Common Mistakes First-Time Homebuyers Make

When you start preparing to purchase your first home, there are a lot of things to be excited about, and a long list of things you need to do to make sure you are able to get the home you want with a mortgage loan you can afford. Unfortunately it’s a process that can sometimes be confusing, which leads to some of these first-time homebuyer mistakes.

1: Not Getting Pre-Qualified for a Loan

As you start imagining your new life in an awesome house, one of the first things many people do is start their search for the perfect home. You might have an idea in mind of how much you want to spend, but if you don’t get pre-qualified for a mortgage loan you may find out later that you are unable to get approval for the loan you thought you could get, which can be disappointing if you already fell in love with a home in that price range. Pre-qualification will give you an idea of how much you could potentially borrow (without requiring any commitments) so you can search for the ideal house in that range.

2: Confusing Pre-Qualification and Pre-Approval

It’s also important to note that pre-qualification is different from pre-approval. During pre-qualification you supply a lender with a snapshot of your overall financial picture and they give you an idea of the mortgage for which you could probably qualify. This amount could change during the pre-approval process, though, since pre-approval involves a review of your credit score and a more in-depth analysis of your finances. Pre-approval carries more weight than pre-qualification, and can show sellers you are serious about the purchase and that much closer to getting a loan.

3: Calculating Only Principal & Interest in Payments

Principal and interest are the bulk of your total monthly mortgage payment, but they are not the only calculations to include. Your monthly payment will also include homeowners insurance, property taxes, and private mortgage insurance (PMI) if you are unable to put 20% down at the time you purchase the home. Depending on where you live, you may also have homeowners’ association (HOA) monthly dues that can be up to hundreds of dollars each month. If you’re upgrading or moving farther away from work, it’s important to also calculate higher costs for things like heating, cooling, and electricity, as well as increased gas costs to commute.

4: Getting New Loans While Shopping for a Home

This is a big one— first-time homebuyers sometimes make the mistake of making other big purchases with credit or loan accounts before their mortgage contract is closed. Lenders will pull your credit reports right up to the day of your closing to make sure your financial situation has not changed, and if they see significant large purchases or additional debt it could put your mortgage in jeopardy. You may be excited and want to celebrate with the purchase of furniture, appliances, or even a new car to go with your new home, but wait until after the mortgage loan is closed to do so.

5: Using Up Savings for Down Payments

It’s great to be able to put a down payment on your home, and most loans require at least a small down payment. However, even if you have 20 percent of the purchase price it’s not always wise to put that down on your home, especially if it means wiping out your savings. Talk to your lender and be sure you understand the implications on your monthly payments, PMI, and other costs so you can determine how much to put down and how much to keep in savings.

To avoid making these mistakes, always work with a qualified mortgage loan company in Utah.

3 Myths About Your Mortgage Loan

A mortgage is the largest single loan that most people will ever obtain in their lifetime, and with so much financial pressure it’s essential that you understand the process of obtaining a loan, repayment, and other critical factors that can impact your mortgage over time. Unfortunately there are some myths out there about mortgages that might cause some confusion, or cause you to miss out on the benefits that a mortgage can offer. We’re going to set the record straight on three common myths we hear.

Myth #1: You must have 20% to put down before you can buy a home

While it’s nice to put money down on a home, and we would encourage you to do so if you have that money available, it’s not actually a requirement. The benefit of putting money down is that it can provide immediate equity and lower your monthly payments and your overall mortgage loan, but if you are unable to come up with 20 percent there are other loan products for which you can qualify besides a conventional fixed-rate mortgage.

Even in cases where you do have 20 percent to put down, if that would wipe out your entire savings it may be more financially prudent to only put some of it down—for example, 10 percent—and save the rest in your “rainy day” fund.

Myth #2: There’s nothing I can do about the interest rate on my loan

Interest rates are perhaps the most critical factor in a mortgage loan, because lower interest means you will have a lower monthly payment and over the life of a 30-year loan you will pay less in interest. The best way to get a good rate is by having good credit, so if you are planning to purchase a home in the future, start checking your credit report now. The easiest actions you can take to improve credit are making all your payments on time for things like credit cards, student loans, and car payments, and paying down the existing debt you have.

If you are still unable to qualify for the lowest rate there are options to pay for “points”, which involves paying up front to lower your interest rate over the duration of your loan. Since there is cost at your mortgage closing, it will generally be more beneficial for homeowners who plan to remain in their house for a long period of time. If you’re thinking you might move in a few years, paying an up-front fee to lower the amount you’ll owe over the life of the loan might not be as good a deal. Talk to your mortgage professional to find out if it seems like a good option for your loan.

Myth #3: Fixed rates are always best

There are two main types of loans: fixed rates and adjustable rates. Fixed rates have a set rate that is locked in for the duration of the loan, while adjustable rates can change based on the market. The former is good if you can qualify for a low rate; the latter might be more beneficial if you think that rates will go down over the next few years. There are also hybrid options that can fix your interest at a low rate for a period of time, usually between 3 to 10 years, after which point it will adjust to market rates. This situation can work great for homeowners who only plan to stay in a house for a short period of time, because you can take advantage of lower locked-in rates now and sell the house before the rates start to adjust.

Talk to a mortgage professional to clear up any confusion and questions you might have about buying a home. It’s important to be clear about all your options and avoid the myths so you get the best possible loan.