3 Real Estate Fails For First-Time Home Buyers
Buying a home can be a great experience. From the joy of making an investment to furnishing your very own place, it is easy to see the benefits of home ownership. Unfortunately, a large portion of home buyers make mistakes when it comes to purchasing their first piece of real estate. These mistakes may seem small at the time, but they can lead to long term financial ramifications and difficulty reselling the property. If you are part of the 38 percent of first-time buyers, using caution when starting the buying process is smart.
Using this list of home-buying fails, you will have a successful first time home buying experience.
Not Giving Your Credit Attention
Ordering a credit report each year is smart for anyone, but if you are considering buying a house, it is an imperative task. Unfortunately, many first-time homebuyers learn their credit score is not high enough to qualify for a mortgage even though they have made minimum payments on their credit cards each month. Making these minimum payments is essential, but the act does not automatically give you excellent credit.
Before venturing out to open houses, scouring the Internet, or contacting a real estate agent, order a credit report. If you have any negative accounts, consult the account holder to resolve the issue immediately. Pay attention to your debt to net ratio, as well. If your loan and credit card balances outweigh your household income, you will most likely not qualify for a home loan. Most lenders consider a score of 660 or higher good, but higher scores are necessary for receiving the best mortgage interest rate.
Shopping without a Prequalification
Finding an appealing home in your desired location may seem easy, but many first-time buyers do not place much consideration into the home price. You may find the perfect house, with all of the amenities you want and need, but it could be thousands of dollars over what you can realistically afford. To avoid the disappointment, be sure to contact a mortgage company for a prequalification.
During the prequalification process, a mortgage consultant will require the following documents:
- Employment and Income Verification – Your bank may require pay stubs and tax returns from the last few years to verify employment and income.
- Credit Report – During the prequalification process, your lender will need to run a credit report to determine your score and debt-to-net ratio.
- Bank Statements – Copies of your bank statements may also be necessary. Bank statements will show your household spending habits, but also the amount you have available in your checking and savings accounts.
The prequalification will ensure you know exactly how much house you can afford, so you can avoid searching for properties outside a specific price.
Not Accounting for Other Expenses
Most buyers know they will need a down payment to purchase their first home, but you may not be familiar with other expenses to pay at the time of closing.
Of course, many sellers will pay a portion of your closing costs, but you will need to negotiate this during the initial contract. However, other expenses will arise during closing, so it is smart to prepare.
If your down payment is less than 20 percent, you will need to pay part of your PMI, or Private Mortgage Insurance. In most cases, one month of your PMI will be part of your closing costs. Your closing costs will also include the yearly fee for your homeowner's insurance.
It is important to note that these fees are in addition to your down payment and traditional fees required by the lender. These fees include the cost of an appraisal, inspection, and attorney.
Saving up for your down payment is smart, but be sure to have extra to cover all of your closing costs.
Buying your first home can be a rewarding experience. However, proper planning is key. By avoiding these 3 real estate fails, you will have a successful first-time home buying experience.