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7 Mistakes First-Time Homebuyers Must Avoid

According to the National Association of Realtors (NAR), existing home sales dropped 1.9% in April 2024, while the median home price surged by 5.7% annually to $407,600. As housing prices continue to rise, many prospective first-time homebuyers may be anxiously waiting for the right moment to enter the market. Here are several critical mistakes to avoid if you aim to purchase your first home in 2024.

Underestimating the Importance of Building Credit

“Poor credit can lead to unfavorable mortgage terms,” warns 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.”

Your credit score is pivotal in the mortgage approval process. Lenders assess your entire financial situation, and 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,” Adams advises.

Elizabeth Dodson, co-founder at HomeZada, adds, “Avoid anything that could reduce your credit score, such as new credit inquiries, late payments, or opening new lines of credit.”

This is the year to concentrate on building your credit and managing your finances wisely.

Making 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,” Dodson notes. Significant expenditures, like buying a new car or investing in expensive furniture, can increase your debt-to-income ratio and make you appear riskier to lenders. This can adversely affect your mortgage approval chances.

Neglecting to Save for a Down Payment

With rising housing prices, saving for a down payment is more crucial than ever. Adams emphasizes the importance of having a substantial down payment saved. Not saving enough can lead to additional costs such as private mortgage insurance (PMI) and can limit your loan options.

“Not saving enough could mean having to pay for PMI 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,” Adams explains.

Accurately assessing your budget and understanding all the expenses involved in homeownership—such as monthly mortgage payments, property taxes, and insurance—is essential. Also, securing mortgage pre-approval is vital as it gives you a clear picture of your budget and makes house hunting more efficient.

Dismissing Alternative Financing Options

Ignoring non-traditional financing options can be a missed opportunity. Adams highlights the importance of exploring alternative purchase offers like seller financing, paying mortgage points, or covering closing costs. These options can lower your initial cash requirements and make homeownership more attainable.

Skipping Thorough Research

Dodson stresses the importance of doing your homework. “Finding an agent and mortgage expert you trust, who has experience in your desired neighborhood, can take three months or more, so don’t rush the process,” she advises.

Invest time in researching real estate agents and bankers to ensure you have the right support when entering the market.

Disregarding the Need for a Qualified Real Estate Agent

An experienced real estate agent can be invaluable in navigating the complexities of the housing market. “An experienced agent can effectively negotiate on your behalf and help you find a property that meets your needs and budget,” says Adams. Young homebuyers should leverage the expertise of real estate professionals to identify affordable options and negotiate favorable terms.

“Make sure your agent explains each step and what to expect throughout the process,” Dodson adds. “Make them earn their commission.”

Overlooking Government Programs

Many first-time homebuyers are unaware of the various government programs designed to assist them. Programs such as FHA loans and local state assistance can provide financial support and make homeownership more achievable.

“First-time homebuyer programs or other government initiatives can provide financial support and make homeownership more attainable,” Adams points out.

Conclusion

Navigating the real estate market as a first-time homebuyer can be challenging, especially with the current economic climate. By avoiding these seven common mistakes—underestimating the importance of credit, making major purchases, neglecting to save for a down payment, dismissing alternative financing options, skipping thorough research, disregarding the need for a qualified real estate agent, and overlooking government programs—you can position yourself better to successfully purchase your first home in 2024.

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