Common Mistakes that First-Time Homebuyers Make

Buying your first home can be one of the most exciting experiences in your life. Unfortunately, the excitement of many first-time homebuyers makes it difficult to make good decisions financially. As a result, they end up in bad financial situations and sometimes they even end up not being able to afford to make their mortgage payments. Here are some of the most common mistakes first-time homebuyers make so you can try to avoid them.

Buying a Home the Bank Says They Can Afford
When you go to a mortgage lender to apply for a mortgage, they will base their decision on your income and the amount of debt you have. However, lenders do not typically take into consideration other expenses that you might have, including groceries, utilities, fuel and other stuff. As a result, many first-time homebuyers get into financial trouble because they find a home close to what the lender approves. They are then stretching to make their mortgage payments or some other payment each month and they have no flexibility in their finances.

Instead of falling into this common trap, you should know how much you can spend each month on a mortgage payment and use that as a figure when you visit a lender. Create a written budget which takes your income and expenses into account and see what you can afford. Don’t let the lender tell you what you can afford because they don’t always know about your particular financial situation.

Underestimating the Power of the Credit Score
Getting a home loan at today’s mortgage rates is a great idea. They are at record lows and nobody knows how long they are going to stay that low. But you won’t be able to get these historically low rates unless you have a good credit score. A bad credit score means a higher interest rate which can mean a difference of paying thousands more dollars in the long run over the term of your loan. The lowest score you can have to qualify for a good rate is 620, but that depends on the particular lender and your overall situation.

Instead of allowing your credit score to be a problem, get on a debt reduction plan and put off buying your house for a few months. During those months, pay off as much debt as you can and make all of your payments on time. This will raise your credit score and give you a better chance of getting a good mortgage rate. Those rates may not be as low as they are today, but you won’t qualify for today’s rates if your credit score is bad so you won’t be hurting your finances by waiting for a while.

These are just two of the common mistakes first-time homebuyers make. Come back tomorrow for two more common mistakes and how to avoid them.