Whether you are buying your first home or you are a seasoned home buyer, there are common mistakes that you can make during the process that you could avoid with if you educate yourself. Buying a home involves many steps and lots of decision-making, so it is easy to take a misstep along the way.
Here are some common home buying mistakes to avoid.
1. Not Getting Pre-Approved
Getting pre-approved by a local lender is a huge step. The last thing you want is to find a dream home without approval on a loan. Get pre-approved to save you, your family and your lender a ton of time. While this step confirms how much money the bank is willing to loan you, it also shows to home sellers that you are a serious buyer. The market is especially competitive for buyers right now, and a pre-approval letter will make you a more qualified buyer than competitors who may not have gotten pre-approval.
2. Buying a House You Cannot Afford
If something does not feel right, pay attention to those signs. Buying a home may be your biggest purchase ever in the course of your life. So if you don’t have a good feeling, then this intuition can be the greatest indicator that you are walking down a path you should turn back from.
It’s not easy to admit, but you will know deep down if the home you’re buying is too much. If you have doubts or misgivings, you will be doing yourself a favor by paying attention to them, even if it means passing on the home you had your heart set on. When buying a home, buying less than what you can afford is actually the smarter way to go. There may be tons of expenses you haven’t accounted for. You also probably don’t need all that space you thought you did.
3. Not Shopping for Mortgages
Many home shoppers use a lender who was recommended by a friend, family member or real estate agent, and they do not bother shopping around. Keep in mind that not every mortgage is the same. Shopping around will help you find the best deal for you and your housing needs. Think of it like buying a car where everything can be negotiable and you have to work in your best interest.
Although it is not required, most home shoppers end up getting a loan through the lender who pre-approved them. So it is a good idea to do your research with lenders early, at the pre-approval stage.
4. Buying in the Wrong Market
In real estate, there are two basic types of extreme markets: a buyer’s market and a seller’s market. In a buyer’s market, there are a variety of homes available for you to view and consider, meaning sellers are more likely to try to entice you with competitive prices and other incentives.
In a seller’s market, there are not as many homes up for sale, so buyers have to compete against one another to win bidding wars. This often results in paying over the asking price, which increases monthly mortgage payments and possibly even your down payment.
The best time to buy a home is in a buyer’s market. Sometimes, waiting for a season or two to buy will save you a significant amount of money and keep you from the stress and uncertainty of buying in a seller’s market.
5. Ignoring the Neighborhood
The location of a property is more than simply its stores and cafes. It would be best to think about the items you have at your disposal today what you would like to have in the future.
For example, suppose you have or are planning to have children. In that case, you should pay attention to the overall quality of the school system and the immediate recreational facilities, such as parks, playgrounds, and bus stops. If convenience is important to you, assess whether the property is conveniently located near public transportation, workplace, police station, hospitals and other necessary features you need in a neighborhood.
6. Not Understanding the Full Cost of Home Ownership
As a first-time home buyer, you are probably accustomed to the monthly cost of renting, which usually includes your rent payment, some of the utilities and your internet and cable bills. As a homeowner, you will be responsible for additional monthly costs that may have been covered by your landlord. Some of these costs include mortgage insurance, closing costs (often 3-4% of the price of the house that you will have to pay out-of-pocket on top of the down payment), title insurance, home inspection, appraisal fees, and moving expenses. That also includes things like sewer and garbage bills, monthly HOAs and the cost of lawn care.
Additional or increased costs may include:
- Your monthly payment for rent or a mortgage
- Property taxes
- Homeowners insurance
- Repairs and maintenance
- Homeowners Association (HOA) or condo fees
7. Spending Your Entire Budget
When a lender provides a pre-approval or pre-qualification letter, they will typically include the maximum amount they will lend you. But just because a lender is willing to let you borrow a certain amount does not mean you should spend it.
There are rules lenders follow to determine what you can borrow, such as the 28/36 rule, which says that a homeowner should spend no more than 28 percent of their gross monthly income on housing expenses, and no more than 36 percent on overall debt. But buying a home also comes with significant upfront costs, such as the down payment and closing costs, so you will want to make sure you have savings left for emergencies and other unexpected expenses after you close on your new home.
8. Emptying Your Savings for the Down Payment
A good rule of thumb is to have three to six months’ worth of expenses saved after making your down payment and paying other costs. This allows you to make any necessary repairs that may come up and to have a decent emergency fund.
9. Not Hiring an Agent
When buying a house, you may be tempted to save yourself some money by opting to go without a buyer’s agent. But for most people, that is a mistake. Unless you are well-versed in real estate law and property negotiations, you should have a good real estate agent.
After all, their fees are typically covered in your mortgage as part of the closing costs of the home, meaning you do not have to pay for them out of pocket.
But that is not the only reason you should have a realtor when buying a property. A buyer’s agent provides many benefits, such as:
- Networking with other realtors and property owners to find new and upcoming listings
- Having access to property listing tools such as the MLS
- Negotiating offers and conditions
- Helping you to find a broker, lawyer, or other professional you may need
- Handling important paperwork
- Ensuring you are aware of any important disclosures
An experienced buyer’s agent will work for you, helping you to find the perfect property not only for your lifestyle and budget but based on what’s available. They will take on the heavy lifting when it comes to paperwork, showings, and communicating with sellers and their agents, giving you a chance to focus on more important things.
10. Making a Lowball Offer
Making a lowball offer on a property is a rookie mistake that many seasoned and first-time homebuyers make. It offends home sellers, starting negotiations off on the wrong foot and sometimes even ending them altogether. Lowball offers are rarely accepted and do not provide much benefit to either party.
Sellers often spend a lot of time working with their real estate agents to price their homes based on the market, comparable homes in the neighborhood, and the state of the property. Just like you need to work within a budget for your home purchase, they need to make a certain amount of money from their home sale.
When making an offer on a home, listen to your real estate agent and offer a fair price. Being respectful and considering the true value of a home in your offers makes them more likely to be accepted.
11. Not Including the Right Conditions in an Offer
Conditions protect you so that you do not commit to purchasing a house before you know you have financing and a home inspection in place. And they keep you from walking in on moving day only to find out the appliances weren’t included in your purchase price.
Base your conditions on the property you are interested in and make sure they are fair and within reason. Add too many unreasonable conditions to an offer and you risk getting rejected by a seller.
Your real estate agent will help you to figure out which conditions to put in your offer, but the most common include:
- Home inspection
- The sale of your current home
- Closing date
- Fixtures and appliances
- Who pays which closing costs
You can also request an appraisal or survey, repairs, or specific cleaning tasks.
12. Forgoing the Inspection
Before committing to buy a home, you must be confident that the property you are buying is well-maintained. If you sign a contract without understanding the entire scope of work, you may be disappointed if problems arise later that were not indicated or foreseen by the contract specifications.
Therefore, it is imperative to get the house checked by a competent inspector prior to loan approval by a bank, as lenders would also need this before approving your loan. While it is true that choosing to bypass this step will save you energy and cost, it will only last for a short while. Failing to take these measures can cost you considerably more than your mortgage payment, all for no apparent gain.
13. Applying for Credit Before the Sale is Final
Taking on new credit before the closing process is over is a huge no-no. Your mortgage officer will be monitoring your credit score from the start of the closing process until the deal is completed. By taking on new debt, you risk your mortgage approval and could even lose out on the deal.
Is Your Escrow Company Looking Out for You?
Buying a house is meant to be an exciting and enjoyable experience. With such a major personal and financial commitment on the horizon, you want to do everything you can to avoid buyer’s remorse after you sign the dotted line.
With Citrus Heritage Escrow by your side, you can rest assured that when you receive your settlement check, you have gained the maximum benefit from your home sale or purchase.
Call us today with any questions or concerns. Our professional Escrow Agents will help you through this exciting yet confusing process. (951) 335-7200