Buying a home can be daunting, even for experienced homeowners. It’s understandable that a first-time homebuyer might not know everything about the process.
A good Realtor can steer you away from problems, but not all of them. When it comes to making mistakes concerning your finances and mortgage, buyers can really make a mess of things.
These mistakes can undermine your ability to purchase a house at all. Don’t be one of them!
We’re going to shed some light on some of the biggest mortgage mistakes first-time home buyers have made.
First-Time Homebuyer Mortgage Mistake #1:
Waiting to Line Up Financing
Your first step in the home-buying process should be to meet with a mortgage lender to discuss your financing options, says Benny Kang, a real estate agent in Irvine, CA.
“You don’t truly know what you can afford until you meet with a lender,” says Kang. Just because you think you can afford to buy a house, doesn’t mean you can actually get a loan to purchase a home at that price.
Online calculators are great, and can give you a good sense of what you need and what you can afford. But they aren’t an approval that says you can afford it – based on the bank’s requirements.
First-Time Homebuyer Mortgage Mistake #2:
Using a Fly-by-Night Mortgage Lender
The mortgage industry is rife with scams—including a slew of fake or unreliable lenders. Placing your trust in a bad lender can cause a deal to fall through.
That explains why “sometimes sellers reject offers because of the buyer’s lender,” says Philadelphia real estate agent Kathy Conway. To make sure your financing is rock-solid, ask your real estate agent for lender recommendations instead of, say, just Googling it. And read up to know your mortgage basics.
Alexander’s Note: We’d also add Internet and Out-of-State lenders to this category. We cannot begin to tell you how many times that “rocket” internet mortgage or California lender screwed up a closing.
You don’t want to be sitting at the settlement table to be informed that your lender doesn’t have the money ready.
Use a local lender (we have a list of great ones if you need it). There are too many local banks, credit unions and mortgage brokers to use someone out of state.
First-Time Homebuyer Mortgage Mistake #3:
Getting Pre-Qualified Rather than Pre-Approved
Pre-qualification and pre-approval might sound similar, but they’re not. Essentially, anyone can get pre-qualified for a loan, because it only involves having a conversation with a lender about the state of your finances (no documents are exchanged).
Getting pre-approved, meanwhile, involves the lender gathering all necessary documentation—your tax returns, bank statements, pay stubs, and more—packaging the loan, and submitting the file to an underwriter for review.
If everything checks out, the lender will issue you a written commitment for financing up to a certain loan amount that’s good for up to 90 or 120 days.
When you submit an offer on a home, you’ll need to include a pre-approval letter from your lender, says Conway.
Educated sellers won’t even entertain an offer unless the buyer has a letter of pre-approval from a reliable lender.
Alexander’s Note: Our Central Maryland home Spring market is expected to be hot – and fast. If you want to stand out from other offers, a pre-approval letter will help show your offer is solid. It can also help you get to the settlement table faster – something a lot of sellers want.
First-Time Homebuyer Mortgage Mistake #4:
Shopping Outside Your Price Range
“It sounds obvious, but some home buyers just have trouble sticking to a budget,” says Kang. Therefore, resist the temptation to shop online for homes that are simply outside your price range (i.e., how much you’ve been pre-approved for).
Alexander’s Note: The grass is always greener on the other side of the fence. And the more expensive a home is, the nicer it generally is.
It’s cruel to compare a $400,000 home to one that’s $300,000. Don’t do it to yourself. We understand looking $10,000 to $20,000 above your range in case they drop in price or you can negotiate. But above that you’re fooling yourself.
In our Central Maryland Homes market, including Howard County, Ellicott City and Catonsville the list to sale ratio is very similar. On average homes sell for roughly 95% to 97% of their list price. It’s a sellers market and you can’t just submit low offers – and expect to be take serious.
This is part 1 of 2 for first-time homebuyer mortgage mistakes. Tune in soon to catch part two.
The professionals at Wissel Homes know the Central Maryland market because it’s our home too. We live and breathe the local neighborhoods in Howard County, Carroll County, Baltimore County, Anne Arundel County and more. We understand what it takes to get the job done right. Contact us today to set up an appointment to list your home or to start the home buying process. Let our experience help move you into your dream home.