Being a first-time homebuyer is confusing, difficult, and filled with hurdles. It’s not easy to navigate through a world of realtors, lawyers, and lenders when trying to buy a house.
This is why it’s important to learn from those that have come before you.
Here are 9 mistakes first-time homebuyers make that you should avoid at all costs.
COVID 1099 Borrowing
Before getting started. it’s important to note COVID-19 has led to a unique set of circumstances with the pandemic turning things upside down. Keeping this in mind, it’s essential to understand the potential for COVID 1099 borrowing.
Self-employed citizens can request 1099 loans for mortgage purposes. This needs to be done with all relevant documentation taken into consideration. The documents have to verify your income and other assets for the previous year (since COVID-19).
1 Refusing to Compare Lenders
This mistake involves rushing to the first lender (usually a bank) and signing on the dotted line without thinking twice.
It’s important to remember you’re an active client that’s bringing business to the lender and it’s a mutually beneficial relationship. This is why it’s important to shop around and look at all of your options.
At least take the time to compare 3-5 lenders to see which one works best for your financial needs.
If you don’t do this, you may end up paying for your mistakes in the coming years and even decades!
COVID 1099 borrowing demands understanding what’s available to you. This includes analyzing varying interest rates, mortgage terms, and whether or not your previous year’s income has an impact on the agreement.
2 Not Setting a Budget
A lot of first-time homebuyers get caught up in the excitement of a new home. Yes, it is an exciting time for anyone, but maintaining a level head during this period is essential.
You need to start by assessing your finances.
This includes your bank balance, assets, debts, and how much you can afford. Until you have this information, it’s impossible to move forward with a mortgage application.
Setting a budget is a must and it’s the foundation of a successful investment.
COVID 1099 borrowing has made it doubly important to set a budget. This includes understanding where the income is coming from and how it compares to the previous years.
3 Not Knowing Your Credit History
Do you know what your credit score is?
It’s important to know your credit history inside and out. This includes your credit limit, how much debt you’ve accumulated, and what your monthly debt payments are.
The lender is going to go through all of this information before approving your mortgage application. As a result, you should be prepared and take the time to improve your credit score beforehand.
If you don’t do this, it’s possible to have a credit score that is insufficient and/or just not high enough for mortgage approval.
A common mistake that’s made in this regard involves not having much of a credit history at all! For example, some people will only use cash to make purchases, which means they leave no viable credit trail for lenders to go through.
Due to this, the lender doesn’t know whether or not you’re a legitimate applicant.
Taking the time to build a positive credit history is just as important as fixing a negative credit history.
Lenders are focused on assessing applicants’ credit history with COVID 1099 borrowing. This includes potential debt that has been racked up since the pandemic started. It’s important to have this information in hand to see better results during the application process.
4 Ignoring Monthly Expenses
Your monthly expenses are critical in determining which home is best for your financial situation.
Even if you can afford to buy a home doesn’t mean it’s affordable over the long-term.
You have to think about the monthly expenses including groceries, bills, taxes, and everything that comes with maintaining a house over time. Just getting into the property isn’t enough!
COVID 1099 borrowing entails a good understanding of your monthly expenses since the pandemic started. Have there been variations in your costs? What about your earnings?
Each detail matters and ignoring these changes may make or break your ability to buy a home.
5 Not Getting Pre-Approved for a Mortgage
Don’t start looking for a house before having the funds in hand.
This means going shopping for a good mortgage loan. You want to have the funds ready to go, so you can make an offer with confidence.
Otherwise, you may end up bidding for a house that is out of reach. This can be time-consuming, frustrating, and embarrassing for first-time homebuyers.
Never assume you are going to get approved. Just apply beforehand and do your mortgage shopping right away.
Due to these uncertain times, it’s become important to get pre-approved before heading onto the open market. COVID 1099 borrowing is all about getting pre-approved, setting a budget, and then looking so you’re not caught in a tough spot with no way out.
6 Not Assessing a Property’s Long-Term Value
It’s wonderful to snag a “good deal” when buying a home. However, is the property going to appreciate over the coming years? Is it located in a thriving neighborhood?
Just getting a good deal is not enough and that’s a mistake many first-time homebuyers make.
You have to assess the property’s growth potential because this is likely to be the biggest investment you’ll ever make in your lifetime!
7 Choosing a Variable Mortgage Rate
When applying for a mortgage, it’s intriguing to sign up for a variable mortgage rate.
This is a rate that fluctuates during the term of a mortgage depending on how the market is doing at any given moment. On the other hand, a fixed mortgage rate stays at the same number for as long as the agreement is active.
Why is it better to go with a fixed mortgage rate?
As a first-time homebuyer, you need cost certainty. You don’t want the interest payments fluctuating all over the place while trying to manage your house. It can become frustrating, especially for inexperienced homeowners.
8 Not Buying the Right Home
The “right” home is different for everyone.
You should always go for a home that is in line with your financial situation. This means it should be affordable, easy to handle, and has the potential to grow in value over the long-term.
Sometimes, first-time homebuyers also go in the opposite direction by purchasing a property that’s below their needs.
This isn’t good since it’s not maximizing your time in the market. Remember, this is still an active investment, so you should at least go with a property that allows you to gain a bigger return later on. Making a Small Down Payment
A small down payment is never recommended for first-time homebuyers.
The monthly mortgage payments can take a toll on you and it becomes difficult to handle over the long run.
Just like the importance of understanding monthly expenses, it’s also important to recognize the amount of interest you’re going to pay on a larger mortgage loan.
It’s better to buy a cheaper property, so your down payment has more of an impact and brings the total interest down.
These mistakes have to be avoided at all costs.
By simply overcoming these mistakes, you’re going to have a much better chance of buying a beautiful house that’s affordable, reasonable, and in line with your long-term needs.
Start with the basics and watch as your first home purchase is picture-perfect.