Buying a home is a big decision made up of dozens of smaller decisions. With so many moving parts in the process it's difficult to know you’re making the best choices. Some of the most important choices in buying a home have to do with finances. Here we will go over some tips to avoid common financial mistakes when buying a home.
One of the biggest mistakes first-time homebuyers can make is talking to only one lender. It’s extremely beneficial to shop around for mortgage quotes and carefully weigh the different term options. Getting quotes from multiple lenders will help you find the best interest rate, down payments and closing costs for your situation. Talking to multiple lenders also means you can negotiate for a better deal by leveraging another lender’s offer. It might feel like a lot of back-and-forth, but the more you prepare and educate yourself about a mortgage decision, the happier you’ll be.
Don’t forget that there are other mortgage options than banks and lending firms. Look into other options like FHA, VA or USDA loans, especially if you want a low down payment. There are also first-time homebuyer programs run by state governments that are available to help you afford a mortgage. Research these options and see if you qualify, otherwise you might miss out on a big savings opportunity.
The home buying process can take a long time. Even after the seller approves your offer, it can be weeks or more until the transaction fully closes. Many homebuyers use this period to plan for things like appliances or other moving costs, which is always a good idea. However, avoid opening up a new line of credit or applying for any sort of short-term loan before you close. It might feel like the process is stagnated, but mortgage lenders will pay attention to the stability of your credit score. If your score changes due to applying for credit, your lender may even change the terms of the mortgage—typically by increasing the interest rate. Avoid the temptation to borrow more money until after the closing date, and you’ll avoid the risk.
Planning for all the upfront costs of buying a home is important but so is planning for the ongoing expenses. Along with your mortgage payments, you'll also have several other regular costs to plan for. These include homeowners’ insurance, property taxes, utility bills and maintenance costs. You might also have mortgage insurance or homeowners’ association fees to factor in. Budgeting for the ongoing expenses will help you stay afloat financially without getting overwhelmed in the early stages of home ownership.
This is only basic advice and may work better for some potential homebuyers than others. Always consult a professional financial advisor or accountant for more specific guidance. This is the best way to make sure your first-time home purchase is a success.
