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The Most Common Mistakes First Time Homebuyers Make

If you’re reading this then you may be on the brink of making the biggest purchase of your life. Whoa. Buying your first home may sound a little intimidating, but it doesn’t have to be. However, many first time homebuyers make mistakes when they shop for their first home, but we want you to start the process off on the right foot. Check out our list below to see some of the most common mistakes homebuyers make.

They shop for a home before a home loan.

Never put the cart before the horse. Knowing how much home can you afford is critical to your homebuying experience and let’s be honest, your wallet. It is a waste of time if you are shopping in Millionaire Estates when you can only afford Countryside Acres.

Get some help understanding your affordability using our helpful mortgage calculator with interest and taxes.

They become emotionally attached to a home.

Remember when we said to know how much you can spend before shopping for a home? Don’t get attached to a home before you check the price tag. Understanding your home affordability is critical in saving time and emotional energy while house hunting. Having a better grasp on what you can afford will allow you to segment your search accordingly, eliminating the wasted hours and, yes, even heartbreak!

They don’t establish a trusting relationship early-on with their loan originator.

Your loan originator is going to be your guide during your loan process. Not only do you want to get in touch with him/her early-on in your house search, but making sure you are open and honest about any credit card debt or previous unemployment will make for a much smoother loan process. It is also important to ask your loan originator as many questions as possible—no question is a bad question! It is you loan originator’s job to make sure you are paired up with the best loan for your financial situation, but they will need your help determining that after some upfront and transparent conversations.

Here are some questions you should ask:

  • Which type of mortgage is best for me?
  • How much down payment will I need?
  • Do I qualify for any first time homebuyer down payment assistance programs?
  • What is my interest rate?
  • What is the annual percentage rate?
  • Will I have to pay mortgage insurance?
  • Do I have to pay a lender origination fee?
  • What are my closing costs?
  • Is rolling closing costs into mortgage payment possible?
  • How and when will I be updated on the loan’s progress?

They don’t understand the difference between prequalification and preapproval.

While they both have great benefits, it can be hard to understand what each of these terms mean. Prequalification is often seen as the first step on the mortgage timeline and a preapproval is the next step. With a prequalification you will supply your loan originator with financial history, income, assets, debts and credit score. In return, you will get an estimate of the loans you qualify for. The mortgage prequalification doesn’t always require solid proof and documentation of your financial history, but the preapproval does. Think of the prequalification as “window shopping” for a home and the preapproval as the golden ticket that lets sellers know you are serious about making a purchase. We always recommend getting your preapproval when you are ready to put an offer on a home, because this shows the seller that you mean business!

They rely on online services only.

Because we live in a digital age, you may think that you can purchase a home and close on your mortgage entirely online. While the mortgage industry is moving in this direction, it is still in your best interest to meet with your loan originator to make sure you fully understand your loan contract, especially if you are a first time homebuyer. Many things can still be miscommunicated through text or email, so make sure to schedule some initial face-time with your loan originator.

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They don’t know they have options.

Don’t throw out the dream of homeownership just because you know that you are saddled with student loan or credit card debt. The mortgage industry is continuously changing and adapting to society’s modern lifestyles and most lenders will have special products unique to your situation. These programs can help you do things like minimize down payments and closing costs. Having a variety of options is important so teaming up with a lender that offers many options, like Envoy Mortgage, is in your best interest to securing the best loan product.

They think they must make a 20% down payment.

While putting 20% down is awesome, it often is not realistic for most first time homebuyers. Envoy provides products such as the Conventional or FHA loan that offer lower down payment options and more lenient credit score requirements.

They don’t check their credit report.

When meeting with your loan originator, make sure to discuss your credit. Often, improving credit is as simple as taking a few painless steps. Once you understand the basis for your credit rating, it’s easier to work on improving your score. If you still can’t get approved for a loan based on your credit score, set a meeting with a credit repair specialist and they will help you get set up with a homebuyer credit repayment plan to get those scores up! It’s usually just a matter of time before we can get you back in the “home search saddle!”

They miscalculate costs.

Saving money for your down payment is only part of the battle. Make sure you calculate ALL the costs that go into purchasing a home such as, homeowners and title insurance, closing costs and lender fees to name a few. Make sure you also have finances set aside each month if you plan to purchase into a neighborhood with a homeowners association (HOA).

They forget to take property taxes into account.

Property taxes can vary and are calculated by your local/city government by a tax assessor.  The semi-annual payment you pay provides funding to education, road construction, public servants and other services that may benefit the community. Make sure you calculate this and add it your expense list.

They forget to establish an emergency fund.

Don’t spend all your savings on the purchase of your home and then forget to save money for an emergency fund. This extra money will help pay for unforeseen disasters like, roof leakage, pipe breakage or an AC outage. Though your inspection process should help identify any pending repairs before you purchase a home, you always want to be extra prepared in the event an unforeseen expense occurs post-purchase.

They forget about interior decorating.

Now that you’ve purchased a home, you can get started on the fun stuff! Putting some extra money aside for furniture, décor and other furnishings is always a good idea, that is, unless, you enjoy sitting in a lawn chair in front of your TV (no judgment here)! However, don’t think you have to purchase everything right away. Buy what you can now and take your time to truly make your home yours. Adding in the other items later is never a wrong choice.

They don’t connect with the right real estate agent.

Connecting with the right real estate agent or Realtor is important. Your agent should be willing and able to professionally represent you in this home buying season and is responsible for properly outlining expectation for you. If transparency and communication is important for you, ask your real estate agent which type of updates and communication to expect from them along the way while relaying how important this is to you. A good agent will keep you informed from beginning to end, serve as your champion and negotiate the best deal with the seller’s agent. Make sure you interview a few candidates before making an exclusive contract with a real estate agent and don’t be afraid to ask for a few recent references!

They don’t think about resale before they purchase.

It is important to think about how well your new home will resale when you are ready to move in the future. Life is always changing and if you need to move quickly because of a new job or life event, you’ll be glad you purchased in a neighborhood with a good school district, high property value and low crime rate. We know that not all first time homebuyers can afford the dynamic trio of advantages, so we recommend purchasing in an up-and-coming neighborhood if this is the case for you. Some clues to look for in these neighborhoods are new home construction around older homes and brand-new restaurants and attractions. This new construction means that the neighborhood will potentially thrive in the future, making your home easier to sell. Always feel free to chat with your agent on the best areas to look for if this is an important goal for you when shopping around.

They don’t do their research.

Part of the desire to purchase a specific home is the location of the neighborhood and the amenities provided in the surrounding area. Step1—Perform quality research on the neighborhood that you plan to purchase in. Step 2—Do a drive-by at different times during the day. Do loud planes fly overhead? Is it too close to the freeway? Are the neighbors friendly? Step 3—Ask around. Don’t be afraid to ring the doorbell of your potential new neighbors to get the inside scoop!

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They rule out a home because of minor repairs.

Yes, that floral wallpaper in every room of the house may be completely revolting, but with a little elbow grease it can be quickly removed and transformed into a warm and cozy home. Don’t let minor things like current interior appearance keep you from making a purchase, but at the same time be sure to calculate the average home renovation cost to determine if the cost is worth the reward.

They max out their mortgage limit.

Just because you are given a certain limit on your loan, doesn’t mean you should max it out to its highest amount. Life happens sometimes, and it is important to know that you can still pay your mortgage each month, even if a financial crisis occurs. Don’t forget to put that extra money into savings, so you can retire early and travel! Being house-broke is a real thing and ensuring you are putting money away each month may be the key to a well-balanced lifestyle.

They don’t understand their mortgage and expected expenses.

A big part of the 2008 Financial Crisis was that many homeowners did not read the fine print on their mortgage loans. This goes back to knowing how much home you can afford and not maxing out your mortgage limit to make sure you don’t default on your loan. Chat with you loan originator to learn more about your DTI ratio (debt-to-income) and how this plays a part in your home affordability. For other expenses, ask your family members or friends who are homeowners which types of expenses they encounter on a monthly or yearly basis, so you know what to expect.

They skip the home inspection.

Would you skip dating someone before you married them? Most people would say no. It is the same for your home. The home inspection is a critical time to get to know your potential new home and to see if there may be any hidden issues in things like the foundation, roof, plumbing…etc. Hidden problems could be costly in the long-run. You never know what a strategically placed piece of artwork or a new paint job could be hiding! When a home inspection is being performed on your future home, try your best to be present and ask your inspector any questions that come to mind. Getting a seasoned inspector is your best bet in catching any faults with the home and could be the key in saving you hundreds or thousands of dollars down the road.

They don’t decide fast enough.

In a world where we easily swipe left on things we don’t like and right on things we do like, we face the problem of having way too many options, which makes us unable to make a decision. Remember, the grass isn’t always greener on the other side. Your house hunt must stop somewhere, so don’t be afraid to make an offer, before you lose your dream home.

They don’t come prepared to the closing.

You probably want your closing day to go without a hitch, so you can celebrate with some margs afterward. We want that for you, too (and wouldn’t mind an invite)! Always ask your loan originator what documents are required for closing on your new home. Your loan originator will supply you with a loan closing documents checklist, so you know which items to bring. At Envoy, we take away some of the stress and send email updates and videos to you, so you always know the status of your loan.

They miss their first mortgage payment.

You may be asking yourself the question, “When is my first mortgage payment due?” At your closing, ask how and when you will receive notification of payment, then be on the look-out for that notification. The mortgage servicer (the company that bills you) will collect the payment and make sure the principal, interest, taxes and insurance all go to the right places. Those first couple of payments, from a credit perspective, are very important!

Buying a home may seem a little overwhelming at first, but with the right team it can go very smoothly. We know that many more questions are bound to surface before you close on your new home.  The loan originators at Envoy Mortgage have helped people just like you purchase their first home for over 20 years, so don’t hesitate to reach out to us.

First Time Homebuyer Guide