Congratulations…you’re ready to buy a new home! It’s an exciting time, and we know that you want to start the process as soon as possible. However, it’s important to take a deep breath and review this list of the ten most common money mistakes home buyers make, so that you don’t find yourself in a tight spot later.
- Not checking your own credit.
It’s surprising how many prospective home buyers neglect to check their credit rating with the three major credit reporting agencies – Transunion, Experian and Equifax. If you don’t have a good idea of where you stand when you’re ready to begin, there’s a chance your dream will come to an abrupt end sooner rather than later. The lower your credit score, the harder it will be to secure a mortgage.
- Adding to your credit burden.
While you’re in the process of buying a home, it’s important that you avoid making large purchases or opening new credit accounts. Excessive debt can be just as bad as a spotty payment record or a lack of credit history.
- Failing to get pre-approved.
When a potential seller sees that you’ve been pre-approved, it’s money in the bank. They know you’re serious about purchasing a home and are ready to buy when you find the right place. If a seller has two prospective buyers lined up - one pre-approved and one not - they’ll go with the pre-approved buyer every time.
- Neglecting some of the related costs of owning a home.
Make sure you factor in property taxes, insurance, planned and unexpected maintenance and other related costs into the monthly payment for your new home.
- Falling into the adjustable mortgage trap.
When most buyers budget, they aren’t expecting a lot of variation in their interest rate. However, if you opt for an adjustable mortgage, the amount of interest you pay will vary, based on current market conditions. For buyers on a tight budget, the possibility of these wild adjustments could cause serious financial problems.
- Not locking in your rate.
This is a mistake similar to accepting an adjustable rate mortgage. When you sign your mortgage papers, most lenders will offer to “guarantee” your rate for a period of time – usually a few weeks to a few months. If you don’t lock in your rate when you buy, be prepared to be surprised further down the road.
- Overestimating what you can afford.
There’s more to life than where you live. Make sure you leave enough money in your monthly budget for healthy groceries, utilities, other monthly bills, entertainment and saving for emergencies. If your mortgage will bleed you dry, you’ll be nothing but miserable.
- Having a short “paper trail”.
Lenders are looking for consistent payment behaviors over a reasonable length of time. If you only have a few months of credit history under your belt, you’ll pay much higher rates if you’re able to get a mortgage at all. Most lenders like to see at least 12 months of credit history before making a decision – and 24 is better.
- Job hopping.
When it comes to dependability, reliability and steadfastness, your ability to hold a job is considered to be a prime indicator of your ability to make consistent payments on your loans.
- Not taking the time to comparison shop.
Like most other big-ticket items such as cars, furniture or electronics, it pays to look around and see what’s out there when you’re shopping for your new home. It’s rarely wise to look at only one house, and you should always research the various types of mortgages available and decide which is best for you. There is no “one size fits all” approach to buying a home.
