As first time buyers, it can be challenging to know where to start! There is so much to figure out – you need to know your budget, what type of home suits your needs, where you would like to live, and then of course what you’re going to do to decorate it. But before you start Pinning all of your dreams – let’s take a walk through the buying journey with our hypothetical client, Jane.
Jane is a first time buyer finally ready to purchase her first home! She’s so excited to start looking for homes and her Pinterest boards are full of great ideas – but there’s a few things she needs to do before she hits the shops.
The most important thing Jane needs to do is visit her financial institution to talk about her finances.
She needs to get pre-approved for a mortgage so that when she finds “the one” for her, she’ll want to move quickly. Being pre-approved for a mortgage removes an extra step in the process. It also helps set her budget for house shopping so she can only see homes she can actually afford. She needs to look at what she can afford month to month too, because often the ceiling of a pre-approval is not a realistic figure on a monthly basis when Jane looks at her other expenses.
When Jane gets pre-approved, she’s so excited about buying a home she also thinks it’s time to get a new car and fill her new home with furniture and decor. The thing is, she doesn’t have a lot of cash – so she thinks she will finance the new car and put those purchases on a line of credit. Jane tells us she’s heading to the dealership after this showing, she can’t wait! Thankfully, we stop her in the nick of time – Jane can’t go out and make major purchases and rack up debt – it puts her pre-approval in danger! Taking on new debt will change the state of Jane’s credit and may reduce her pre-approval amount. Jane says she will just apply for some new credit, won’t that help? This is also something to avoid during the pre-approval process as it also could affect your credit score & the amount lenders are willing to loan to you for the mortgage.
Jane has seen a few homes and is so glad she is refining her wishlist and finding out what’s really important when she sees an ad for a new job, right down the block from her home she loves! She tells her Realtor that she can’t wait to apply for the job, and then maybe she can put an offer on that house she likes. “STOP!” We tell her, “You can’t change jobs in the middle of buying a home! Lenders rely on stability!” Jane changing situations may cause the lender to think she is unstable, or that she won’t have a steady income to keep up with the mortgage.
Get More Real Estate Tips + Advice to Your Inbox!
Jane is closing in on the right home, and has been trying to keep her finances tight since she is buying a home and all the things her Realtor told her seem like she needs to keep her wallet closed – so she thinks she will skip her student loan payment this month to put a few extra dollars in her pocket to buy some great throw pillows. When she meets her Realtor at a showing she mentions her idea – and her Realtor tells her to make that payment! It is something else that can affect your credit and give pause to a lender when they review your finances before finalizing the mortgage.
Jane puts an offer in on her dream home, finally ready to start the next chapter of her life in her new home, and she thanks her realtor for making sure her pre-approval wasn’t in jeopardy!
Takeaways from Jane's Story
Jane is obviously a fictional character, but her mistakes are very common for real life first time buyers. We wanted to share these common mistakes so our clients don’t make the same ones! The most common missteps buyers make during pre-approval can be summed up as:
- Hold off on major purchases like a car or RV, etc.
- Don’t apply for new credit
- Don’t quit or change jobs
- Don’t miss loan payments
- Don’t buy furniture or household goods on credit