Shopping for their first home can be very exciting. But because it’s their first go-around, your first-time buyer clients may feel like they’re going into the process blind. They could use a little help from someone who is more familiar with the process. That means you.
While they could get plenty of advice online, you are well-positioned to give them the inside scoop on what’s happening in the local home market. Your advice could help them avoid making some common first-time homebuyer mistakes that can trip them up along the way. Here is a quick rundown of some things your clients should not do.
Don’t Look for a Home Right Away
As tempting as it might be to fire up Zillow and start browsing available homes, it’s wise to avoid that. It’s fun to look at houses, but buying a home is very much a financial decision. That’s why it is so important to start with a mortgage prequalification.
True…sitting in a lender’s office to discuss their financial situation can be the polar opposite of a good time. It can even be a little scary. What if your client doesn’t qualify for a mortgage, or they qualify for a loan smaller than expected? These are real fears.
Even if your client has a price range in mind that they want to stick with, they still need to get preapproved then go look for a home. That leads us into our next point…
Don’t Always Offer the Asking Price
So, they’ve found a house online, crunched the numbers, and feel pretty confident they can make the monthly mortgage payments…based on the listing price.
Hate to burst their bubble, but just because they can afford the listing price, doesn’t mean they can afford owning a home. They need to know what drives a lending decision.
There is plenty that the listing price doesn’t include. Property insurance, taxes, homeowner’s association dues, maintenance, utility bills, and the potential fluctuation of those costs from neighborhood to neighborhood and town to town are almost never considered. Again, another reason to sit down with a lender to figure these things out.
Your client also needs to consider their home, even if their first home, as a long-term investment. How long do they plan to live there?
Don’t Fly Solo
Seek professional help…and no, we’re not saying they need to see a shrink. If this is their first time buying a home, it’s a good idea to not go it alone. They’ll likely need to contact:
- A reputable real estate agent
- A good loan officer, aka lender (like these fine folks)
- A lawyer…it’s seriously not a bad idea
When shopping for an agent, start with referrals from friends or relatives. Or, contact agents and ask them to provide referrals from past clients. Same goes for loan officers and mortgage lenders.
Having an attorney on-hand to look things over is a great way to ensure everything is on the up and up, and that the agents and lenders are giving independent advice. It’s likely the single largest investment they’ll ever make. Get it done the right way.
Don’t Drain the Savings for the Down Payment
Think of how long it’s taken your client to accrue the thousands they have in savings. The last thing they want to do is spend every last dime on the down payment and closing costs. Of all first-time homebuyer mistakes, this one can potentially hurt them further down the road.
Sure, putting down the required 20% possibly gets your client out of having to pay mortgage insurance premiums. But now they’re potentially trying to maintain a home with little financial cushion. If opting for a low down payment mortgage means paying the mortgage insurance so they can have some rainy day cash on-hand, then that’s what they should do. Mostly likely, every time.
Ask anyone who’s ever bought a home how important having a rainy day fund can be, and you will hear all the reasons you’ll ever need.
Avoid Big Purchases Before the Close
So, your client got prequalified, found their perfect home, signed the contract, and they’ll close in 30 to 45 days. Now would be a great time to close the checkbook and lock it down tight.
From the time they sign the contract until the moment they close, lenders are pulling their credit reports and scrutinizing financials with hawk-like vision to make sure their financial situation hasn’t changed since the loan was approved. A new loan for a large purchase can easily put the kibosh on the closing.
So, until they’ve closed and keys are in-hand, they should hold off on buying the new furniture and car.