Buying your first home is an exciting time that’s often fraught with emotions – both positive and negative. You can successfully navigate the homebuying process by knowing what pitfalls lie ahead.
Tips to avoid common first-time homebuyer mistakes.
Have a clear understanding of how much house you can afford
Use one of our mortgage affordability calculators to help you figure out a monthly payment that fits within your budget. Some experts suggest aiming for a home that costs less than you think you can afford. This gives your budget some wiggle room so you won’t feel financially stressed by life’s unexpected twists and turns.
Monitor your credit report
Mortgage lenders will be examining your credit reports to determine how much to lend you and at what interest rate. Mistakes could cost you – with higher interest rates. Request a copy of your credit report from each of the three main consumer credit reporting companies, Equifax, Experian and TransUnion at AnnualCreditReport.com. If you find errors, you can dispute them.
Look into special programs for first-time buyers
If you don’t have the funds for a 20% down payment, look into mortgages backed by the federal government that require as little as 3% down. VA mortgages are sponsored by the Department of Veterans Affairs and may require no down payment if you’re eligible. Consider 30-, 20- and 15-year fixed rate mortgages, as well as adjustable-rate mortgages, or ARMs, which offer a low interest rate in the early years of the loan.
Get prequalified for a mortgage.
Being prequalified for a mortgage means a lender confirms in writing how much you can borrow and at what interest rate. It sends a strong message to sellers that you’re serious about buying a home, which can give you an advantage over other buyers who might not be prequalified.
Set aside savings to cover closing costs
Expect to pay anywhere from 2% to 5% of your loan amount on closing costs. Shop around to save money on your homeowner’s insurance, home inspection and title search. You may be able to negotiate a lower commission with your real estate agent and have the seller pay a portion of your closing costs.