Buying Your First Home? 3 Mistakes To Avoid
Deciding it is time to buy your first home can be exciting. However, without the right knowledge and planning, buying your first home can be extremely stressful. Thankfully, help is available if you believe you are ready to make this move. Here are a few mistakes you need to avoid when you think you are ready to buy your first house.
Buying Before your Credit Is Ready
Many people think they are ready to buy even though their credit score is not as high as it should be. Some lenders will approve you for a mortgage as long as you meet a minimum credit score requirement and have the appropriate amount of income, but a higher score is ideal if you want the best interest rate possible.
Most lenders will offer buyers the best rate possible if your credit score is 760 or higher. First-time homebuyers may qualify for a FHA mortgage with a minimum credit score of 580.
Remember that the lower your interest rate, the lower your monthly mortgage payment will be.
Before you start the pre-approval process, check your credit score. If you do not meet these requirements, consider waiting until you can improve your score. Paying off some debt and increasing your credit limits will improve your score by improving your debt-to-net ratio. A first time home buyer specialist can tell you more.
Buying the Maximum Amount Approved For
Lenders will preapprove you for a mortgage using your tax returns, income statements, and credit report. This detailed preapproval shows how much home you can afford by estimating the amount you can spend on a mortgage after your other bills/expenses are paid for.
Unfortunately, the preapproval amount does not necessarily take other expenses into consideration. If you have expenses associated with transportation, your job, entertainment, childcare, education, and medical care, you will still need to budget for these costs along with your new mortgage.
If you buy a home at the top of the price the mortgage company approved you for, you may not have enough for the other expenses. This can lead to financial distress in the future. Once you have a preapproved amount, avoid buying a home at the maximum amount you were approved for.
Shopping for Homes Before Shopping for a Mortgage
Finally, shopping for potential homes before you shop for your mortgage is also a mistake you need to avoid. Working with your lender first is imperative so you will know how much home you can afford. This stops you from looking at homes you cannot afford, preventing you and your family from disappointment.
Buying your first home can be a smart investment. This guide will help you begin the process, avoiding costly, stressful mistakes.