When you are in the process of buying a home, it can feel like you are making hurdles just to make a little headway. Because of this, it can feel difficult to check all of the boxes you need to be successful. Having a plan is crucial in getting everything you want out of this process, and to help, we have compiled a few very common mistakes people make when buying a home. Avoiding these will help keep you on the path to success as you venture into this new and exciting season of your life!
Not Knowing Your Financial Limitations
While it might not seem cool to talk about money, when you are buying a home, it isn’t just an important factor, it is one of the most important ongoing conversations that should be had. Before you even start shopping for a home, it is best to already have both your pre-approval rate AND your personal budget decided on because these numbers are not always the same. Just because you can get approved for a certain amount might not mean you should borrow that amount for you and your family’s best interest.
Not Understanding Your Debt Level
Keep in mind that when you are applying for a mortgage loan, your income is not the only factor in the amount you get approved for. Your current debt plays a huge factor in your loan approval. The bank will establish your debt-to-income ratio which will include every monthly payment you are making on any vehicles you own, credit cards, student loans, and more. While every bank is different, your debt to income ratio, including your potential house payment, should typically be below 36%. Some lenders will go higher depending on many factors, but before you get to far into the process, it is important to know where you will be financially after purchasing a home.
Making Financial Changes
When you apply for your home loan, they are going to run a complete financial background check including but not limited to your credit score. While you will get an initial approval at the start of your home buying process, it is crucial that you do not make any big changes to your finances before you have completely closed on the purchase. Even though you are given an approval, your lender will likely run that credit again at closing, and if there are any unsatisfactory changes, they can still deny your loan. Before closing, avoid making any large purchases that require monthly payments like on a new vehicle or furniture for your new home. Also, be extra careful not to miss payments on any of your current debt as this can drive down your credit score. There is nothing more frustrating than investing time and money on various inspections and surveys only to have your loan denied in the final hour due to changes in your finances.
Not Shopping Around for Different Loans
There are so many different options when it comes to loan types, and then on top of that, there are so many different lenders. It can be so exciting, especially for a first time home buyer, to get that approval from your first lender that you just run with it. Instead, consider the fact that there is no harm asking around for different rates from different banks or credit unions. When you are committing to a 30 year loan, you should have the peace of mind that you are getting the absolute best deal available to you. Don’t settle!