Buying Your First Home? Avoid These Mistakes

1. Overspending

It’s important to be realistic about what you can afford when shopping for a house. If you’re not careful, you might end up falling in love with a place that’s out of your price range and become frustrated. Make a list of your needs and wants, and be flexible about where you search. That way, you’ll stay within your budget while still finding the perfect home for you.

Monthly mortgage payments shouldn’t exceed a certain percentage of your monthly income, regardless of how much other debt you have. Make sure to use the Bank of America Affordability Calculator to stay within your budget.

2. Not preparing for your financing

To qualify for a mortgage, you will need to provide your lender with documents such as your tax returns, pay stubs and financial account statements. Make sure you check your credit report so there are no surprises in your financial history. Gathering this information will help the lender determine what rate you qualify for and how much you can afford to borrow.

If you’re looking to take out a loan, it’s best to start by improving your credit score and debt-to-income ratio. This will make the qualification process easier and could help you get better terms on your loan.

3. Knowing about prequalification and preapproval

When lenders prequalify or preapprove you for a mortgage, they are providing you with an estimate of the money that they may be able to lend you. Prequalification can help give you an idea of what your price range should be. It is important to note that being prequalified does not guarantee that you will get a loan, but it can help speed up the process.

The preapproval is a preliminary approval that is based on your credit and ability to repay the loan. Your financial situation will be evaluated by an underwriter, and the preapproval will be conditioned on your chosen property meeting lender guidelines.

4. Closing cost overwhelm

Closing costs are not just the down payment. You will also need to pay for your attorney fees (if applicable), title insurance, and other various costs. This can add up to 3 to 5 percent of your home’s purchase price. Make sure you budget for this when buying a home.

5. Not preparing for extra costs

It can be a surprise to first-time homebuyers that they will have to pay additional monthly expenses on top of their mortgage payment such as property taxes, homeowners insurance and regular maintenance.

Depending on where you live, you may also have to pay fees to a homeowners’ association or a co-op board. If you establish an escrow account with your lender, your monthly payments will include property taxes and insurance on top of your mortgage’s principal and interest. You may even find that your property taxes increase slightly after your closing based on your home’s price, which can make your monthly payment just a bit larger.

When determining how much you can afford to pay each month for a home, be sure to factor in your monthly expenses. This will include your mortgage payment, property taxes, and any homeowners insurance. By doing so, you can ensure that you’re not overspending on your new home and can comfortably afford all of your monthly payments.

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