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6 first-time homebuyer mistakes to avoid

Some helpful tips for buyers who are navigating the home buying process for the first time.

Buying a house—especially as a first-time homebuyer—can be a daunting process, but a little knowledge and preparation can set you up for success. Here are 6 common mistakes to avoid for easing the process on the way to the house of your dreams.

Mistake No. 1: Spending more than you can afford

Before you start shopping for a house, take a good look at your budget. Use this calculator to help determine what can you afford, accounting for both your income and any existing expenses.

Generally, your monthly mortgage payments shouldn’t be much more than 28% of your monthly income. If you have a lot of other debt, that ratio drops even lower. Make estimates based on your current income, not what you anticipate making a few years down the line. A realistic financial plan from the outset will help you stay within your budget.

Mistake No. 2: Being unprepared to have your finances scrutinized

To help determine whether you qualify for a mortgage and what the rate will be, your lender will evaluate your credit report and your debt-to-income ratio—the relationship between how much money you already owe and how much money you have coming in. They’ll want to see your tax returns, pay stubs and financial account statements, so make sure you have the necessary documentation prepared. Check your credit to make sure there’s nothing unexpected in your financial profile. To ease the qualification process and help you get the best terms on a loan, work to improve your credit score and debt-to-income ratio before you try to borrow.

Mistake No. 3: Failing to understand the difference between pre-qualification and pre-approval

When lenders pre-qualify you for a mortgage, they provide an estimate of what they may lend you. While pre-qualification doesn’t guarantee you’ll get a loan, it can help ease the process. Pre-qualification signals to sellers that you are a serious buyer, improving your chance of getting the house you want, and gives you a clearer idea of what your price range should be.

A pre-approval is a conditional loan approval subject to meeting certain loan guidelines, no change in financial condition, etc. Make sure your pre-approval has been issued by a mortgage underwriter—otherwise your “pre-approval” might just be pre-qualification by another name.

Mistake No. 4: Skipping the inspection

The home inspection is an added expense that some first-time homebuyers don’t expect and might feel safe foregoing. After all, you’ve seen the property yourself and nothing appears to be wrong. But professional inspectors often notice things most of us don’t. The home may need big repairs you can’t see, and an inspection helps you negotiate with the current homeowner to have the issues fixed or adjust the price accordingly.

Mistake No. 5: Failing to account for closing costs

In addition to your home inspection, buying a house involves closing costs beyond the down payment, and they can be significant. These costs—including attorney fees (if applicable) and title insurance—are due when you sign final mortgage loan documents. Typically, closing costs total 2 to 7 percent of your home’s purchase price, so add this additional cost to your budget. Calculate your closing costs to better understand your total closing costs.

Mistake No. 6: Overlooking additional expenses of homeownership

Once the keys are in your hands, there are additional expenses you will need to pay on top of your monthly mortgage payment. You will be responsible for paying property taxes and insurance and for upkeep on your home. 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. When deciding how much you can afford to pay each month for a home, build these expenses into your budget.

If you are seeking more information on purchasing your first home, you may want to explore Bank of America’s mortgage rates and loan options.