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.