5 Common Financial Mistakes First-Time Home Buyers Make
Homeownership is one of life's biggest milestones, and if you've decided that you're ready to purchase your first house, you're no doubt eager to get started on the buying process. Of course, like many of the most important things in life, this transition requires a lot of careful thought and planning. In addition to taking steps like touring multiple properties and having any home you're interested in thoroughly inspected, it's critical to make sure your finances are in order. Navigating money matters can be overwhelming for many first-time home buyers, and it's easy to make mistakes that could jeopardize your home sale or negatively impact your lifestyle. Let's take a moment to address some common financial mistakes that a person might make before buying their first house and the actions you can take to avoid them.
1. Not Getting Pre-Approved
Pre-approval is an essential step in the home-buying process. Getting pre-approved means you have documentation from a lender verifying that you can afford to take out a home loan. Your pre-approval letter will outline how large of a mortgage you can afford and the types of loans and interest rates that may be available to you.
Pre-approval makes it easy for sellers to see that you're trustworthy and financially responsible. This will give you greater buying power and streamline the whole buying process. Conversely, neglecting to get pre-approved will make you look less credible as a buyer, and this may end up costing you your dream home. Even if you do manage to buy a home without getting pre-approved, the whole process will likely take much longer, and you surely don't want to wait any longer than necessary to move into your new home.
Fortunately, the pre-approval process is simple with Chemung Canal Trust Company. All you need to do to get pre-approved is fill out a quick application. This is completely free, and if you have any questions along the way, one of our mortgage specialists will be happy to assist you via phone or email to ensure everything gets done properly.
2. Choosing the Wrong Mortgage
Not all mortgages are the same, so it's important to pay close attention to the various rates and terms available to you and choose the option that best meets your needs. It's common for first-time home buyers to rush into a mortgage in their excitement, but making the wrong choice can have a devastating impact on your finances. As such, it's vital to put plenty of thought into this decision.
Chemung Canal Trust Company has multiple mortgage options for first-time home buyers, including bi-weekly fixed-rate mortgages, monthly fixed-rate mortgages, and adjustable-rate mortgages. All of these mortgage types come with a variety of terms, low down payments, and flexible rates. If you're unsure about which option makes the most sense for you, one of our mortgage specialists can offer expert advice on the right mortgage for your specific personal needs.
3. Setting an Unrealistic Budget
It's easy to get swept away when looking at a beautiful house, but the fact of the matter is that not all homes are realistically affordable, especially for first-time home buyers. The average home loan size is $282,660, according to the insurance information resource PolicyAdvice, but depending on your income and spending habits, your budget may be well above or below this amount. While pre-approval is a good starting point to get a general idea of how big of a mortgage you can afford, you'll still need to do a bit of additional math to ensure you're making a practical choice.
When a lender pre-approves you, they use your debt-to-income ratio (DTI) as a reference point. Your DTI is a measurement of how much money you spend compared to how much money you make. However, this number doesn't include all of your monthly expenses, and you likely spend more money than what's accounted for in your pre-approved loan amount.
Take some time to think realistically about how much you can afford to spend on monthly mortgage payments without neglecting other important costs like utilities, food, transportation, and insurance. Chances are that this number will be lower than what you're pre-approved to borrow. You don't want to sacrifice your overall quality of life when you buy your home, so err on the side of caution when determining your budget. You'll also need to consider the various closing costs associated with buying a home and the money you'll be spending on furniture, decorations, and any necessary home upgrades. If you're not fully confident that you can afford a home, it's probably wisest to choose a different one.
4. Neglecting Credit
Even if you consider yourself to be good with money, you can never be too vigilant when it comes to your credit. You're surely well aware of the importance of using credit cards responsibly and paying your bills on time, but these aren't the only steps you need to take to ensure your credit is up to snuff. Regularly checking your credit report is absolutely vital.
When your lender first approves you for a mortgage, they check your credit to make sure you spend your money responsibly and predictably. Many first-time home buyers assume that once they've been approved, they don't need to pay any special attention to their credit. However, it's important to keep in mind that your lender will check your credit again before your scheduled closing date to make sure no big changes have occurred. If they notice anything concerning on your credit report, you may no longer qualify for financing.
To ensure you're able to buy your home as planned, make sure you continue to pay all your bills promptly and avoid changes, such as taking out a new line of credit. Late payments and new accounts can cause your credit score to drop significantly. You also need to keep a close eye out for any inaccuracies on your credit report. Taking too long to address these mistakes can throw a major wrench in the home-buying process, so the sooner you confirm that your report is accurate, the better.
5. Procrastinating
Finally, make sure you're completing all of the steps outlined above in a timely manner. No matter how careful first-time home buyers are, mishaps can occur at any point in the process, and waiting too long to fix potential problems can delay your home sale or completely prevent you from buying the home you want. While you don't want to rush into things and make mistakes, waiting too long to get pre-approved, choose your desired mortgage, plan out your finances, or attend to your credit report can have dire consequences. Setting a strict schedule with deadlines for each step of the home-buying process will help ensure you get everything done on time.
Are you ready to purchase your first home? If so, let Chemung Canal Trust Company assist you with this exciting life change. Our expert team can help ensure you're fully prepared for every step of the home-buying process, and with our many options for mortgages, you should have no difficulty choosing an option that meets your needs. Contact us today to take the first step toward homeownership. We look forward to working with you and wish you the best of luck in finding the home of your dreams!