It's tough being a first-time buyer in today's housing market. Home prices are hitting record highs and houses often sell for more than the asking price in just over a month. Don't make it even harder (or more expensive) for yourself by making these common mistakes:
1. Assuming you won't get approved for a mortgage. Ideally, you'd like to have as little debt as possible, an impeccable credit score, and a 20-percent down payment before borrowing money for a home. However, even borrowers with less can get loans in today's market, thanks to options like Federal Housing Authority loans, which are meant to help out low-income and first-time buyers.
2. Interviewing only one lender. The fees and rates offered by lenders may vary substantially, and they all offer different service levels and different loan products. Be sure to at least chat with a big bank, a regional bank or credit union, and an online lender.
3. Not getting pre-approved early on. Getting pre-approved for a mortgage serves two important purposes: First, it gives you a realistic understanding of how much you can spend on the house. Second, it shows sellers that you're serious and gives you slightly more standing if you're competing for homes with all-cash buyers.
4. Maxing out your mortgage limit. Just because a lender says that you can borrow a certain amount, doesn't mean you should borrow that much. Staying below that limit will give you more financial flexibility to cover the added expenses that come with purchasing a home, as well as long-term changes to your income.
5. Letting your emotions control your decisions. These days, starter homes go quickly, and it's common for first-time buyers to experience rejection on the first offers they make. In that kind of environment, it's easy to fall in love with a house that's out of your budget or get caught up in the heat of a bidding war and end up paying more than you expected.
6. Waiving contingencies without understanding the risks. In highly competitive markets, it's becoming increasingly common for buyers to make offers that aren't contingent on financing or inspection. Have a conversation with your realtor and a lawyer before opting out of contingencies in your contract. In a worst-case scenario, you may end up losing your deposit.
7. Allowing your credit score to change before the close. A pre-approval letter is not a guarantee of funding. If your credit score or income levels change drastically between the pre-approval and the closing of the loan, lenders may change their terms or rescind the offer entirely. While you're home shopping, be sure to pay all your bills on time and steer clear of new credit accounts, even if that means you have to wait to pick out your furniture.