Six homebuying mistakes to avoid in Hampton Roads
By Tyrone Noel and Jay Grant
Buying a house in Hampton Roads? Be prepared for a face-paced market and try to avoid these common pitfalls on your homebuying journey.
Overspending
Before you start shopping, review your budget to determine how much you can afford each month. Generally, mortgage payments shouldn’t be more than 28% of your monthly gross income. Use an online home affordability calculator to help understand what fits your finances.
Not prioritizing your wish-list can also lead to overspending. A recent Bank of America Homebuyer Insights Report found that prospective buyers are most likely to give up buying a brand-new home (35%), being near family (33%) and access to public transportation (32%) to increase their chances of purchasing a home.
Prequalification vs. preapproval
Preapproval for a mortgage means the lender has examined your income, credit and other expenses to determine the mortgage amount you qualify for. Once preapproved, you’ll receive a preapproval letter, which is an offer (not a commitment) to
lend you a specific amount, good for 90 days. This is a more serious step in the homebuying process and can make you a more appealing buyer.
Prequalification, on the other hand, is a step many homebuyers take before preapproval, and can help you set realistic expectations — providing an estimate of how much a lender may lend you. Being prequalified doesn’t guarantee you’ll get a loan, but it can help.
Waiting out the market
Prospective homebuyers’ patience may be waning when it comes to home prices and interest rates coming down. There are opportunities in this market if buyers approach real estate as a long-term investment.
The best time to buy is when you feel ready financially. Rather than trying to time the market, evaluate factors that would encourage you to buy — whether it’s a certain amount in savings or when homes in your budget become available in a specific neighborhood. If rates drop in the future, you can always refinance. On the other hand, waiting too long for interest rates to fall can cause increased home values to overshadow savings you might see with the lower rate.
Not seeking homebuyer assistance programs
Many people overlook first-time homebuyer loan programs and grants that can make buying a home more affordable.
With one of the most generous grants in the industry, Bank of America offers up to $17,500 in combined down payment and closing costs as part of its Community Homeownership Commitment. Eligible buyers can receive up to $10,000 or 3% of the home’s purchase price, whichever is less, to be used toward their down payment — no repayment is required.
BofA’s Down Payment Center can also help you find state and local down payment and closing cost assistance programs that you may be eligible for in your area.
Overlooking closing costs
Closing costs are an often-underappreciated expense that can include loan origination fees, appraisal and survey fees, homeowners’ insurance and/or private mortgage insurance.
Payment is due when you sign final mortgage loan documents.
You can get a sense of how much your closing costs will be from the loan estimate your lender provides after submitting your mortgage application.
Forgetting seasons of life
Remember that your first home may or may not be the home you retire in. Considering your current and future needs can allow you to age-in-place as opposed to financing another home at a point in life when income may become fixed or limited. On the other hand, a younger homebuyer could go in knowing a home will serve its purpose for a small number of years and not be so concerned with features and amenities that may become important later in life.
It’s never too early to start discussing your current financial picture and goals with a lending officer to see if you are on track to achieve the dream of homeownership.