Each year, mortgage lenders throughout the U.S. help millions of Americans fulfill their dream of homeownership. Today, interest rates have reached record lows, and most realtors and lenders agree it’s an ideal time to purchase a home. However, if you’re a first-time homebuyer, the lending process can seem overwhelming and confusing at times. Certain pitfalls could hinder the purchasing process along the way, making it difficult to secure the financing you’ll need to buy a home. Read on to find out how to avoid the most common first-time homebuyer mistakes:
- Looking at Homes You Can’t Afford
Looking at homes that fall outside your budget is a common mistake. It’s easy to fixate on a beautiful home in an expensive neighborhood without knowing how much house you can afford. Fortunately, the loan officers at NP, Inc. specialize in assisting new homebuyers. They’ll help determine what you can comfortably afford each month, making the financing process straightforward, seamless and stress-free. They will factor in your monthly expenses, examine your credit, and advise you on other monthly expenses to take into consideration, such as property insurance, homeowner’s insurance, taxes, HOA fees, lawn care and utilities.
- Confusing the Terms Prequalification and Preapproval
A house is probably the largest purchase you’ll make, and ensuring the process moves along smoothly is essential in getting you to the closing table. Unless you’ve thousands of dollars on reserve in the bank, a home needs to be financed, and that means you’ll need to apply for a mortgage. But before you can do that, you’ll need to be prequalified. Prequalification is generally a no-cost service provided by your lender online or in the office. You’ll need to provide a preliminary picture of all your any debts, assets and income so your lender can estimate how much financing you’ll need. Preapproval is the next more definitive step in the process and involves filling out a mortgage application. At this point, you’ll need to submit all necessary documentation to your lender for review, including income, assets and debts, to determine how large a loan you qualify for. Once you are preapproved, you can lock in an interest rate as well as make offers on homes with a lot more certainty.
- Considering an Adjustable Rate (ARM) Over a Fixed Rate (FRM)
The two most common mortgage options to consider when thinking about financing your home are fixed rate (FRM) and adjustable rate (ARM). A fixed-rate loan is valid for the life of the loan and will not change unless you refinance or sell. You simply lock in your rate and enjoy a predictable monthly payment each month. On the other hand, an adjustable-rate loan can be viewed as more of a gamble. A lower interest rate may seem more attractive initially, and you may even lock in a low rate for a few years. But your rate will fluctuate up or down depending on the stock market index. In a favorable market, you can rest easy. But if interest rates rise substantially, you could find yourself in the precarious position of not making your monthly mortgage payments or, the worst-case scenario—facing foreclosure.
- You Need a Minimum Down Payment of 20%.
Buying a home is an expensive undertaking that, in most cases, requires a down payment to ensure your monthly payment fits within your budget. A common misconception is that a down payment of 20% of the purchase price is necessary. While putting down as much money as possible means a lower monthly payment, you do not need to put 20% down to be approved for a mortgage. That’s good news if you have some money saved and want to buy a home sooner than later. Your lender can help with products and programs that require minimal down payments to assist first-time buyers.
- Pass on the Home Inspection
It’s never wise to throw caution to the wind and skip the home inspection, even if it means passing on your dream home. This is because the most pristine and well-taken-care-of home may have hidden issues that only an experienced inspector can uncover. An average home inspection of under $1,000 isn’t too pricey when you think of all the money you could save uncovering a major issue before you close. Finding out you have water or mold damage later can be an expensive proposition. An inspector can also uncover minor issues that can be used as a bargaining tool to reduce the home’s price or help with closing costs.
Are You Interested in Learning More?
If you’re a first-time homebuyer, now is a great time to take advantage of the lowest interest rates in U.S. history before they rise. The housing market has experienced an unprecedented and rapid boom of buyers spurred on by plummeting fixed rates. The good news is you may even be able to afford more home than your budget allows. To find out more information, talk to a loan specialist at NP, Inc. As a top lender with a stellar reputation in the mortgage lending industry, they’ve been guiding families to make the best home buying decisions for 25 years. Visit usmtg.com to learn more.
March 2021 by Susan Sherman for NP, Inc.