Buying a home is a thrilling experience. But it can also be a complex one. The good news is that if you can avoid a few common mistakes, you should be able to prevent some headaches and find yourself enjoying your new home a lot sooner.
1. Not Having a Contract on Your Existing House Before Buying a New One
One way to cover yourself would be to have a contingency, or legal "out", in the contract for the home you're buying that lets you out of the contract if the sale of your existing home somehow falls through. This would spare you from carrying two mortgages, but not from the disappointment of a lot of time and effort spent on a fruitless house hunt. More on contingencies later.
2. Not Pulling Your Credit Reports Before Applying for a Mortgage
You should also consider checking your credit score. A higher score increases a lender's confidence in the likelihood you will make payments on time, so this number can make a big difference in whether you qualify for a mortgage, and if so, the type of mortgage you can obtain. A higher credit score may help you qualify for better interest rates. And some lenders may lower their down payment requirement if you have a high credit score. On the other hand, a credit score under 620 could make it harder to obtain a mortgage. Lenders differ, but a good score is usually considered to be 700 or above.
If yours is lower, work on raising it by paying off your revolving debt, including credit cards, and sending in your bills on time.
3. Failing to Secure Financing Before Making an Offer
Getting preapproved before you make an offer can also give you an edge with sellers and strengthen your negotiating position. A preapproval lets everyone know you're serious and able to close the deal..
Most importantly, by going through the mortgage preapproval process you will find out how much you can comfortably afford, and by knowing your limits, it's less likely that you'll be tempted to over-spend on a home.
During this process, be sure to factor in all the other costs that come with homeownership, like homeowners insurance, property taxes, maintenance and utilities into your monthly mortgage payment.
4. Not Including Some Contingencies in the Contract
For example, you'll want a contingency that allows you to renegotiate if the appraisal comes in below the agreed upon price. And don't forget to add an out if the home doesn't inspect well.
One more thing to think about is the contingencies the seller asks for. You'll want to carefully consider a request to stay in the home until the homeowner closes on a new property. Again, in this market it's tough to know how long that could take.
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Interested in learning more about the home buying process? Here are some more AOL Real Estate videos that might help:
Inside the Mind of an Appraiser
Tag Along with a Home Inspector
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