If you are preparing to invest in your first house, you will want to know about—and avoid–common first-time homebuyer mistakes. Knowing what to expect ahead of time and doing some research will help to guard against avoidable problems down the line. Here is a list of mistakes to avoid when coming up with your home buying game plan.
Be Realistic About How Much You Can Afford
Don’t make the mistake of overestimating how much you can afford. Four key factors determine how much you can borrow on a mortgage: household income, monthly expenses, credit score, and how much you have set aside for a down payment and closing costs. Closing costs alone can be upwards of 4% of a home’s purchase price.
To determine a realistic mortgage payment, multiply your monthly take-home household income by 25%. This will give you a rough estimate of your maximum mortgage payment. However, you will also want to factor in property taxes and homeowners’ insurance. To make things easier, get an estimate of your monthly home payments by using our VA mortgage loan calculator.
Also, don’t forget to factor in future monthly expenses such as homeowner association fees, utilities, regular repairs, and maintenance.
Take Control of Your Debt-to-Income Ratio
Your debt-to-income ratio compares your monthly debt with your income. The resulting percentage gives lenders an idea of how much more debt you can take on with a mortgage. If your monthly debt obligations are high compared to your monthly income, then your debt-to-income number will be high. You will want to lower your debt-to-income ratio as much as possible before applying for a loan.
Lenders use different debt-to-income standards, and there is more than one way to measure the ratio. FHA and USDA home loan lenders have two measurements: a front-end ratio considers housing expenses, and a back-end ratio includes all monthly debts. Typically, these lenders will not work with you if your debt-to-income ratio is above 43 percent. However, the VA only considers back-end ratios, and the VA’s standard ratio is 41 percent. But VA home loan lenders are not required to use that standard. It is possible to obtain a VA home loan if your debt-to-income ratio is above 41 percent, as VA home loan lenders will examine your overall financial situation.
Try to pay off as much debt as you can to lower your debt-to-income number. Not only will doing this make it easier to qualify for a mortgage. But your future monthly mortgage payments and expenses will be more manageable, too.
Get pre-approved for a home loan.
A lender pre-approves you for a home by establishing that you are qualified to borrow up to a certain loan amount and at a specific interest rate. Getting pre-approved is an essential step in buying your first home because it shows sellers that you are creditworthy. After verifying your credit and income, the lender will give you a pre-approval letter to submit when making offers on homes. Your pre-approval letter will be valid for two to three months, depending on the lender. Be sure to confirm the time period with your lender. Remember, pre-approval does not mean that your home loan is one hundred percent guaranteed. The lender will still need to appraise the value of the home you are attempting to buy.
Connect with a Reputable Agent or Broker
Buying a home is a big decision, and one of the most important financial investments you will ever make. Connecting with an experienced real estate agent is critically important. This person will act as your liaison to the seller, help you make connections, and provide you with industry and market knowledge. Do your research before choosing an agent and be sure to conduct interviews before selecting one. It is entirely acceptable to request references and to check those references before making a final decision.
Be Open-Minded, Not Overly Picky
When scanning properties online, keep in mind that photos and written descriptions only give you a partial view of a house. Seeing a home in person, standing inside of the space, will provide you with a better feel for the property. You might have a vision of what your future home will look like and then dismiss homes based on that dream. However, you might be surprised to discover that some aesthetic criteria become less critical as you develop a feel for different kinds of homes.
It is a rare thing for someone to find a house that completely fulfills their criteria for a new home. Avoid perfectionism and come up with a few items in your list of criteria for a new home where you are willing to compromise. Otherwise, time will pass as you search for a perfect home that may not exist. A house that is just right for you, however, is absolutely waiting for you.
Keep an open mind but don’t cave on your list of essential elements of your future home. If you know that you need a certain amount of square footage or the number of bedrooms, stick with that criteria. Only you know what is most important to you when choosing a house. Only you know what your family needs.
Carefully Choose the Location of Your Home
Consider how a house and neighborhood will pan out over time. Location matters when you think of a house as a long-term investment. You can always add value to a home through repairs and remodeling. But you can’t change or add value to a neighborhood in the same way.
Ask yourself the following questions. Is the home in a safe area? Is the house located in a good school district? Are there beautiful views, and how likely are those views to be obstructed by future developments? Is there good access to public transit and highways? Is the house located centrally to stores and businesses?
If you are wondering about future developments near your potential new home, go ahead and ask the city about plans. Cities are usually happy to let you know what you can expect for your new neighborhood. Some of that information is available on city websites.
Home Inspections Matter
Take this step seriously because it is your chance to make sure everything in the home is working correctly. As a buyer, you do have the right to waive a home inspection. But we do not recommend skipping this step. It is your chance to have a neutral third-party document the condition of the home. The professional who provides the inspection will tell you about the home’s structural elements, the integrity of the current roof and the overall safety of the house.
When in contract to purchase a home, you have a legal obligation to the seller. However, the home inspection report gives you a way to renegotiate the original contract. Using the inspector’s findings as leverage, you can come to a new agreement. If you do not establish a new agreement with the seller, you can back out of the contract.
The takeaway on home inspections is this: it will give you peace of mind upon closing. You will have an accurate picture of the integrity of your new home and the kinds of maintenance and repairs to expect in the future.
Home Improvements – Be Proactive
All homes require ongoing maintenance and repairs, some houses more than others depending on the age of the home. By the time you close, you will have the home inspector’s report in hand. Now you can develop a proactive vision about home improvement, including how you can add value to your home investment. Staying organized and planning will make the responsibility of owning a home much more manageable. You will probably also save money if regular home repairs help you to avoid emergencies in the future.
Home repairs can be broken down into monthly, seasonal and annual tasks. The important thing is to keep your home in top shape through preventative measures and to anticipate future home improvements.
Our blog contains more information about the home buying process. Contact SoCal VA Homes if you’re ready to pursue buying your first home. Give us a call today at (949) 268-7742. We look forward to talking more about using your VA home loan benefits to buy your first home!