Top Mistakes & Pitfalls First Home Buyers Make
Buying your first home can be a bit overwhelming. From searching the listings to finding a lender, the process takes time and patience. By being aware of potential pitfalls, you can avoid many of the common mistakes made by first-time home buyers. These tips from Smart Home Deposit will help make the home buying process less stressful:
Having credit issues
Some of the biggest mistakes many first-time home buyers make are credit-related. Having negative marks on your credit report can cause you to pay a higher interest rate on your mortgage or be turned down for a loan altogether. Before applying for a loan, give yourself time to repair your credit by checking for, and disputing, any errors. Make arrangements with your creditors to pay any past due bills and ask them to update your file to reflect the current status of your accounts with them.
Not paying down debt
Pay down any debts you have to bring your debt to income ratio within the limits recommended by experts. Lenders typically do not like to see payments on revolving debt that exceed 30-35% of your monthly income. Also, avoid taking on new debts before applying for a mortgage. Wait to buy that new car or motorcycle until after your mortgage has been approved.
Similarly, you should avoid changing jobs while looking for a new home. Having a stable employment history reassures potential lenders that you will be a responsible borrower with the means to make the monthly payments.
Not ensuring all relevant paperwork are in order
Gather any paperwork you need like pay stubs, proof of assets, credit card and bank statements, and documentation for other loans in your name well in advance. Being prepared will make sure the underwriting process isn’t delayed while you search for documents or request them from your creditors.
Not obtaining pre-approval
Before you start looking at homes, go through the pre-approval process. Knowing how much you can borrow in advance will help you save you time by limiting your search to homes within your price range.
Falling for too-good-to-be-true loan scams
Beware of any deals that seem “too good to be true.” Predatory lenders can fool buyers into thinking they can afford to borrow a larger amount by manipulating the terms of the mortgage or offer products like balloon loans to bring the monthly payments within your budget range in the beginning, but you will often end up paying much more over the term of the loan. Reliable lenders will provide an honest assessment of your financial situation and give you a fair rate based on your circumstances.
Not being wise when using a buyers’ agent
Weigh the pros and cons of using a buyers’ agent. Their services might cost money you don’t want to spend, but they can help you navigate the home buying process by finding properties that closely meet your needs, providing accurate estimates of home values, and negotiating the terms on your behalf. They can also help you understand the contract and make sure changes are made if necessary.
Not hiring a professional home inspector
Make sure your offer is contingent on the results of an independent home inspection. Hire a professional surveyor to do a thorough inspection and provide you with a detailed report listing any potential problems with the property. Home inspectors can identify systems like plumbing, electrical, heating, and air-conditioning that may not be in working condition. They can note structural damage and make recommendations for repairs that need to be made. Or potential issues with termites! This report can help you renegotiate the contract or pull out of the sale.
Failing to check out the neighbourhood
Check out the neighborhood as well — not just the house. The value of your home is tied to the standard of living in the area. Sidney Torres, a self-made millionaire, real estate investor, and host of The Deed, even recommends that you check out the home and neighborhood during daytime and evening hours. He notes that “If you’re going to live there for 10, 15, 20 years, it doesn’t hurt to spend 48 to 72 hours there before you actually commit to buying it.”
It is important to be flexible when buying a new home. You might have to sacrifice some non-essential features like an extra bathroom, a three-car garage, or granite countertops in the kitchen in order to make sure the payments fit your budget and you get what’s most important to you, whether that’s a short commute to work, easy access to public transportation, or great local schools.
Above all, let your head rule the buying process, not your heart. Buying your first home can be very exciting, but you must remember that it will have an impact on your finances for many, many years. Smart Home Deposit has a team of wealth advisors that can review your finances and help you start down the path toward home ownership. Visit www.smarthomedeposit.com.au to learn more about their investment scheme for first-time home buyers.