7 Mistakes Home Buyers Should Avoid When Purchasing a Home

It’s crucial to avoid common pitfalls that could harm your financial future or derail your home-buying journey. 7 Mistakes Home Buyers Should Avoid:

Purchasing a home is one of the most exciting and significant decisions in a person’s life. The process is both thrilling and nerve-wracking, with plenty of opportunities for missteps along the way. If you’re considering buying a home, it’s crucial to avoid common pitfalls that could harm your financial future or derail your home-buying journey.

In this blog, we’ll explore the mistakes you should avoid when planning to purchase a home, including advice on managing your finances, understanding mortgage requirements, and making smart decisions throughout the entire process.

Taking Out a Car Loan or Financing Other Big Items

One of the biggest financial mistakes buyers often make is taking on new debt just before or during the home-buying process. While it might be tempting to upgrade your car or purchase new furniture or appliances, it’s crucial to avoid any significant financial changes that could affect your mortgage application.

Why this is a mistake: When you apply for a mortgage, lenders carefully review your credit report and debt-to-income ratio. If you take out a car loan or finance other big purchases, it could increase your monthly debt obligations, making you a riskier borrower in the eyes of the lender. Even a small increase in debt can push your debt-to-income ratio beyond acceptable limits and impact your ability to qualify for a mortgage or secure a good interest rate.

What to do instead: Wait until after you’ve closed on your new home before making any big purchases or taking out new loans. If you absolutely must make a large purchase before closing, consult your mortgage lender first to understand how it might affect your approval.

Maxing Out Your Credit Cards

Credit card debt is another potential problem area when you’re planning to buy a home. If you have outstanding balances on your credit cards and decide to max them out before or during the home-buying process, it can hurt your credit score and increase your debt-to-income ratio.

Why this is a mistake: Credit scores are one of the key factors lenders use to determine your eligibility for a mortgage. Maxing out your credit cards can lower your credit score, making it harder for you to secure a favorable mortgage rate or even to qualify for a loan at all. Lenders view high credit card balances as a sign of financial instability, which could result in a higher interest rate or rejection of your application.

What to do instead: Work on paying down your credit card balances well in advance of applying for a mortgage. Keeping your credit utilization ratio low (preferably below 30%) will help maintain your credit score and improve your chances of securing the best mortgage rate.

Assuming You Need 20% Down

The notion that you need to put 20% down when buying a home is a widespread misconception. While 20% was historically seen as the standard down payment, this is no longer the case. Many homebuyers, especially first-time buyers, can purchase a home with far less than 20% down, thanks to various mortgage programs and loan options.

Why this is a mistake: If you assume that you need 20% down and save up for years to hit that target, you may be missing out on the opportunity to buy a home sooner. Additionally, many buyers who believe this myth may miss out on government-backed loans, such as FHA, VA, and USDA loans, which often require down payments as low as 3.5%, 0%, or even 0% respectively.

What to do instead: Explore various mortgage options to find the one that best suits your needs. Talk to lenders about low-down-payment programs, and be prepared to adjust your expectations. A smaller down payment may result in private mortgage insurance (PMI), but it can still be a worthwhile option for many buyers.

Quitting or Changing Jobs to a New Field

Job stability is an important factor when securing a mortgage. Lenders like to see that you have a consistent income and a stable employment history. If you quit your job or change careers during the home-buying process, it could raise red flags for the lender.

Why this is a mistake: When you apply for a mortgage, lenders will review your income to ensure that you can afford the monthly payments. If you change jobs or quit during this time, your new employment history may appear unstable, which could make the lender nervous about your ability to repay the loan. In some cases, a job change may even result in the cancellation of your mortgage application, especially if you are moving into a field with lower pay or less job security.

What to do instead: If you’re planning to buy a home soon, stay in your current job until after you’ve closed on your home. If you absolutely must change jobs, wait until after the closing process to do so. It’s best to maintain job stability during this time to ensure the smoothest home-buying experience.

Going House Hunting Before Getting Pre-Approved

One of the biggest mistakes buyers make is going house hunting without getting pre-approved for a mortgage. It’s easy to get swept up in the excitement of browsing listings, attending open houses, and imagining your future in a beautiful new home. However, skipping the pre-approval process can lead to wasted time and disappointment.

Why this is a mistake: Without pre-approval, you don’t know how much you can afford to borrow or which homes are within your budget. You may fall in love with a home that’s out of your price range or find yourself wasting time on homes that you can’t afford. Pre-approval also gives you a competitive edge in a hot real estate market, as sellers are more likely to take your offer seriously if they know you’re already approved for financing.

What to do instead: Before you start house hunting, get pre-approved by a reputable mortgage lender. This process will give you a clear understanding of your budget and allow you to focus your search on homes within your price range. Pre-approval can also help you stand out in a competitive market, as sellers will know you’re a serious buyer.

Using the First Mortgage Lender You Talk With

It’s tempting to take the easy route and work with the first mortgage lender you talk to, especially if they seem friendly and offer a competitive rate. However, this can be a costly mistake. Mortgage rates, fees, and terms can vary significantly from one lender to another, so it’s crucial to shop around before committing.

Why this is a mistake: Not all mortgage lenders are created equal. Some lenders may offer better interest rates, lower fees, or more favorable terms than others. By working with the first lender you find, you could be leaving money on the table and overpaying for your mortgage in the long run.

What to do instead: Take the time to research and compare multiple mortgage lenders. Get quotes from at least three different lenders, and carefully review the terms, interest rates, and fees. A small difference in rates or fees can add up to thousands of dollars over the life of your loan. A local lender may be your best choice.

Making Big Financial Changes Before Closing

The period between getting your mortgage approved and closing on the home is critical. Any significant changes to your financial situation during this time can derail the closing process. This includes taking on new debt, making large withdrawals from your bank accounts, or even changing your marital status.

Why this is a mistake: During the closing process, your lender will often conduct a final review of your financial situation. If there are any significant changes, it could raise red flags or cause delays. For example, if you open a new credit account or make large deposits without a clear explanation, the lender may question your ability to make the mortgage payments or may even withdraw their approval.

What to do instead: Avoid making any big financial changes between your mortgage approval and closing. This includes things like opening new credit accounts, making large purchases, or moving money around in your bank accounts. If something unavoidable does come up, contact your lender immediately to discuss the situation and determine how it may impact your approval.

Conclusion: Planning Is Key

Buying a home is a monumental decision, and it’s easy to get caught up in the excitement of finding the perfect property. However, the process requires careful planning, smart decision-making, and financial responsibility. By avoiding these common mistakes—such as taking on new debt, assuming you need 20% down, and making major financial changes before closing—you can set yourself up for success and ensure a smooth home-buying experience.

By staying focused on your long-term financial goals and being mindful of the steps involved, you can make the home-buying process less stressful and more rewarding. With the right preparation and mindset, you’ll be well on your way to finding a home that fits your needs and your budget. Happy house hunting!

Call JoJo at 478-731-1302

Sheridan Solomon and Associates | Macon Magazine