Top 5 First Time Buyer Mistakes
Any one of these top 5 first time buyer mistakes can seriously jeopardize your home purchase. As a mortgage loan originator, I see people make mistakes all the time and I’m going to share them with you so you don’t make the same mistakes.
#1 Waiting until the last minute to do your pre-approval
You might have heard this before but it bears repeating and I’m not just saying that because I’m a loan officer, I’m telling you this as a buyer myself. If you wait until you decide to actually make an offer to get pre-approved, you will lose out on offers.
Believe it or not, the market is still crazy, especially if it’s the right house for the right price. If you don’t have your pre approval already done when you decide to make an offer, that seller’s already moved on to someone who has a pre-approval letter in hand.
The worst and most stressful thing that can happen is you assume that you’re good and then you find out you’re not. Don’t wait, plan ahead, don’t stress out and be a pre-approved buyer, it’ll help you get an accepted offer
#2 Maxing out your debt ratio
You’re debt-to-income DTI ratio basically determines how much you can borrower and in a lot of cases, you’ll be pre-approved for a higher max purchase price than you want or need. Be careful of this because just because you’re approved for a huge mortgage payment, doesn’t mean you should have a huge mortgage payment.
Lenders use your gross monthly income or your income before taxes and other deductions, to qualify you, but your mortgage payment’s going to be paid with your net income, so watch out for that.
#3 Not having a budget
Write out your budget. This is a really powerful exercise. Have you ever done this before? it’s kind of fun, and don’t think that you have everything in your head, because I guarantee you don’t. Start with your monthly net income – most people know that at least – and don’t lie!
Then subtract all your monthly expenses, we’re talking about the obvious ones, car loan, credit cards, student loans…if you’re paying them. But also include, car insurance, gas, utility bills, Netflix subscriptions, groceries, entertainment, eating out.
Then go one step further, you probably buy things like clothing and shoes on an annual basis, think about that, add it up and divide it by 12 – I might buy 2 pairs of shoes a year, at $100 each, that’s 200 per year, that’s $16 bucks per month!
Do you take a vacation throughout the year, have a car repair or maintenance like oil changes, or maybe you drive a tesla, then you’re tabs are super expensive, include all of that and subtract it from your income. What’s left over for your mortgage payment? What kind of monthly payment can you actually afford, or what are you actually comfortable with.
That is a budget. What does that look like for you? Do you need to cut something out of your budget, get rid of a subscription, go out to eat less, only buy one pair of shoes. What gets measured gets improved, it kind of is like working out!
#4 Trying to buy your dream home
This might be clear after you determine your budget, but either way, you’re first home probably won’t be your dream home, and that’s ok!
You might live in your first home a long time which is great, but getting into your first home is the real benefit because you don’t need a lot of money, you can put as little as 3% down, there are down payment assistance options, maybe you take money out of a 401k or get a gift from a family member.
The goal is to get into that first house so you can become a homeowner and experience everything that comes with it, the good and the bad. At that point you can start building equity (the difference between what your house is worth and what you owe on it) and that will potentially grow over time.
Your situation will change over time, maybe you get married, maybe you change jobs, have kids, you’re credit score will improve by making a mortgage payment. Then down the road, with all your experience and equity is when you go for the dream house or the vacation home, or maybe an investment property
You have to have a little patience, with brings me to mistake #5 of the Top 5 First Time Buyer Mistakes…
#5 Buying or financing big ticket items before closing
I know it’s exciting and buying stuff is the fun part, but be patient. When I bought my second house, I was driving the lemon BMW and I knew exactly what I wanted, which was a new leased Cadillac but I know I had to wait because first I had to qualify for that mortgage! Also I wanted a garage to put it in because I didn’t have one at the time.
I don’t even tell people I’m buying a house until it closes. You might not close on that house. Stuff can happen; you back out from an inspection, you could lose your job, maybe you didn’t get a good pre-approval and now your loans blowing up.
I’ve seen people take out car loans and totally destroy their debt ratio and blow up their mortgage approval. Even worse, financing furniture and blowing up your debt ratio DO NOT DO THAT! Don’t max out credit cards either, just keep everything steady until you sign paperwork and get the keys. Then you can do whatever you want!
If you can avoid these 5 first time buyer mistakes, you’re going to be in a much better position to buy a house, you’ll be better qualified, and you’ll be a more confident buyer.
BONUS #6 Trying to time the market
You can look up what warren buffet says about timing the market when buying stocks and it’s no different when we talk about the housing market, you can’t predict the future – but here’s the good news, you don’t have to.
Buying a house is a long term investment and it’s where you’re going to live, as long as you’re making the payments, no one can take it from you, no one can increase your monthly payment, and it can’t disappear into thin air – like the crypto currency I bought!
Regardless, you can think whatever you want but the main reason why people are trying to time the market is because they think it’s going to crash and there’s going to be some incredible sale on houses out there. That is not going to happen. There is way too many buyers and way to few houses out there to have a market crash like 2008. A housing market crash is a complete fantasy.
When you’re ready to buy a house is when you should buy a house, not because of what your parents said, or your buddy jimmy, or rates etc – get your pre-approval done, work out your budget, save some money, and make good decisions. You can contact me anytime if you have home buyer and mortgage related questions. Otherwise you can get your pre-approval started by completing your online mortgage application.