Buying a home is the most important and expensive decision that most of us will undertake. It is surprising to me how many people are not prepared to buy a home. A potential homebuyer should do extensive amounts of research and give a lot of thought to what they want to buy. When they feel they are ready then they can get pre-approved for a mortgage. Below are some of the warning signs that you might not yet be ready to buy a home and you may need to do some more research.
You don’t know your real credit score
I wrote a blog about how the average consumer can pull their own credit score for free on many different websites or through their credit card companies. But they can be misled as to what the credit score would be. When pulled by a mortgage company there is a different formula used. There are many times that the credit scores are different when pulled by a mortgage lender than a free credit reporting service. And it is really critical to know your actual mortgage credit score.
You have not been pre-approved yet – 7 Warning Signs You’re Not Ready To Buy A Home
I have seen some people get so excited that they start home shopping before they know what they can qualify for on a mortgage. It is essential to get pre-approved before you even start to spend time looking for a new home.
You did not send in any supporting docs during the pre-approval process
I have had potential mortgage clients tell me that they don’t need to speak to me to get pre-approved. They say they already did it on the phone in five minutes with another lender. That is a big warning sign. I ask if they have sent any paperwork in, and frequently they say no. They say it was all done over the phone. There are so many different mortgage guidelines that the lender absolutely must see documentation on your financials. There is no way to give somebody a firm and confident number on how much mortgage they can qualify for without reviewing the necessary documentation.
You are still choosing between too many geographic locations
Sometimes people contact me and says they’re still deciding between five neighborhoods in Virginia, three in Maryland and all of Washington DC. That is a big warning sign that they may not ready to buy a home. You should really have your choices narrowed down to a few certain locations before you really dive in. You can have 15 neighborhoods in mind. But that should be on the front end of the process when you’re still not very serious about getting started on your house hunt. Hopefully when you are ready to commit you have it narrowed down to a neighborhood or two.
You still don’t have a firm grasp of how much you want to spend
It helps the process when you have a firm idea on how much you want to spend. Or at least know what your limit is.
You have no money for a down payment
Yes, people contact me who have no money for a down payment, or closing costs. And yes there are some loan programs that allow for no down payment. However, in general, you need a down payment. Then you also need money for closing costs. And it would also be nice to have money for movers, and maybe a new piece of furniture here and there. Or some rooms may need painting, and it would be nice to have some cash reserves. Have some money saved and talk to a lender about how much cash you will need for the price range you are looking to buy in.
You think you should spend only the same amount as your current monthly rent
Some people get stuck in what I call “renter’s mentality”. They may state, “our current rent is $2,000 a month and we really can only afford a bit more.” But then when I go through the pre-qualification process for them I see that they’re making jointly $180,000 a year or $15,000 a month. And I know they can easily afford much more. Spending less might not save you money in the long run.