Do you want to overpay for your home? Would you like to get stuck in a mortgage that is all wrong for you? How about swinging and missing on an opportunity to purchase your dream home? Of course the answer to these questions is a "no", but these are the results of the common home buying mistakes buyers make.
Buying a home is something that you may do only a handful of times in your life. Don’t learn by trial and error - it’ll cost you too much. Instead take it from a seasoned professional on which pitfalls of home-buying you should avoid. Here are the top 12 home buying mistakes to avoid.
#1: Not Getting Pre-approved
Imagine the stars align and you find the perfect house that fits perfectly within your budget. You write an offer over asking, and maybe it’s even the highest offer, but the sellers go with another buyer. Why?
The accepted offer included a pre-approval letter (not just pre-qualified). A fully underwritten pre-approval letter shows the seller and seller’s agent that they are dealing with a serious buyer and that the deal will move faster because a large part of the paperwork process has already been taken care of. Getting pre-approved in a rapidly paced market like the Peninsula is a key element in making a strong offer.
#2: Getting The Wrong Mortgage
Many loans like ARM, FHA, VA, and USDA are designed to help you buy a house, no matter what your financial situation is. It’s best to speak with a few different mortgage professionals before you decide on which mortgage product you will go with. It’s important to understand the actual costs involved and how they will affect you for years to come. Some products may end up costing you tens of thousands of dollars in fees and interest.
#3: Not Saving Enough for a Down Payment
One of the worst home-buying mistakes you can make is not saving enough for a down payment. Although it is possible at times to put 5% or even 3% down, anything less than 10% is way too low! The extra fees and interest charged in the types of mortgages that allow these smaller down payments will bury you and you’ll feel like you’re never going to pay off your mortgage.
So how much should you save for a down payment? As much as you can, but set a goal for 20% of the purchase price. With 20% down you will avoid having to pay PMI (private mortgage insurance) which is an insurance for your lender if you were unable to make your mortgage payments.
#4: Not Using a Real Estate Agent
It is important to not only use an agent but to use a local expert. Buyers who decide to go it alone without the use of a real estate professional tend to overpay. With so much information available online to the public, buyers feel they have all the information they need to make an offer on a home. What agents understand are the intangibles that don’t show up on a spreadsheet or can’t be reflected in an online algorithm.
An experienced local real estate expert will help you to:
- Find the latest homes available through the MLS and their agent network
- Give insight about neighborhoods and specific homes and WHY they sold at that price
- Negotiate the best possible price for you
Let’s not forget that buyers’ agents are paid out of the seller's proceeds. Buyers will essentially get this wealth of knowledge and expertise for free!
#5: Assuming The List Price is The Sale Price
Buyers often look at the list price and imagine the home will sell for that price. What you need to consider is how homes are priced. Sellers and their agents will approach the listing price with different marketing strategies in mind. Some homes are priced to sell exactly at listing price, others are priced purposely low for the area so as to attract more interest and get the home maximum exposure.
For this reason, it’s important for buyers to look at homes below what their pre-approval amount is and give themselves room to negotiate up.
#6: Holding out for the "perfect" home
Waiting to find the perfect home that checks off every single box is most likely not going to happen. Nothing in this life is perfect and if that’s your objective, you may be looking for a long time. Instead, looking for a home that has about 80% of what you want is much more attainable. Hopefully, as you grow into your new home you can make the changes that will close that 20% gap a bit.
#7: Passing on a Great Home Early in Your Search
This happens all too often. A buyer may come across a home they absolutely love and instead of making an offer they opt to keep looking to see what else is out there. It is very possible that you may find the home you want to buy in the beginning of your search.
It’s important to clearly understand what type of home and what neighborhood you want so when you find it, you can pounce on it. Don’t let it be “the home that got away.”
#8: Buying Without a Home Inspection
Spending a few hundred bucks on inspections could possibly save you hundreds of thousands of dollars in the long run. Uncovering issues with the property’s condition can be leveraged in negotiations to help get the buyer a lower price. Not to mention, it gives the buyer a clear picture of what it is they are truly buying and taking away any unfortunate surprises down the road.
Typically in a fast-paced market like the SF Bay Area, sellers will provide inspection reports as part of their disclosures. However, buyers are always encouraged to conduct their own inspections to satisfy themselves to the condition of the property.
#9: Taking on Credit While Closing
Buying a house with debt is not a very smart thing to do and taking on new debt while you are in the process of purchasing a home is just as bad. Any changes to your credit score or debt-to-income ratio may cause a delay in the closing process. At worst, it could potentially disqualify you from a loan altogether. Make sure you are up-front about all of your financial obligations to your lender and hold off on buying that boat or quitting your job until after you close that escrow!
#10: Not Walking Away From a Bad Deal
Buying a home can be scary at times but overall it should be exciting for the buyer. If you find yourself doubting or second guessing a property more than you are looking forward to it, you may want to consider passing on it. Your Realtor should be able to give you perspective on the home and may be able to substantiate your concerns about the home.
#11: Forgetting About Closing Costs and Moving Expenses
Another common mistake buyers make is focusing so much on saving for a down payment, they forget about closing costs and moving expenses. Closing costs may include loan origination fees, escrow fees, property taxes, insurance, the appraisal fee, and legal fees.
Home buyers in California can typically expect to pay closing costs between 2% and 3% of their home’s purchase price, depending on price, discount points, transfer taxes and other factors. And unless you plan on moving everything yourself, moving fees are generally around $1,000-$2,500 for a three-bedroom home.
#12: Not thinking about resale value
Most buyers are focused on how much a home will cost them, how many bedrooms and bathrooms it will have, or if there’s an extra room for their Star Wars memorabilia (some do). Buyers should also be thinking about the home’s resale value.
At some point in the future you will eventually sell the home so it’s important to pay attention to the health of the neighborhood. Are the local businesses thriving, are the parks well-maintained, do the schools have high ratings? Most things with a house can be fixed but you can’t change the location. Buy LOCATION!
Buying More House Than You Need or Can Afford
A mortgage is not the only payment you need to make. Consider costs of insurance, HOA fees, property taxes and living expenses.
Not Seeing The True Potential of a Home
Don’t get distracted by easily replaceable ugly carpets or old kitchen cabinets. Focus on layout and buy something with good bones.
Making a Lowball Offer
You don’t want to offend sellers with low ball offers. An experienced agent with local knowledge should help guide you as to price.
Everything That Glitters Ain’t Gold
Don’t focus on the shiny things. Buyers should be looking at the quality of materials, the quality of construction and the level of finish used.
Overlooking Important Details
Pay attention to the big ticket items such as the roof, furnace, and electrical system. If these problems exist, repair/replacement could be costly.
Buying with confidence is priceless. Educating yourself on the process and working with a knowledgeable Realtor who can expertly guide you will go a long way. Now sit back, take a breath, and get ready to enjoy what you’ve worked so long to achieve….
Congratulations, you’re about to buy a house!!
Post by Vincent Ergas
IMPORTANT NOTE: I have not and will not verify or investigate the information supplied by third parties.