Shopping for a home the first time can be scary: Scouring the market, negotiating the best deal and navigating the fine print is enough to overwhelm any new homebuyer.
If you’re in the market for a new home, check out the results of LendingTree.com‘s poll of major lenders. They’ve identified the three biggest mistakes first-time homebuyers make – along with some essential tips on overcoming them. Happy house hunting!
Mistake # 1: Shopping for a home without a pre-approved loan
Without a pre-approved home loan, most sellers won’t give you the time of day. Many experienced real estate agents will ask you to get pre-approved (or at the very least, get pre-qualified) with a mortgage lender before they’ll take you shopping. It saves time and helps them weed out the dreamers from real prospective buyers.
But there’s something in it for you, too: It helps you avoid the experience of falling in love with a home, opening escrow, only to then find out you can’t get financing.
Finally, a pre-approved mortgage is almost like paying cash. Bbeing able to say, “I have loan approval and can close in 30 days” puts you in a stronger bargaining position.
o TIP: You probably don’t want to advertise to home sellers exactly how much your lender will let you spend. When making an offer, ask your loan officer for a custom letter. If you’re approved for a $400,000 purchase and a $320,000 mortgage, but you’re offering $300,000, your letter should probably say that you’re approved for a $300,000 purchase with a $240,000 mortgage.
Mistake #2: Ignoring first-time buyer programs
Home ownership is such a big deal in the US, that there are tons of organizations and programs designed to help you buy. Ignoring these opportunities can cost you a lot of money. Here is just some of what you might be missing:
o Down payment assistance (low-interest loans or outright gifts of cash to buy a home).
o Mortgage Credit Certificates (mortgage interest subsidies through local governments).
o Revitalization programs (grants for buying homes in areas under redevelopment).
o HUD homes ($100 down and 50% discounts for first responders, nurses and teachers).
TIP: Most first-time home buyer programs define “first-timer” as someone who has not had an ownership interest in real property in at least three years.
Mistake #3: Only considering 30-year “fixed” rate mortgages
With mortgage rates currently near historic lows, it’s understandable that many want to lock in the low rates via a fixed mortgage. But 30-year fixed rate mortgages aren’t the only home loans to consider. For many first-time home buyers, hybrid adjustable-rate mortgages providing a fixed rate for only a specified number of years may actually be a better choice.
According to the National Association of Realtors, younger home buyers and first-time owners tend to sell and move much sooner than older or repeat buyers. Chances are you’ll pay probably pay more money for a 30-year mortgage, but only get five or seven years out of it.
o TIP: If you’re considering a larger mortgage (a jumbo or super-jumbo), it makes even more sense to test drive the hybrids. The difference between the hybrid rates and the 30-year rates can be even more than it is with smaller conforming loans.