Your Financial Life

Buying a Home: Avoid These Pitfalls

6 minute read time

Buying a home for the first time can feel like a rollercoaster ride. It’s exciting, scary, and even stomach-churning all at once, and that’s just for starters. Add in bidding wars and tighter-than-tight home inventory. Oh, and it’s a seller’s market, in the midst of a pandemic. Even savvy house hunters can become discouraged.

If you’re a first-time homebuyer, you have lots of company. A full third of the residential real estate market in 2019 was comprised of first-time homebuyers according to data from the National Association of Realtors® (NAR). In addition, 2020 data from NAR shows that Millennials, many of whom are first-time homebuyers, represent the largest segment of homebuyers at 38 percent.

This competitive environment makes it essential for you to be focused and prepared for every aspect of the search for your first home. That includes knowing where you’d like to live and getting your financials in order. Your prep work will allow you to act quickly when you find your dream home – because that’s exactly what your competition is doing.

Remember that mortgage loan officers at Johnson Financial Group are available to help you at every stage of your search, with suggestions on what to do as well as what not to do in searching for your first home.

Here are a few common mistakes to avoid:

Going It Alone

If you are new to the real estate market, you can lose valuable time and money by searching on your own. Qualified real estate professionals watch out for their customers, educating them on the buying process and making sure all necessary paperwork is in place. With current inventories low and well-priced homes sometimes selling in hours or days, some first-time buyers even opt to hire a buyer’s agent. Such agents are legally bound to work on their clients’ behalf, compared with a listing agent, who has a fiduciary responsibility only to the seller. Your advisors, family or friends can help you identify a qualified agent to guide you and help ensure you get the home you want at an appropriate price.

Not Knowing What You Can (Truly) Afford

A Johnson Financial Group mortgage loan officer can help you determine how much you can borrow and how much you should spend on a home which are not always the same amount. For example, even if you have been approved for a $350,000 mortgage doesn’t mean you should borrow that amount. Consider the cost of the mortgage along with your other monthly expenses and your long-term financial goals.

House Hunting Without A Mortgage Pre-Approval

Real estate and mortgage professionals will tell you that having a pre-approval is vital in today’s competitive housing market – some even require it. Our loan officers will assist with your loan application so you can conduct your home search with confidence. It’s important to seek pre-approval – not just pre-qualification. The difference can be critical. Getting pre-qualified requires that you supply a lender with basic information such as debt, income and assets but does not include an analysis of your credit report or your actual ability to purchase a home. If you find a home you want to buy, or enter a bidding war with other buyers, having financing in place could give you an advantage with the seller.

Neglecting Your Credit Score

A credit score is based on a formula that includes payment history, debt, length of credit history, new credit and types of credit used. Credit scores typically ranges from 350 to 850. If you have a low credit score – generally mid-600s or below – a mortgage may be more difficult to obtain. Lenders scrutinize your credit report when deciding whether to extend a loan and for purposes of setting the interest rate. You can check your credit report at no cost through Annual Credit Report.com; it is important to make sure you correct any errors before seeking a loan. Your mortgage loan officer or advisor can help you determine the best loan for your financial circumstance or suggest options to help you obtain one.

Overlooking Speical Lending Programs

Homeownership is more affordable than you think with various loan options and programs available. Consult your mortgage loan officer for help in identifying the best loan options for your specific situation. Among available programs:

  • WHEDA loans – The Wisconsin Housing and Economic Development Authority offers low down payment options for select Wisconsin homebuyers.
  • Low down payment loans – Affordable options may allow you to obtain a loan with as little as 3 percent down for first-time homebuyers or buyers with limited credit histories.
  • Local programs – Contact your loan officer to learn more about specific loan options they may offer to best meet your individual needs. They should also be able to provide additional information on down payment assistance or grant programs.

Buying Without A Home Inspection

Your offer to purchase a home should be contingent upon a home inspection conducted by a qualified professional. A licensed or certified professional will provide an unbiased, thorough inspection based on the latest industry standards. The inspection can reveal problems that even the seller doesn’t know about and might provide insight to help you determine if it is best to either walk away from the deal or to renegotiate the price if a serious flaw is discovered.

Underestimating Additional Costs

Be sure to budget for costs related to a home purchase such as a title search, homeowners insurance and closing costs. Depending on the condition of the home or your preference, you should budget for things such as painting, furnishings and repairs or renovation. If you are buying a newly constructed home, make sure you have planned for items that aren’t included such as landscaping and a driveway; and for maintenance or association fees if you are purchasing a condominium.

Johnson Financial Group mortgage loan officers are poised to help you before, during and after your purchase to ensure the transition to your new home is as smooth and enjoyable as possible for you and your family.

Loans are subject to credit and property approval, bank underwriting guidelines, and may not be available in all states. Other loan programs and pricing may be available. Certain conditions, terms, and restrictions may apply based on the loan program selected. The term of the loan may vary based upon program chosen. Property insurance is required; if the collateral is determined to be in an area having special flood hazards, flood insurance will be required.