4 Common Mistakes Made By First Time Utah Homebuye
First-time homebuyers almost always make a few mistakes when buying their home. Whether they simply paid too much, chose the wrong type of mortgage or forgot to budget for needed home improvements and repairs. Working with a trustworthy, experienced lender can help prevent such mistakes. But consumers also need to take responsibility for their budgets and choices.
Following are the four biggest financial mistakes of first-time Utah homebuyers:
Lenders qualify buyers based on their incomes and debt-to-income ratios without considering how much the borrowers spend on items such as transportation, savings, food and other necessities.
1. Too many first-time buyers believe their income will continue to grow and are so excited about buying a home that they borrow the absolute maximum they can afford instead of allowing themselves wiggle room for a partial loss of income or for future expenses such as potential flood or other household disasters, children or health problems.
It's a good idea to review how much you want to spend each month on housing prior to meeting with a lender. In other words, create your own individual budget and know your limits at the time of purchase. It's not a good idea to spend more on a home on prospect of potential increased future income.
Meeting with a lender for a buyer consultation and prequalification for a mortgage should be the first step toward homeownership. Yet many first-time homebuyers wait until they are ready to start house hunting before contacting a lender.
2. It is never too early to set up a free buyer consultation with your lender. Every buyer needs to get prequalified early enough in the process so that they can make some changes if they need to or correct errors on their credit report. Some buyers may need to spend a year saving more money for their down payment, increasing their incomes or cleaning up their credit before making an offer on a home.
A score of 680 to 720 can get you good mortgage rates, while a FICO score of 620 is usually about the lowest score to qualify for most loans and will not earn you the best interest rate.
While most consumers know it's important to have a high credit score, not everyone understands how costly a low score can be. All mortgage lending is done with a tier of interest rates and terms based on consumer credit scores. A credit score of 720 or above will earn you the best rates and can potentially save you thousands of dollars over the term of the loan. Websites such as Bankrate provide information about how to improve your credit score.
4. Get the loan that fits your needs. No need to pay a premium for a 30 year fixed rate mortgage if you know your company will relocate you within 5 years. A 5/1 Arm may be your best option in this case. First-time homebuyers today typically opt for a 30-year fixed-rate mortgage. Their conservatism is a reaction to stories about the dangers of interest-only mortgages and adjustable-rate mortgages. Home loan alternatives to a 30-year-fixed sometimes make more sense.
Homebuyers eager to build equity in their homes or who are older and want to live mortgage-free in retirement should consider a 15-year fixed-rate loan or, if they can afford it, even a 10-year mortgage to reach their goals.
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