Being a first time home buyer is so exciting. The whole process, even from that very first appointment up until the day of closing, is full of emotions and anticipation. I love selling homes in Las Cruces. I often say that selling homes is in my DNA….but I have to admit that my favorite part of my job is to help first time home buyers, especially those who see home-ownership as an impossible dream to attain. There is nothing that can replace the feeling I experience when I hand over the key to the new home of my first time home buyer. The most difficult part of my job when representing a buyer is that they can often become their own worst enemy. Most of the time what might keep a buyer from actually closing on their home is themselves sabotaging the deal; making decisions and mistakes that no one thought of telling them not to do. These mistakes range from the most innocent like not getting pre-approved for a loan to missing monthly payments on their debt or getting their identity stolen right before closing. The following is a list of things to avoid when buying a home:
There is a reason why I didn’t use the phrase “get pre-approved first” and instead used the words “visiting with a lender.” Most people are intimidated by the fact that someone is going to look into their credit. I know I feel this way when someone pulls my credit, but here is the deal, before you even get pre-approved go to a lender and ask them questions. Tell them your situation, your income, and your expenses. Your loan officer most likely will tell you if you would be a good candidate to get pre-approved at that time before they even check your credit. This will also give you an opportunity to talk to the lender about the costs that will be associated with their originating the loan. (The next point will describe further the costs associated when buying a home.)
There is a difference between down payment funds and closing costs. A down payment will go towards the total sum of what you are purchasing your home in Las Cruces. Closing costs, are fees that you have to pay for the services rendered so you can buy your home. Another charge that is part of your closing costs is what we call pre-paids. You have to set up your escrow account for your property taxes and homeowner’s insurance. This amount will be dependent on when your bills are due and when you close on your home. All of these fees vary depending on your lender, the type of loan you get, your insurance premium and even the month that you close on. It is important that you know your expected cash to close, even from the very first appointment with a lender. Be prepared to have a little extra cash in your bank account because some lenders like to see at least enough for the first payment there.
Okay, so you went to the lender, you got your pre-approval letter now on to hunting for a house you go. It is super important, and I cannot stress this enough, to not miss any payments on your current loans. According to Equifax, one late payment could cause as much as a 90-110 point drop on your FICO credit score. This could translate into a higher mortgage payment, higher interest rate and even not qualifying for the loan.
Yes, the best way to build credit is by actually using your credit. But when you are in the middle of a real estate transaction, PLEASE, stay away from opening new accounts. Don’t make any large purchases, do not buy a car, do not co-sign for someone else on a loan (not that you should be co-signing for anyone either way). Your loan officer pre-qualified you using an equation based on your income and your monthly payments. By opening a new account your loan will be affected. I know of a couple who (right before closing) went to buy all new furniture for their new home. By doing so they ended up not qualifying for the home because it threw off their debt to income ratios. Even opening a credit line at a retail store will affect you. According to FICO a hard inquiry will decrease your credit score an average of 5-10 points. Again, this will affect the interest rate that your lender quoted you initially, which in return will make your payment higher. This could be critical for those who have lower credit scores, making them not qualify for the loan.
I am Mexican, there would be no need to explain this if you could hear my accent, and I was raised to not trust lending institutions. As I was growing up I remember my mom hiding money here and there, all around the house….and then finding it years later. Another childhood memory that I have in regards to money is the famous “tandas”. If you don’t know what that is and never participated in one; good for you, keep it that way. Tandas are the idea of a group of people getting together and giving a different person in a group the same amount of money each week/month. It is a way of saving money. If you are buying a home, know this: all monies need to be tracked by a paper trail. No money under the mattress, no tandas, nothing. If you cannot track that money with a piece of paper, do not deposit it! This could delay your loan for up to 2 months!
I have had front row experience with each of these mistakes during a real estate transaction. There is a lot of energy, time, and resources that go into a transaction, not to mention the emotional investment involved when looking for the perfect home. To throw it all away due to misinformation or lack of information if very unfortunate. Go through this list carefully and think of ways you can avoid making these mistakes. I know all of these sounds overwhelming, but it won’t be when you have the right person guiding you through it all. Find a REALTOR who you trust. Call that person and ask him/her for guidance. You will find out that having the right REALTOR in your corner is the key to a successful transaction!