10 Common Buying Mistakes to Avoid When Buying A Home in Farmington Hills MI: Are you currently in the market to buy a home in Farmington Hills, MI? If this is your first rodeo as a homebuyer, or if it’s been several years since you last bought a home, knowledge is power. Buying a home comes with many big decisions, and it doesn’t hurt to be mindful of possible pitfalls so you can avoid as many mishaps as possible. Some are minor, some are costly and some even involve buyers purchasing homes that are completely wrong for them.
Here are 10 common home buying mistakes to avoid and and some expert advice to help you on your journey to homeownership:
1). House hunting before getting pre-approved
House shopping can be exhilarating and it can also be taxing, so it’s no surprise that many people want to get going on it right away. However, shopping for a home before getting pre-approved for a mortgage is not a good idea.
Getting pre-approved ensures that you have the financial ability to purchase a home, helps you understand how much home you can afford, and shows sellers that you are serious when making a purchase offer. There’s no need to tour any Farmington Hills MI homes for sale if you don’t know which properties are within your budget.
Sellers are also more likely to consider your purchase offer if they know they are dealing with someone who already has a mortgage pre-approval.
2). Obtaining a rate quote from only one lender
No two lenders are the same and each one may offer different interest rates, closing costs or other fixed fees. If you don’t shop around, you could miss out on a better deal. By getting quotes from a number of lenders, you’ll be able to choose the one that will save you the most money at the closing table or over the life of the loan.
Pick at least three to five lenders and request quotes on the same day to help you compare apples to apples. According to Freddie Mac, getting a quote from just one additional lender could save you an average of $1,500 over the life of a loan.
Get a quote from 5 different lenders and the average savings doubles. Visit lender websites to learn more about the products they offer and read customer reviews to make sure you’ll be in good hands once the loan closes. Find a lender who is a good fit in costs and in service.
3). Not checking credit reports and correcting errors
Mortgage lenders will scrutinize your credit reports when deciding whether to approve a loan and at what interest rate. If your credit report contains errors, you might get quoted an interest rate that’s higher than you deserve. That’s why it pays to make sure your credit report is accurate.
You can request a free credit report each year from each of the three main credit bureaus. Errors on your credit reports can cause your credit scores to be lower than they should be, which can affect your chances of getting a loan or credit card and how much interest you pay.
Federal law gives you free access to your credit reports from the three major credit bureaus: Equifax, Experian and TransUnion. Using the government-mandated AnnualCreditReport.com site is the quickest way, but you can also request them by phone or mail. Disputing any credit report errors and getting those negative items removed can be a quick route to a better score.
4). Buying more home than you can afford
Don’t buy more house than you can reasonably afford. The maximum loan amount on your pre-approval letter doesn’t mean you should look at homes that are priced to match it. The lender may know your income and even your debt-to-income ratio, but that’s all they look at when it comes to monthly expenses.
The lender doesn’t know how much you pay for groceries, gas and insurance, healthcare, school tuition or loans, utilities, and other expenses you might have. If maxing out the loan amount you qualify for means that you are stretching your monthly budget to the limit, you probably need to find a more affordable home.
Even if you can make your mortgage payments with all of your other monthly expenses, a higher monthly payment can affect other areas of your life. The more money you borrow, the less you’ll be able to put towards important savings such as your 401(k) or emergency fund.
5). Depleting your savings
One of the biggest mistakes many first-time homebuyers make is spending all or most of their savings on the down payment and closing costs. Some people scrape all their money together to make the 20 percent down payment so they don’t have to pay for mortgage insurance.
This may translate to substantial savings on the monthly mortgage payment, but it’s not worth the risk of living on the edge. Instead, aim to have three to six months of living expenses in an emergency fund, even after you close. Depleting your emergency or retirement savings to make a large down payment is a risk best avoided.
6). Being Unaware of the hidden costs of owning a home
Many first-time home buyers are unaware of the hidden costs of homeownership because they’ve never owned one. When moving from an apartment to a home, there can be some additional costs that you may not have experience paying as a renter.
These hidden costs include higher utility bills, new utilities like trash removal and recycling, property taxes, homeowners insurance, outdoor maintenance and equipment, maintenance and repair, tools for home improvement and maintenance, furniture to fill more space, etc.
Figure out how much each expense will be, add that amount to your savings goal, and have it saved up before you move in.
7). Believing that you must have a 20% down payment
There’s still a long-standing myth that you need a 20% downpayment in order to buy a home, but that isn’t actually correct. When you make a bigger down payment on your home purchase, you’ll likely get a better mortgage rate and a lower monthly payment, since you’re not borrowing as much. But that doesn’t mean you should hold off purchasing your first home, or upgrading to a new one, until you have a 20% down payment.
You can get a conventional loan with as little as 3% down or a loan backed by the Federal Housing Administration (FHA) with just 3.5% down. There are also 0% down payment programs available if you’re in the military, or you’re a low- to moderate-income borrower buying a home in a rural community.
Plus, some first-time buyers may qualify for a down payment assistance program through their state or local housing agency.
8). Not planning for closing costs
Your down payment isn’t the only upfront cost you’ll have as a homebuyer. With such a big emphasis on the purchase price and the down payment, many people fail to plan for closing costs, which can range from around 3% to 6% of your loan amount. To prepare for closing costs, it helps to know what’s included in this major expense.
Although some of these may not be included in your closing costs, common fees include the appraisal, home inspection, property taxes, title and attorney fees, lender fees, application fee, prepaid interest, loan origination fee, discount points, title search fee, mortgage insurance application fee, upfront mortgage insurance, and lender and owner title insurance.
Other costs and specific mortgage fees will depend on where the home you are buying is located and the type of loan you get.
9). Changing jobs or having income gaps
In order to qualify for a mortgage, you need to show stable job history and consistent income. Your lender will scrutinize your income and employment history over the last two years to determine whether you have that stability.
If you’ve been in between jobs in the past two years, be prepared to explain why. If you’re looking to take a new job before closing on your mortgage, be strategic because it may delay your loan approval. Communicate potential job changes to your lender and be prepared tp supply any additional documentation they may request.
10). Applying for credit or charging up credit before closing
One important home buying mistake you want to avoid is taking on more debt in the middle of the mortgage lending process. This misstep can quickly derail your loan approval. It’s recommended that borrowers not take on any new debt or apply for a credit card until after closing on their new home. The loan underwriting department at the bank may be checking your credit after you’re approved and before the bank funds your loan.
If you max out your credit card or take out an auto loan before your closing, that debt is factored into your mortgage application. More debt pushes up your debt-to-income (DTI) ratio, or the percentage of your gross monthly income used to repay debt. If your DTI ratio exceeds the maximum ratio for your loan program, your loan may not be approved.
Partner with Award-winning Farmington Hills MI REALTOR® – Tom Gilliam
Tom Gilliam is proud to be a trusted REALTOR® in Farmington Hills MI for the past 20 years – offering his guidance and expertise to buyers and sellers. Tom is able to provide his clients with the kind of knowledge, skills, commitment, and expertise they need and deserve. He also understands that buying or selling a home is a significant financial and life decision and that you are looking for someone you can trust. Tom will protect your interests, advocate for you, negotiate on your behalf, and go the extra mile to ensure a smooth transaction and the best results possible!
If you or someone you know is interested in buying or selling Farmington Hills MI real estate, feel free to reach out to Tom Gilliam directly at (248) 790-5594 or you can get in touch here.
Tom Gilliam, REALTOR®
29630 Orchard Lake Rd.
Farmington Hills 48334
Email: Tom @ Homes2MoveYou.com