Avoid These 17 Mistakes When Buying Your First Home in NH Roger Odoardi There’s a reason why New Hampshire secured the #2 spot in U.S. News & World Report’s Best State Rankings: From strong educational and correctional systems to unparalleled natural beauty and an abundance of opportunity, New Hampshire is an ideal place to call home, especially if you’re a first time home buyer. That said, the path to becoming a homeowner can be filled with hidden obstacles and other challenges if you’re unprepared; read up on these common mistakes first time home buyers in NH make to avoid making them yourself. 1. Buying a House Before You’re Ready As improbable as it might seem, people purchase homes for the wrong reasons all the time: because they’re afraid that they’re throwing money away by renting (they aren’t), because they just graduated or got a job, because other members of their social circle are doing it… The list goes on. In reality, there are only two good reasons why you should become a first time homeowner: because you’re financially stable and because you feel ready to own a home. There’s no need to rush into the home buying process; in fact, doing so will only cause you stress and could lead to serious issues further down the road. Carefully consider why it is that you want to be a homeowner before you start looking for a property or a mortgage. If you feel excited at the prospect and well-equipped to take on the challenges (and the benefits!) of homeownership, then congratulations — you’re ready to get started on an exciting journey. 2. Being Unrealistic About Your Budget We’ve all dreamed of owning a luxurious mansion with 10 bedrooms, an all-seasons pool, an at-home movie theatre and sweeping views of the mountains and the ocean at some point, but for first time home buyers in NH, that’s probably a bit of a stretch. Many first time home buyers get a bit pie in the sky when it comes to their budget, and it can get them in trouble — after all, financial experts don’t just advise against buying more home than you can afford for their health. Homeownership comes with a lot of unexpected costs (more on that later), so being sensible about your budget is the best way to set yourself up for long-term happiness and success. Prior to starting the home buying — or even the home searching — process, talk to a financial advisor who can give you a clear picture of your current finances, what you can and can’t afford and how you can capitalize on your equity once you’ve purchased a home. 3. Underestimating the Cost of Homeownership The cost of homeownership doesn’t begin and end with the house itself. There are closing costs to pay such as appraisal fees, legal fees, lender’s fees, title insurance and home insurance, as well as recurring monthly payments such as gas bills, cable bills, homeowner’s association fees, property taxes, PMI and more. One of the biggest mistakes you can make as a first time home buyer is to underestimate these costs and how they’ll affect your budget. When calculating your budget with a financial advisor, be sure to account for these costs to ensure that you don’t find yourself short on funds after you’ve found your dream home. 4. Not Saving Enough for Emergencies We’ll say it again for the folks in the back: Owning a home is expensive, with unexpected costs cropping up at any given point in time: Your refrigerator could break down a month after closing, requiring you to call a repairman. Your basement could flood after an especially severe storm, forcing you to pay for water removal and damage restoration services. You could discover termite damage, leading you to contact pest control. The value of your property — and, consequently, your property taxes — could increase. Any of these situations could put a real strain on your budget — or put you in the hole completely — unless you set enough money aside in your savings specifically for emergencies. Be sure to save diligently throughout the home buying process so that you have sufficient resources when the time comes. 5. Forgetting to Do Your Research You wouldn’t turn down free money, would you? Well, that’s exactly what you’re doing if you don’t look into first time buyer programs in NH. There are a number of different homeownership assistance programs available to New Hampshire residents, including: New Hampshire Housing: The New Hampshire Housing Finance Authority (NHHFA) offers a number of programs designed to help first time home buyers in NH, including: Home Flex Plus: Provides cash assistance (in the form of a second mortgage) for up to 3% of base loan amount toward down payment or closing costs; in order to qualify, borrowers must complete a home buyer education course, be eligible for an FHA, VA or USDA loan and must not have a household income that exceeds $128,900. Home Preferred Plus: Provides cash assistance (in the form of a second mortgage) for up to 3% of base loan amount toward down payment or closing costs; in order to qualify, borrowers must complete a home buyer education course, be eligible for conventional loan and must not have a household income that exceeds $105,900. Home Preferred: Provides 97% loan-to-value conventional mortgage financing with low, discounted mortgage insurance options and lower monthly rates (compared to other conventional or government-insured loans). Purchase Rehab: Intended for first time buyers in NH who purchase a fixer-upper, this program enables the borrower to add up to $35,000 to their purchase mortgage, with as little as 3.5% down, to assist with repairs and upgrades. In order to qualify, borrowers’ household income cannot exceed $128,900. Home Start Homebuyer Tax Credit: Decreases the federal income taxes first time home buyers owe, thereby increasing their take-home pay. The Homebuyer Tax Credit is an annual credit for the life of the original mortgage. Home Preferred Manufacturing Housing ROCs: Provides home buyers in qualified New Hampshire Resident-Owned Communities with affordable conventional financing options, including a low fixed rate, low down payment and low mortgage insurance options. In order to qualify, borrowers’ household income cannot exceed $105,900. County-Specific Programs: Multiple counties across New Hampshire offer community development and homeowner assistance programs for different cities, including: Cheshire County (Keene) Coos County (Berlin) Hillsborough County (Manchester, Nashua) Merrimack County (Concord) Rockingham County (Derry) Strafford County (Dover) Sullivan County (Claremont) Good Neighbor Next Door: Funded by the U.S. Department of Housing and Urban Development (HUD), this program gives first time home buyers who are employed full time as teachers, police officers, firefighters or emergency medical technicians to purchase eligible homes at a 50% discount off the listed price. FHA 203(k) Renovation Loan: Similar to the NHHFA’s Purchase Rehab mortgage program, the FHA 203(k) renovation loan was created to help home buyers borrow additional funds for home repairs or renovations; like a Federal Housing Association (FHA) loan, this program comes with a low-down payment of 3.5%. 6. Not Exploring Different Mortgage Options Your first home is one of the most significant — not to mention, expensive — purchases you’ll make in your life and if you need help affording it, there are more financing options than you might realize. There are a number of different loan products available to first time home buyers in NH beyond the standard conventional loan option, including: 7. Shopping With Just One Lender If you’re currently thinking, “I don’t need to shop lenders, I’ll just get a loan through my bank,” you might want to reconsider. Although it is possible to secure a home loan through bank, you could stand to lose thousands of dollars in the process. Different lenders offer different mortgage interest rates, closing costs, discounts and more; by applying to and comparing offers from multiple lenders, you can get a better sense of the market and figure out which one will give you the most favorable offer. According to industry best practice, you should get offers from 4–5 lenders before making your final decision. Note: If you’re worried about having multiple inquiries on your credit report as a result of shopping lenders, fear not: FICO allows for multiple inquiries from lenders within a 30-day period, so your credit score won’t be affected. 8. Not Working With a Mortgage Broker With all of the various loan and lender options available to you and no prior experience with any of them, it can easily feel as though you’re in over your head. Rather than try to swim to shore on your own, look to a mortgage broker to pull you out of the deep. A truly qualified broker will bring years of experience to the table and, with that, an extensive knowledge of available mortgage products, relationships with a network of lenders, a comprehensive understanding of the loan application and completion process and the ability to help you meet all of your unique needs. Therefore, before settling on a loan type or a lender, be sure to team up with a mortgage broker. 9. Not Getting Pre-Qualified You’ve figured out how much money you can afford to invest in a home — now it’s time to figure out how much lenders can offer by applying for prequalification. Since prequalification isn’t a mandatory step of the home loan application process, many first time home buyers completely skip over it and lose out on valuable insight in the process. You see, prequalification not only gives you a more concrete idea of how much money you can borrow — it also communicates to sellers that you’re a serious buyer, which could make your offer more competitive. The prequalification process is relatively straightforward and involves filling out a uniform residential loan application so loan underwriters can review your credit and financial information to determine whether you’re a good candidate for prequalification. Best of all, prequalification doesn’t lock you in to a single lender, so feel free to continue to shop lenders as you see fit. Even if you’re unable to get prequalified, going through the prequalification process is valuable because it can notify you of potential issues that could prevent you from securing a mortgage. 10. Letting Your Debt Run Rampant Speaking of potential issues that could prevent you from securing a mortgage, a high debt-to-income (DTI) ratio is one of them. Your DTI is calculated by taking your total monthly debt payments and dividing it by your gross monthly income and is a good indicator to lenders whether you’re able to manage your monthly debt payments effectively. A DTI ratio of 43% or higher is an automatic red flag to lenders; as a first time home buyer in NH, if you fall into that 43% or higher category, it’s in your best interest to do whatever possible to lower your DTI. Note that changes in your DTI can affect your loan eligibility even after you’ve received approval from a lender, so don’t make any major purchases shortly before closing. 11. Turning a Blind Eye to Your Credit Score If you’re like most people, you probably don’t pay much attention to your credit score until you absolutely need to — but, like your DTI, your credit score is incredibly important to lenders because it indicates whether you’re a credit risk. Your credit score also determines which loans you’re eligible for. For example, in order to qualify for an FHA loan (with a 3.5% down payment), you need a credit score of 580 or higher; a USDA loan requires a credit score of 640 or higher. The good news is, if your credit score is low, there are a few things you can do to ensure that it’s in top shape by the time you’re ready to apply for a loan: Pay your bills on time Maintain a low credit utilization ratio Keep unused credit cards open Apply for new credit on an as-needed basis Call to correct any errors on your credit report Monitor your credit closely 12. Not Making a Wish List Think of the last time you went to the grocery store without a shopping list. You might’ve felt a little overwhelmed, forced to aimlessly wander from aisle to aisle as you haphazardly tossed items into your cart based on memory alone. Once you arrived back at home, you probably realized you have picked up a few things you didn’t need, forgot a few that you really did and spent more money than you would have if you had just written a list in the first place. Forgetting to make a house hunting wish list is kind of like forgetting to write a grocery shopping list, except the stakes are much higher. Many first time home buyers in NH will start touring properties or even just looking at them online without any concrete sense of what they’re looking for — and with such a staggering amount of options to sift through, find themselves experiencing a serious case of home buyer burnout. That’s why, before ever setting foot into your first house or pulling up real estate listings on your computer, you need to put together a basic list of features you can’t live without in a home. For example, if your family of five has been renting a two-bedroom, one-bathroom apartment for the past few years, you’ll likely want to put a minimum of three bedrooms and two bathrooms on your wish list. If you exclusively work from home, your wish list should probably include some sort of office space. If you require a wheelchair for mobility, your wish list should include entryways fitted with wheelchair-accessible ramps. By creating a wish list and treating it as a guideline for your first home, you can significantly narrow your search, better preparing you for the actual house hunting process. 13. Waiting for the “Perfect” House There’s an old Italian proverb made famous by the French writer Voltaire that states that, “Perfect is the enemy of good.” Nowhere is this sentiment truer than when house hunting. Too often, first time home buyers will pass up on great properties because they don’t check off every single item on their wish list or because they blow some minor flaw out of proportion. Remember, walls can be painted and fixtures can be replaced, so there’s no sense in disqualifying a house simply because it doesn’t align with your ideal design aesthetic! Think of it this way: Rather than look for a home that’s objectively perfect, look for the home that’s perfect for you. 14. Settling for the Wrong House For every first time home buyer in NH who makes the mistake of holding out for the perfect house, there’s a buyer who’s making the mistake of settling for the wrong house. As we’ve mentioned already, the house hunting process can be long and challenging and can really take a toll on potential buyers. After seeing dozens of properties, it’s easy to understand why a first time home buyer might feel like giving in and buying the next one they tour. But settling for a house that isn’t the right fit could prevent it from ever really feeling like home — and could put you back in the buyers’ market years before you intended. 15. Prioritizing the House Over the Neighborhood Have you ever heard the phrase, “Can’t see the forest for the trees”? Prioritizing your search for the right house over your search for the right neighborhood is kind of like that. While it’s important to love the space you live in, as we’ve already mentioned, you have the power to change it — the same isn’t true for your neighborhood. And, considering that where you live will dictate things like how long your commute is, where your kids go to school, which activities and amenities are available to you and what kind of community you live in, it’s vital that you give your future neighborhood as much weight as your future home when making your final decision. 16. Skipping the Home Inspection So, you’ve found a home you absolutely love in a neighborhood that suits you perfectly. Congratulations are in order! You’ve come a long way, and the end is nearly in sight. At this point, you might feel tempted to save time and money by skipping the home inspection and making your final sprint toward the finish line, but it’d be a decision you’d likely come to regret. A home inspection shines a light on the good, the bad and the ugly of a house — safety hazards such as carbon monoxide leaks or mold, issues with plumbing, heating and cooling and other key systems, illegal additions or installations and so on — so you have a more complete picture of it before you close. Depending on the condition of the property, a home inspection might motivate you to rescind your offer entirely. Although this is a worst-case scenario, one that would send you back to square one, it’s far better to back out of an offer before closing than it is to discover that your first home is a lemon years down the line. 17. Putting Too Much Money Down … or Too Little Money If you have a sizable savings, it can be tempting to put 20% or more down to avoid having to pay PMI. And, although avoiding PMI can save you money, putting that much money down could deplete your savings, which could lead to trouble further down the line. But it’s also important not to skew too far in the opposite direction, either. Certain loans offer down payments as low as 3%, which is great for low-income first time buyers, but putting too little money down can also lead to higher monthly payment and interest costs. Therefore, it’s in your best interest to split the difference and aim for a down payment of around 5-10%. If you’re worried about not having enough money to make a substantial down payment, look into local down payment assistance programs such as those mentioned under Mistake #3 or seeing whether it’s possible to put money gifted to you by family and friends toward your down payment. — It’s OK to make a few mistakes in your quest to become a homeowner; everyone does. But if you’re aware of the most common mistakes first time home buyers make before you even begin the actual home buying process, you’ll save yourself a lot of time, money and stress. Need a helping hand to get started? Blue Water Mortgage is here for you. With over 150 years of collective experience, we’ve seen it all. Our team of capable, qualified mortgage brokers has the expertise to make your experience as a first time home buyer in NH as smooth and pleasant as possible. Contact us today to kickstart your home buying journey and to find out what Blue Water can do for you.