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11 First-Time Homebuyer Mistakes

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There are many steps to follow when buying a home for the first time, and one misstep could cause delays — or even keep you from buying your ideal home altogether. Below, we’ve highlighted several common first-time homebuyer mistakes you should avoid to have a smoother homebuying experience.

11 common first-time homebuyer mistakes

1. Not checking your credit before house hunting

There’s nothing worse than finding your dream home, only to learn your credit score is too low to get a mortgage. Be sure to check all three credit bureaus — Equifax, Experian and TransUnion. Lenders choose the second-highest score to determine whether you qualify for approval.

Note, in addition, that the higher your score, the lower your mortgage rate will be. Shoot for 740 to get the best interest rate offers.

2. Overlooking all available loan programs

Although first-time buyers often choose conventional loans to buy homes, the approval requirements are more strict and you’ll need at least a 3% down payment. Check to see if you’re eligible for any of these government-backed or down payment assistance programs:

  • FHA loans. The Federal Housing Administration (FHA) can insure loans with only a 3.5% down payment for borrowers with credit scores as low as 580, making it a good alternative if your score is below the 620 minimum conventional lenders require.
  • VA loans. If you served in the military, you may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs (VA) with no down payment requirement.
  • USDA loans. Homebuyers searching in rural areas may qualify for loans backed by the U.S. Department of Agriculture (USDA). No down payment is required, but income will limits apply.
  • Down payment assistance programs. Many state and local government housing agencies offer down payment assistance (DPA) programs to help with the down payment requirement on conventional and FHA loans.

3. Home shopping without a mortgage preapproval

Even if your credit score is high, lenders also need to vet your income, down payment funds and total debt to determine if you qualify for a mortgage. Getting a mortgage preapproval before you start house hunting will keep you from visiting houses that don’t fit your budget. In many cases, sellers won’t even accept a purchase offer unless it’s submitted with a preapproval letter.

4. Only getting one mortgage rate quote

Despite studies showing that mortgage shopping can save you big money on your monthly payment and lifetime interest charges, many first-time homebuyers choose the first mortgage company they’re referred to. Even if your real estate agent suggests a mortgage company, gather three to five additional loan estimates to make sure you’re getting the best deal.

5. Buying a home you can’t afford

Some lenders will approve you for a loan even if your total monthly payments equal 50% of your gross monthly income, but that doesn’t mean you should borrow that much. Make sure you leave enough room in your budget for other expenses, so you don’t end up living in a dream home with a nightmare mortgage payment.

6. Waiting until you have a 20% down payment to buy

Surveys of first-time homebuyers consistently show they overestimate how much money they need for a down payment. From 1989 to 2021, first-time buyers actually spent between 6% and 7% of the sales price toward a down payment, according to the National Association of Realtors (NAR).

Although a higher down payment equals a lower mortgage payment, the down payment for first-time homebuyers can be as low as 0% (which we detailed in mistake No. 3 above).

7. Failing to budget for all homeownership costs

Your down payment is only one expense you’ll need to pay when buying a home. Other costs of homeownership include:

  • Closing costs. You’ll need between 2% and 6% of your loan amount for closing costs. You can ask the seller to pay them or discuss a no-cost mortgage option with your lender. There are also DPA programs that cover first-time buyer closing costs; most programs allow you to get a gift from a relative as well.
  • Mortgage reserves. Lenders sometimes require you prove you have enough cash to cover up to six months’ worth of mortgage payments, known as mortgage reserves.
  • Maintenance. Unless you’re buying a condo, you’ll be responsible for maintaining the inside and outside of your home. Experts suggest you budget 1% of your home’s price annually to pay for repairs and maintenance.
  • Moving expenses. Moving company websites can help you calculate how many boxes, packing supplies and what size rental truck you’ll need to move from your current home into your new one.
  • Renovations. If you’re buying a fixer-upper home, you may want to check out a renovation loan, like the Fannie Mae HomeStyle® Renovation loan or the FHA 203(k) program. You can buy your home and roll in the costs of fixing it up.

8. Opening new credit after you’re preapproved

Lenders check your credit several times during the loan process, up until closing day. Any new credit could create last-minute delays or even trigger a loan denial.

9. Making large cash deposits before or during the loan process

You’ll have to document deposits that exceed 50% of your income for a conventional loan, or 1% of your sales price for an FHA loan. If you can’t document where the cash came from, your lender probably won’t allow you to use it toward your purchase.

10. Not discussing gift fund requirements with donors ahead of time

If a benevolent family member offers to gift you money toward a home purchase, make sure they know they’ll have to provide financial documents to show where the gift funds are coming from. Relatives may back out of a gift if they think a lender is prying into their financial matters, so letting them know in advance will prevent any last-minute crises.

11. Changing jobs before or during the mortgage process

Your employment is verified right before closing, and any change to your job or income could create chaos before you close.

How to avoid common homebuying mistakes

Fix your credit before you start house hunting. If your credit score is below 620, consider working with a credit repair company to spruce it up. Pay your bills on time and keep your credit card use to a minimum (or better yet, pay your balances off 60 to 90 days before you apply for a mortgage).

Stick to a 36% DTI maximum for your loan. The Consumer Financial Protection Bureau (CFPB) suggests keeping your debt-to-income (DTI) ratio at 36% or less. You’ll put less pressure on your finances if you avoid maxing out your house payment.

Learn all the mortgage programs you qualify for. Knowing all the programs you’re eligible for in advance will help you choose the best loan for your home purchase.

Hold off on job or career changes. Don’t switch from a W-2 to a commission job or self-employment, and avoid changing fields unless you’ve recently obtained an education or training related to that new field. If you don’t maintain your current employment status, you could end up waiting one to two years before you can get a mortgage.

Deposit cash two months before applying. It’s best to deposit any cash you have at least 60 days before you apply for a mortgage so it’s “seasoned” in your bank account. Otherwise, lenders will require you to document where the money came from.

Haggle with lenders to get the best mortgage deal. Lenders will usually compete for your business if you pit them against each other with loan estimates and phone calls. Once you find a lender that suits your needs, ask for a mortgage rate lock.

Don’t open new credit before or during the loan process. Hold off on any new credit accounts, including buy-now-pay-later or same-as-cash accounts. Lenders will have to count a payment against you, regardless of whether one shows up on your credit report.

 

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