying process much easier by avoiding the mistakes that many first time homebuyers make.