Yahoo Finance I’m a Real Estate Expert: 7 Things First-Time Homebuyers Should Not Do
According to the National Association of Realtors (NAR), existing home sales dropped 1.9% in April 2024, while the median home price went up 5.7% annually to $407,600. With housing prices increasing over the last few years, you may be waiting patiently to become a first-time homebuyer.
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If you are, here we will examine several mistakes to avoid if you want to enter the real estate market and purchase your first home in 2024.
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Underestimate the Importance of Building Credit
“Poor credit can lead to unfavorable mortgage terms,” said Laura Adams, senior real estate analyst with AceableAgent. “Always pay your bills on time and keep your credit card balances low to ensure a better interest rate on your mortgage.
You’ll want to ensure that you focus on making your debt payments as you save up for your first home purchase. Lenders will consider your entire financial situation before deciding whether to lend you the money.
Adams added, “A high debt-to-income ratio can severely hinder your ability to get approved for a home loan. Focus on reducing your debt to improve your mortgage prospects.”
Since your credit score and credit report will play a critical role in the mortgage approval process, you’ll want to direct your energy toward this.
“It also goes without saying that you also want to avoid anything else that could reduce your credit score, such as new credit inquiries, late payments or opening new lines of credit of any form,” shared Elizabeth Dodson, co-founder at HomeZada.
This is your year to reduce spending and build your credits, which leads us to the next point.
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Make Any Other Major Purchases
“When you’re committed to buying a home, the LAST thing you want to do is make a big purchase that could impact your personal financial picture,” noted Dodson. “This could be anything from investing in a timeshare, a new car, expensive furniture or assuming a personal loan or line of credit.”
These financial moves could increase your debt-to-income ratio and make you more risky from the lender’s perspective. This would then impact your ability to get approved for a mortgage and prevent you from purchasing your first home in 2024.
Neglect Saving for a Down Payment
Adams mentioned that you shouldn’t underestimate the importance of saving for a down payment, especially with housing prices increasing. This means you may have to delay your first home purchase if you don’t have enough saved for a decent down payment.
Saving up will also require you to assess your budget to see if you can afford to become a homeowner based on all the new expenses you’ll incur. Failing to accurately determine how much you can afford in monthly mortgage payments, property taxes, insurance, and other home-related expenses could lead to major financial issues.
Adams added, “Not saving enough could mean having to pay for private mortgage insurance or missing out on better loan terms. Aim to save at least 20% of the home’s purchase price, though some loans may allow for as little as 5% down.”
You also don’t want to skip the mortgage pre-approval, as house hunting without one can be a waste of time, as you’re unaware of what you can afford. Without a pre-approval, you won’t have a clear picture of what kind fo houses you should look for.
Dismiss Alternative Financing Options
According to Adams, you want to avoid ignoring out-of-the-box financing options, especially if you’re struggling to save up for the downpayment.
Adams elaborated, “Many sellers are open to alternative purchase offers such as seller financing, paying mortgage points, and covering closing costs. Not exploring these options could result in higher cash requirements and missed opportunities to secure a home.”
Avoid Doing Your Homework
Dodson stressed that first-time homebuyers should do their homework carefully because they will be taking on new expenses. You’ll want to take some time to start researching real estate agents and bankers in advance so that you have the correct resources when you’re ready to enter the market.
Dodson noted, “Finding an agent and mortgage expert you trust that have experience in your new neighborhood can take three months or more, so you don’t want to rush the process.”
Disregard the Need for a Qualified Real Estate Agent
“An experienced agent can effectively negotiate on your behalf and help you find a property that meets your needs and budget,” remarked Adams. “Young homebuyers should avoid the mistake of not consulting experienced real estate professionals who can guide them through the nuances of the market, including identifying affordable conversions and negotiating with sellers.”
You don’t want to underestimate the value of a skilled real estate agent because purchasing your first home can be an intimidating and stressful process. There’s plenty of paperwork and research that goes into it.
Dodson added, “Make sure your agent explains each step and what to expect throughout the process. Make them earn their commission.”
Overlook Government Programs
If you’re struggling to enter the real estate market, you don’t want to overlook possible government programs that could help you out. Many people don’t realize that programs such as FHA loans and local state assistance are available.
Adams mentioned that these first-time homebuyer programs or other government initiatives can provide financial support and make homeownership more attainable.
Those are seven things that first-time homebuyers shouldn’t do in 2024 if they want to finally enter the market and close on a property.
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