Follow these don’ts and no one will think this is your first rodeo
The process of buying a home is a complicated one, with lots of emotions and money on the line. While it’s important to learn how to navigate the home-buying process, it’s equally important to learn what not to do as a buyer.
Before you dive into the real estate market and hit up some open houses, follow these tips of things to avoid in order to make the home-buying journey as seamless as possible—and land the house of your dreams.
1. Diving into Home Buying Without a Budget
If you don’t understand precisely how much you can afford to spend on a home, you’ll likely waste a lot of time looking at homes outside of your budget.
To avoid wasting your or your real estate agent’s time, you should determine a monthly mortgage payment limit that works for your income and won’t leave you living paycheck-to-paycheck. Use a mortgage calculator to determine the best price range to be shopping in.
2. Looking for Homes Before You’re Preapproved
We don’t have to tell you twice that the housing market is competitive. To give yourself some buying power and show sellers that you’re a serious buyer, you should complete your mortgage preapproval (or be ready with cash).
Sellers won’t want to roll the dice on a potential buyer who might not be able to secure the funds to purchase the home, especially if there’s other buyers waiting in line to make an offer. Contact your mortgage lender to get preapproved before submitting your first offer.
3. Accepting Your First Mortgage Rate Quote
Mortgage interest rates vary from lender to lender, so don’t hesitate to shop around to find the offer that best suits your needs. Mortgage applications that occur within a 45-day window only count as one hard inquiry on your credit (much like auto loan inquiries), so it’s worth it to check the rates with at least three to five lenders.
4. Buying a Car or Other Expensive Purchases
Getting a car loan or financing another big-ticket item during the home-buying process could jeopardize your financial ability to close on the house, as lenders will run a final credit inquiry before sealing the deal.
If you attempt to simultaneously purchase multiple expensive items—like a house and a car—your FICO score will take a hit and so will your debt-to-income ratio (the amount of debt you have in relation to your income). If either gets too high, you could be seen as a risky borrower. You should also try to keep your credit card usage below 30% during the closing process.
5. Changing Jobs Before Applying for a Loan
Lenders will look at the length of time you have been employed at your job, so switching up your profession in the middle of home-buying could damage your application. Different types of loans look at job stability differently:
Conventional and FHA loans: Lenders want to see two years of employment history. If there are gaps in your employment, they want to know that you’ve been in your current job for at least six months.
VA loans: Since these loans are only for veterans, lenders will want you to show continuity between your current job and your military training or formal education, indicating a shift rather than a gap in employment.
USDA mortgages: Lenders will prefer to see two years of employment history, and that you’ve been in your current job for at least 12 months. These timeframes may not apply if you are using retirement income, Social Security benefits, or another kind of income.
6. Damaging Your Credit Score
Stay current on all of your bills, so your credit doesn’t get dinged before you apply for a mortgage. If you’re having trouble paying bills when they are due, reconsider whether now is the best time to buy a home.
To keep your credit score in tip-top shape, ensure that your credit card usage is low, lower your debts, and pay your bills on time.
7. Making a Too-Small Down Payment
There’s no hard-and-fast rule that you need to make a 20% down payment, and some loan programs will allow you to purchase a house with 3.5% down—or even forgo the down payment altogether. But before committing to a loan, make sure to do the math on the ideal down payment.
A larger down payment will result in a smaller mortgage, and lower monthly payments. On the flip side, home prices have been steadily increasing, so it could be more difficult to make a larger down payment if you wait too long. Weigh each factor before you commit, and make sure the final monthly payment won’t stretch your finances too thin. If you’re interested in pursuing a loan that won’t require a hefty down, check these out:
VA loans: 0% down, offered to qualified military borrowers
USDA loans: 0% down, for purchases in select rural or suburban areas
FHA loans: 3.5% down, and can be forgiving of less-than-stellar credit
You can also look into first-time home buyer programs in your state, some of which offer financial assistance with the down payment.
8. Emptying Your Nest Egg
Buying a home is expensive, and there will always be unforeseen costs along the way. In addition, you might find yourself hit with a home repair or other necessary upgrade soon after closing. However, you should avoid emptying your entire savings during the home-buying process. Make sure you have saved enough for your down payment, closing costs, moving, and repairs, with enough leftover to pay for bills and everyday needs.
9. Skipping the Home Inspection
Home inspections are meant to protect everyone involved in a home sale. Without a proper inspection, you may close on a home only to discover several problems—costly ones—with no recourse except to pay for the repairs. The home inspection contingency allows you to walk away from the deal if a major issue comes up and the seller can’t or won’t fix it. But if you skip this essential step, you’re on the hook for any damages found post-sale.
10. Ignoring the Neighborhood and Surrounding Area
Sure, this home has the perfect porch, a stately oak tree in the yard, and big windows for lots of natural sunlight. But what about the neighborhood and surrounding area? You should fall in love with the house and the neighborhood since you won’t be at home all the time. What are the schools like? Did the length of your commute change? We recommend visiting the neighborhood a few times before making a final decision.
11. Falling in Love With a House Too Quickly
We want you to be in love with your home, but don’t let your emotions take over and lead you into a purchase that will be problematic down the line. It’s easy to focus on the aesthetic benefits—like that huge backyard, ensuite bathroom, or vintage tiles—and forget about the practical matters. When making a housing decision, be sure to evaluate both the pros and cons of the house before considering moving forward with the home purchase.
12. Waiting Too Long to Submit an Offer
We’ll say it again and again: The housing market is competitive, and that’s not likely to change anytime soon. If the house feels right, it’s within your budget, and it has no major issues, don’t dilly-dally.
If you’re hesitating to make this big decision—which is understandable—talk to your real estate agent to discuss the pros and cons and get their opinion on your options.
13. Forgetting to Negotiate a Homebuyer Rebate
Homebuyer rebates are also known as commission rebates. These rebates equal up to 1% of the home’s sales price, and comes out of the buyer agent’s commission. If you live in a state that allows these rebates (prohibited in Alaska, Alabama, Iowa, Kansas, Louisiana, Mississippi, Missouri, Oklahoma, Oregon, and Tennessee), talk to your agent about securing this rebate at closing.
14. Failing to Consider Resale Value
It might seem strange to think about selling the home you’re putting in so much effort to purchase in the buying phase, but it’s important to think about the future resale value of the home.
Does the home have features that will or will not add resale value? Consider the number of bedrooms and bathrooms, the curb appeal, any additions the sellers have made, and so on. Even if you’re not planning to have kids in the house, it’s worth looking into the school districts, as coveted ones can lead to a higher resale value.