5 First-Time Home Buyer Mistakes to Avoid

You have enough to worry about when it comes to buying your first home in today’s market. While FFCCU members are used to great rates from their credit union, rates overall are discouraging many buyers. Already low inventory is being exacerbated by private equity buying up single family homes and driving up prices. Throw in economic instability from constantly shifting tariffs and there’s a swarm of worries for home buyers. Ahead, I highlight five first-time home buyer mistakes and how to avoid them.

And hey, even if this isn’t your first rodeo, give this list a read to stay fresh on possible pitfalls when seeking your next mortgage!

1. First-Time Home Buyer Mistakes with Credit

Your credit score has a monumental impact on your home buying experience. Naturally, any mortgage lender will check your credit report when you first apply. But did you know there is a second credit check just before closing? Because the process can take some time, lenders want to be sure you are still employed and able to cover your payments.

That means doing your best to plan ahead (at least a year out) for your home buying! Avoid a career switch when looking for a home – being between jobs, even if you have accepted a new position – will appear as being unemployed and can result in losing a house you were about to close on! Keep up with all payments and take steps to improve your credit score both before you start looking for a home and while you are looking. It’s wise to shop around but be sure to make your mortgage applications within the same month to avoid multiple hard credit pulls.

2. You Lose an A.R.M. and a Leg Over Your Mortgage

An ARM or Adjustable-rate Mortgage is sometimes pitched as a good option because of the low initial payments. During the first few years (often 2-5) an ARM usually offers a very low interest rate. However, after that initial period, the rate returns to a market normal (likely a much higher rate). While it’s sometimes possible to refinance after this, that’s a big gamble that requires you to anticipate rates and the overall housing market years in advance. Would you have guessed what the market looks like today in the summer of 2020?

While an ARM can be a smart call in specific circumstances, don’t jump at the appeal of that initially lower interest rate. Otherwise, you could find yourself in a much bigger home than you have the means to pay for, with rates that suddenly skyrocket! Speaking of which…

3. Becoming “House Poor”

This is a common first-time home buyer mistake and has been particularly vicious to the millennials. HGTV pitches beautiful, jaw dropping living spaces and we’ve all indulged in fantasizing about a dream home. But dream homes require the kind of dream income that isn’t easy to come by (unless you happen to hit it big with a scratcher).

Selecting a home within your budget will probably mean compromises, but it’s worth it in the long run. Even stretching the budget a bit is going to put strain on the rest of your financial plans. Making high payments every month means there is less money available to pay down other debt, pad your crucial emergency fund, contribute to your retirement, and bolster savings support for your children.

On top of the limitations it places, consider unexpected major life changes. If a sudden and lengthy job loss were to occur, or a severe illness, those house payments aren’t going to give you a break. Having some breathing room with your mortgage is a good thing, even if it means skipping the shiplap.

4. 40 Year Itch

You may have assumed that a 30-year mortgage was the maximum – but there are lenders offering up to 40-year mortgages out there. So, what’s the downside of stretching this out?

Most likely, you will have far less equity due to paying down the mostly interest in the first decade or more. You’re paying more interest over all that time for a rate that’s typically higher than a 30-year mortgage. Consider also that – if you’re anywhere near that median first-time home buyer age – you’ll be expected to make expensive house payments well into your 70’s!

A 15-year mortgage isn’t the right pick for everyone, true, but increasing that time frame too much can be just as detrimental. Did you know that we also offer a 20-year loan term at FFCCU. This option can save you a ton of money in interest for an increase in your payment of sometimes less than $200-$300 a month. Who would not like 10 years less in mortgage payments. Be sure to check that option out.

5. Forgetting the “Secret” Costs

If this is your first time buying a home, there are likely to be a lot of details you may not be aware of. Closing costs, origination fees, taxes, and a variety of other additional charges mean the cost of the home you negotiate to isn’t the FINAL amount you are going to be paying.

There are ancillary charges to be ready for as well. How much will it cost to hire movers (or at least cover boxes, truck rental, gear, etc.)? Are there any immediate home repairs that need doing? How old is that water heater and is it due for a replacement? Are there any cosmetic changes to the new house you are dying to make sooner rather than later?

It’s important to consider the “what next” and “what if” elements of buying a new home as well. Being prepared and taking the time to save to cover these eventualities is key to avoiding a common first-time home buyer mistake.

The Biggest First-Time Home Buyer Mistake is Going it Alone

That was five but here’s a freebie – know that you aren’t alone! At FFCCU we are home buying experts, and we’re here to join your team and make the mortgage game look easy. Personalized, attentive help, some of the best rates in Ohio, and the peace of mind that comes with borrowing from a not-for-profit. That’s the major advantage credit unions have in helping home buyers! Unlike a commercial bank or mortgage company that’s trying to squeeze every cent out of a borrower, FFCCU is here to support your goals. Our priority is finding a suitable, sustainable living situation.

The dream of home ownership doesn’t need to be so hazy! Visit ffcommunity.com for more information, check out previous blog posts for advice on dodging other first-time home buyer mistakes, and when you’re ready, schedule a meeting with me to get started on your home ownership journey!

Posted In: Home Buying