The Top 3 Mistakes Homebuyers Make

Buying a home is exciting. It can also be overwhelming.

Between interest rates, inspections, negotiations, loan programs, closing costs, and everything else that happens between “I think I’m ready to buy” and getting the keys, there are a lot of decisions to make.

After more than 20 years in mortgage lending, I’ve seen buyers make just about every mistake imaginable. Most of them aren’t because someone was careless. They happen because homebuyers simply don’t know what they don’t know.

Here are three of the biggest mistakes I see — and how to avoid them.

1. Shopping for a Rate Instead of Shopping for a Loan

This is probably the biggest one.

It’s incredibly easy to see an advertised interest rate and assume the lender offering the lowest rate has the best deal.

But an interest rate by itself tells you almost nothing.

That beautiful rate may come with thousands of dollars in discount points. Another lender may quote a slightly higher rate with significantly lower closing costs. Depending on how long you expect to own the home or keep that particular mortgage, paying those points may — or may not — make financial sense.

And then there’s the loan program itself.

VA, FHA, conventional, USDA and other programs have different costs, mortgage insurance requirements, qualification rules and advantages. For some buyers, the best loan may not be the one with the lowest rate at all.

Instead of asking:

“Who has the lowest rate?”

Ask:

“What loan structure makes the most sense for me?”

A good lender should be able to show you the options side by side and explain the tradeoffs in plain English.

2. Making Financial Changes Before Closing

Once you’re under contract, it can feel like the hard part is over.

It isn’t.

Your lender is qualifying you based on a financial picture that needs to remain relatively stable through closing. That means the weeks before you get your keys are generally not the time to make major financial changes without talking to your lender first.

That includes opening a new credit card, financing furniture, buying a car, moving large amounts of money between accounts, changing jobs or making large purchases on existing credit cards.

Even something that seems harmless can affect your debt-to-income ratio, credit profile, available assets or documentation.

And yes — I’ve seen buyers shop for their new house before they actually own the new house.

The furniture store offers 0% financing, so they open an account and buy the bedroom set, refrigerator and living room furniture.

Then the lender pulls credit again.

Now we have a problem.

My rule is simple:

Until you have the keys in your hand, call your lender before making a significant financial move.

I’d much rather answer a two-minute phone call than spend two days trying to save your closing.

3. Waiting Until They Find a House to Talk to a Lender

This one can cost buyers opportunities.

The best time to figure out your financing isn’t after you’ve fallen in love with a house.

It’s before you start seriously shopping.

A good preapproval should be much more than someone pulling your credit, typing numbers into a computer and generating a letter.

This is when we should be figuring out things like:

What payment are you actually comfortable with? How much cash will you need? What loan programs are available to you? Are there things on your credit we should address? How will an underwriter calculate your income? Are there potential problems we can solve before you’re under contract?

This becomes especially important if you’re self-employed, earn commissions or bonuses, receive overtime, have multiple income sources, own other properties, or have anything else that makes your financial picture a little less straightforward.

Finding the perfect house and then discovering a financing problem puts everyone under pressure.

Finding that same issue 30 or 60 days earlier?

Now we have time to make a plan.

The Common Thread

All three of these mistakes really come down to the same thing:

Homebuyers often focus on the house first and the financing second.

But the two should work together.

My job isn’t simply to get you a mortgage. It’s to help you understand what you’re doing, compare your options, anticipate problems and structure the financing in a way that makes sense for you.

Because getting approved is important.

Getting the keys is exciting.

But making a smart financial decision along the way is what really matters.

Thinking about buying a home? Start the financing conversation before you start falling in love with houses.