5 Biggest Mistakes Homebuyers Make
Buying a home is the biggest purchase most people will ever make; yet many go into it blind. Here are the 5 most common — and costly — mistakes homebuyers make & how to avoid them.
Mistake #1. Not Knowing Your Credit Score
If you’re even toying with the idea of buying a home, you must find out exactly what your credit rating is. If you find it is less than ideal, wage a systematic campaign to raise it. Too many borrowers ignore this step and get surprised when they get interest rate quotes.
With the help of an experienced and professional mortgage broker, you can diligently take a look at your credit history and correct any errors, pay down revolving debt balances to no more than 30% usage. That will help raise your score significantly.
Why does it matter?
The lower your score, the higher your interest rates will be.
An experienced Mortgage Broker Professional can help you to increase your credit score rating before you begin mortgage shopping to ensure you receive the best rate available.
Working on this issue and waiting to buy a home can save you thousands of dollars.
Mistake #2. Buying a Car Before a House
Anytime consumers open new credit accounts — credit card, auto loan, etc. — their credit rating score can drop, according to Craig Watts, a spokesman for Fair Isaac, the creator of FICO scores.
“Hence the admonition to not open other new accounts while your mortgage application is in process,” he said.
A big purchase would use up a considerable proportion of a borrower’s total credit limit, which results in a drop in the credit score. Lenders often continue to check credit scores in the weeks before closing.
“The lender will likely slam on the brakes if the applicant’s credit scores have suddenly dropped below the minimum required for the requested loan rate,” Watts said.
Talk to your mortgage broker before making any large purchases in order to save yourself money or potential closing delays.
Mistake #3. Buyers Try to Save Money & Don’t Hire a Professional Home Inspector
A home inspection can find problems with the foundation, electrical, plumbing, roof, attic insulation, and heating and air conditioning.
Often homebuyers, who may be strapped for cash, stint on inspections and look for the cheapest way to go. That can lead to disaster.
The cost of repairs far exceeds the cost of inspection. A professional and experienced mortgage broker will be able to refer you to an experienced and seasoned home inspector that knows what to look for you. Making the right choice can save you thousands and thousands of dollars.
Mistake #4. Buying on Credit Cards After the Loan Application
Today’s home-buyers make this common mistake without realizing the ramifications. It is common to start buying items you need for your new home, however you need to stop and think about spending and buying items after the loan application has been submitted when using credit cards.
DO NOT buy anything on credit and/or with a credit card once you have completed a loan application. Do not buy: washers, dryers, refrigerators, lawn mowers or garden equipment, expensive electronics, computers or furniture.
Lenders will check and re-check your credit report all the way up until your closing date and if they see that you have put more money on your credit cards they will need to review and rewrite your loan. This could mean higher interest rates or closing delays.
Mistake #5. No contingencies
When signing a sales contract, buyers usually have to put up 1% to 3% in “earnest money,” which they don’t get back if they pull out of the deal except under certain conditions spelled out in the contract.
Sellers try to limit the grounds for cancelling, and inexperienced buyers may sign contracts that don’t include common exceptions, such as uncovering major problems during the home inspection, failing to obtain financing and failure of the house to appraise.
Failure to obtain financing is common these days because lenders have become very picky; underwriting is very strict.
Even if your mortgage company is still willing to finance your purchase, the house itself may be worth less than you’ve contracted to pay for it, and the lender will pull its approval.
With residential real estate markets still slow, sellers usually accept contingency clauses, but if they resist, it may be better to rethink the deal. Losing a deposit of $2,000 to $6,000 on a $200,000 home hurts.
We hope you have found this article helpful and will avoid many costly mistakes many buyers make when purchasing a home or borrowing money. We are happy to answer any further questions you have and invite you to contact us today.