Considering purchasing a new home? Don’t know where to start? First of all, congratulations on your decision! Owning your own home is a superb investment, in the long run. It’s likely the single most expensive purchase you’ll ever make in your lifetime. If you do it right, it can be the best financial move you’ll ever make. I say, it CAN be. Or not.
It all depends on if you heed the following recommendations. These recommendations have been tested and retested and have withstood the test of time for those few who have followed them. Tragically, most have not adhered to these – or they adhere to only a few they deem valid. Consequently, they have lost untold wealth and have replaced it with worry. Generations of innocents have gone off and purchased their homes without the benefit you are fortunate to have received today by reading this important message.
I’d like to tell you who I am, so you’ll know that I speak with authority. I am a representative of Brian Decker. Haven’t heard of him? No worries. You will. Why? Because Brian Decker has funded over 6,000 loans in his 15-year career, which is 30 times the amount a normal loan officer does. He was top loan officer for first-time homebuyers in California three years in a row and finished #10 in the US for closed loans. Out of 300,000 loan officers funded over $200M in a year, three years in a row: 2016, 2017, and 2018. Brian Decker and his staff have more five-star reviews than any other licensed loan officer in California.
If all that means gibberish to you, don’t worry. If you happened to rattle off those claims to a realtor, for example, you would see they’re impressive stats. All you need to know, really, is this point: Brian knows how to save you money. Period.
Now, getting back to those so-called magic recommendations. (Not magic; just smart thinking!) There’s been a pattern here and I’ll list them in the order of 14 of the most common mistakes first-time homebuyers make. Plus, because I don’t want you doing the same thing, falling into the same never-ending trap, I’ll list the antidote, so to speak.
You follow these 14 recommendations, and voila! No pitfalls, except for those unforeseen circumstances beyond anyone’s control. (But who wants to think of that right, now? No, let’s get back, shall we?)
1. Putting the cart before the horse. Or, House hunting before applying for a mortgage.
Without knowing how much house you can afford, you’ll run the risk of falling in love with a house you cannot afford. Besides, you’ll be wasting time by looking at homes that are out of your price range, either too low or too high. No, it’s best to have a price point to refer to before you begin shopping.
Antidote: Get a fully underwritten approval before you start shopping. Besides showing sellers you’re a serious buyer, that you’ve gotten the magic ticket to play, when you do find that dream home, you’ll be way ahead in this competitive market. That could make the difference between winning that dream house and not.
2. Putting all your eggs in one basket. Or, Talking to only one lender.
Shopping around for anything is always a good idea. Shopping around for the right mortgage lender is crucial if you don’t want to potentially leave thousands of hard-earned dollars on the table. Besides you may be missing out on your best advisor. A good loan officer can advise you of options available to you personally in real time.
Antidote: Look for at least three different mortgage lenders. Do the same for a mortgage broker. Keep count of all the plusses each has to offer, including customer service perks and whether they’re a good fit for you and your family. Choose your partner by comparing rates, lender fees, and terms.
3. Biting off more than you can chew. Or, Buying more house than you can afford.
Remember the movie, “The Money Pit?” Let that be your lesson, that it’s best to buy property you can manage. Overextending your family budget can lead to much heartache and regret. Why add stress to an already stressful life? Think of the devastation of enduring tough financial times.
Antidote: Rather than looking at the overall price of the home, calculate what the monthly payment would be. Be sure to factor in your other monthly expenses that your family incurs and may or may not be part of the equation from your lender’s perspective.
4. Hey, Roadrunner, You! Or, Moving too fast.
Purchasing a home is a long process, with many parts that must all be checked off. There are many players. If someone overlooks any of these parts, they may slow the process down or halt it completely. Planning ahead, working through the process is the key. Give yourself the time you need to complete it. Allowing time to save for such things as down payments and closing costs, particularly will be very helpful. Fixing your credit report, assuring everything is cleared up, will also help.
Antidote: If at all possible, give yourself a timeline of one year to map out the home-buying process. The process of repairing your poor credit and saving for a hefty down payment can take months, or years. Paying down your debt, raising your credit score, and saving money will undoubtedly place you in a stronger position to get preapproved.
5. Have a hole in your wallet?
Some first-time homeowners skrimp and save to make that 20% down payment in order to avoid paying for mortgage insurance, and consequently are left with no savings at all. They understand that paying the 20% or more down payment means they won’t be required to also pay mortgage insurance for a conventional mortgage loan. That’s awesome, but it may not be worth living on the edge.
Antidote: Have three to six months of living expenses saved up in an emergency fund. Having a backup for “just-in-case” surprises will put your mind at ease. Depleting your emergency backup for the sake of putting a substantial down payment is risky. Protect yourself first.
6. I’ll pay you tomorrow for a hamburger today,
Just before closing, lenders will pull up the credit reports at preapproval. They are looking to make sure everything checks out and that your financial snapshot hasn’t changed. If they see any new activity, such as a new loan or credit account on your credit report, things may slow the process down, or worse; the closing may suddenly stop.
Antidote: While you’re in the home-buying process, open none new credit cards, work to close as many existing accounts as possible, or pay the balance down to below 30% of the account’s available credit limit. Don’t take out any new loans or make any large purchases on your existing credit accounts in the months before applying for the loan, all the way through closing day. It also goes without saying, to pay your bills on time and in full every month. Be sure to present the best picture of your responsible financial life to the mortgage lenders; doing so will give you a unique and significant advantage over most homebuyers, overall.
7. Oompa Loompa. Fixating on house over the neighborhood.
Everyone goes into buying a forever home with a long wish list of items the buyer wants or needs. That’s great, no problem. If you find that so-called perfect home and neglect to factor in the neighborhood, however, things might go crashing to reality, and quickly. Falling in love with a home’s facade or cosmetics but ignoring or omitting to consider any shortfalls in the neighborhood, for example, are bombshells ready to go off.
You can always add another room, renovate a basement, or change out some other feature of a not-so-perfect home, but there’s not much you can do if the commute to work is too far. Consider the culture and values of the town, besides the neighborhood.
Antidote: Ask the real estate agent for crime stats and school ratings, or where to go to get them. Measure the possible commute time from the neighborhood to the job site to gauge your commute time; don’t forget to factor in any proximity to public transportation. Visit the home and neighborhood at various times to check out how traffic fares, how neighbors might interact with each other, and any vibes you might pick up to make sure the area still appeals to you before closing the final deal.
8. Use your brain, not your heart. Or Deciding based on emotions.
Buying a home is a huge thing; it’s one of those major milestones in one’s life. You’ll make tons of memories there, build a place that is uniquely yours, one that reflects your own personality. It’s where you lay down your roots, perhaps start a family there. With all that in mind, it’s understandable how first-time homebuyers – any homebuyer, really – can get too attached too early on and end up making a emotional decision without considering all other important factors.
Falling in love with your new home is fine, desirable, really. But make sure you look at this purchase as one of the largest investments you will make in your lifetime, ant act accordingly.
Antidote: Keep in mind that the property is not yours until closing. Be realistic. If you’ve been searching for a while and are frustrated, don’t just jump at the first one that appeals to you. Most importantly of all, have a realistic budget and stick with it.
9. Assuming you need a 20% down
Surprise! It’s a myth that home buyers must pay a 20% down payment these days. It’s true, some buyers pay the 20% down in order to not have to pay for the private mortgage insurance. But, if that’s a struggle, there may be options such as 3% down or even zero down for a conventional loan!
Don’t believe me? How about if I told you that according to the National Association of Realtors, they currently report that 13% is now the median down payment for a home purchase.
Very cool, indeed, especially considering how long it might take to save up such a huge investment, when all you needed was something far less painful. Think how that money could be diverted to, let’s say, paying down your high-interest debt instead. Or it could be used to help grown your retirement nest egg. Or you could add it to your emergency fund. Think of it!
Antidote: Do some research. Check out the options for government-insured loans and look into local or state housing programs for any housing assistance plans you might be eligible for as a first-time home buyer.
10. Looking for the unicorn. Or no perfect property
Remember the story of the unicorn? They disappeared. Not real. There is no such thing as a so-called perfect house, or perfect mortgage deal. If you happen to be holding out for perfection, sorry to tell you, you’ll be waiting forever. With that attitude, unfortunately, you’re tragically sabotaging yourself. Every potential property you’ll be shown has flaws. Your choices narrowed down to practically zilch, when and if your best possibilities for a forever home shows up, you’ll overlook it. Imagine your real estate agent’s frustration levels!
Antidote: Maintain a realistic view. Keep an open mind. Compare what is on the market fairly and realistically. Be willing to consider putting in some sweat equity to make that home closer to your vision of perfection. Ask your realtor about loan programs that allow you to roll the expense of making repairs into the mortgage contract.
11. Overlooking FHA, VA, and USDA loans
Just simply because you’re a first-time homebuyer, it may be harder to qualify for that loan. In this environment, particularly, of volatile and rising home prices and inflated mortgage rates, this might leave you cash-strapped. You might assume you have little or no financing options. Not so! Enter government-issued loans.
Antidote: Be proactive and check out one of the three major government-insured mortgage loans. These are all backed solidly by the Federal Housing Administration, commonly called FHA loans, U.S. Department of Veterans Affairs commonly known as VA loans, and U.S Department of Agriculture, known as the USDA loans.
12. I owe what? Or miscalculating the hidden costs of homeownership.
So, your realtor showed you your new monthly principal and interest payment. Sticker shock? Yeah, get over it, and quick, dude. Things are about to get way worse. That is, if you neglected to roll in your other costs of owning your beautiful forever home. You need to know, as a homeowner, you’re responsible for everything. Well, the following, anyway. You will owe property taxes, mortgage insurance, homeowners’ insurance, hazard insurance, repairs, maintenance and utilities, to name a few. If you are surprised by all this, you omitted this recommendation.
Here’s the deal: the average homeowner pays $2,000 annually on maintenance services, according to a survey by Bankrate.com. Please, oh please, factor in some kind of cushion in your monthly budget. The ramifications of not planning for this is devastating for your family.
Antidote: Ask your lender or agent to help you crunch the numbers on such items like mortgage insurance, taxes, and utility bills. Comparing quotes, once again, for insurance coverage, will also help to get a realistic view of your total costs. Aim to set aside 1-3% of the purchase price, at least, for repairs and maintenance costs.
13. But Dad, you promised! Or not lining up gift money
Some home buyers are very fortunate to receive gifts towards their home purchase, or down payment, especially, for their first one. If that’s the case with you, better seal the deal with the gift-giver before going through the loan process. Otherwise a huge wrench might be thrown in, and you don’t want that to happen. Not anywhere in this process. Make sure Mom and Dad, or whoever, is at the ready to hand off the goods before even beginning to shop. Why so early? Because you might lose your earnest money if things fall through.
Antidote: Have that discussion with your gift-giver about the entire process. How much is being offered and when it will be accessible to you. Once done, make a copy of your check or electronic transfer as proof that money has traded hands. Your lender will then confirm with the bank and provide a signed gift letter.
14. Leaving money on the table. Or Not negotiating a homebuyer rebate.
So, my friend, we’re down to the last recommendation – at least, the last one I‘ll post here. There’s plenty more, but you must call us for more info at 951-973-0660.
Ever heard of homebuyer rebates? How about commission rebates? They are one and the same. If you’ve never heard of them, again, no worries. They are mostly obscure to homebuyers, especially first-timers like yourself.
A homebuyer rebate is a rebate that can be as much as 1% of the purchase price total of your new home. Might not seem much, but hey, it’s on the table! Many lenders will provide this to their clients and can really help with closing costs.
This rebate comes from lenders giving their commission back to a client rather than operating at high profit margins.
Antidote: If you happen to live in one of the cooperating states, yay for you! Ask your real estate agent to have this rebate provided at closing. It’s definitely worth asking for it. As an example: On a $200,000 home purchase, this can be a $2,000 bonus!
That’s it, my friend! If you’ve read through this list and have further questions, please don’t hesitate to ask Brian Decker’s Mortgage Team.