1. Neglect To Clean Up Their Credit Before Applying For A Loan
Source: Flickr user Simon Cunningham
Unless someone has the ability to pay for the home they’re looking at in cash, they’re going to have to take out a home loan. Getting approved for a loan, how much you can take out on the loan, the interest rate, and monthly payment on the loan is highly contingent on the borrower’s credit score number.
With future plans of house hunting, whether it’s six months, a year, or even two years away, the best financial move everyone can make is ensure their credit is clear of any discrepancies. Paying down outstanding debts and balances on accounts while also making sure to meet at least the minimum payments on time on all monthly bills is crucial. The higher the credit score, the lower your monthly payments.
2. Don’t Take The Time To Get Pre-Approved Before House Hunting
It’s easy for home buyers to assume what they can afford and to just start looking without taking the steps through the lender first, but it’s not the smart move. Most real estate agents won’t show homes without a prequalification letter to in hand. And some won’t do anything without the pre-approval.
While basically the same thing, there are differences between getting pre-qualified and pre-approved which is why the latter is taken more seriously.
- Pre-qualification: This is an unofficial process that is usually free and not always reliable. It’s a quick way to estimate a ballpark figure on what a lender will be willing to give based on the information the borrower tells them. Some real estate agents consider this enough to start the process. But because it’s not based on a credit and financial check, it’s not official.
- Pre-approval: Borrowers are given a pre-approval letter from a lender after the bank is able to verify all of the credit and financial information. It will reveal how much the bank will be willing to lend as well giving agents and sellers’ confidence in moving forward. Pre-approval terms are usually good for a specified period of time, anywhere from 30 to 90 days. After that time frame expires, the process has to be repeated with a new letter issued.
3. Take On More Than They Can Handle Financially
Source: Flickr user Aaron Jacobs
Many first-time home buyers make the mistake of assuming that just because they can afford the house, that means that they can afford to live there. That’s not always the case. There are many extra costs associated with homeownership that often get overlooked by someone who is new to the game.
Homeowner’s insurance, property taxes that increase over time, heat and electricity for a giant house…Make sure to factor in any and all variables to your new home budget. You might just find that it comes at a price that you can’t afford to pay.
4. Get Into A Fixer Upper They Don’t Have Time Or Money To Fix
Fixer uppers can often seem like a great savings. Home renovation shows can do that to anyone. The problem is, though, that most people don’t have a production company budget and a huge crew behind them working around the clock to get the jobs done. Without money and time, fixer uppers stay fixer uppers. Not only can the novelty wear off fast, but what seemed like a huge savings quickly starts to look like a giant money pit.
Be realistic and think long-term. In the end, you might just end up happier in the smaller home that was move-in ready than the giant, outdated Victorian house with the electric issues and the leaky roof and the windows that don’t open.
Click through to discover the additional six ‘mistakes’ at Movoto Foundation, First Time Home Buying Made Easy.