Most Costly Mistakes Made by Home Buyers
Pacific Beach Real Estate, Mission Beach Real Estate, San Diego County Real Estate
Chances are you would never go shopping for a computer without investigating all the brands on the market and knowing before-hand how much you can afford to spend. Likewise, most people don´t buy a car without test-driving several models. Yet, when it comes to buying a home, many people allow emotion to cloud reason. Buying a home is, without question, one of the most important decisions of your life and I want to help you avoid the ten most common and costly mistakes made by homebuyers. If you follow this advice, I believe it will not only save you time, it can also save you thousands of dollars on the purchase of your new home.
Mistake #1: Not Saving. Have you saved enough money to qualify for a mortgage and cover your downpayment? Ideally, you should have 20% of the purchase price set aside for a downpayment, but some lenders allow as little as 3.5% down. A small downpayment may preserve some of your savings for emergencies however, the lower your downpayment, the higher the loan amount you'll need to qualify for and the higher your monthly payment. Your downpayment size can also influence your interest rate and the type of loan you can obtain.
Another consideration is that if your downpayment is less than 20% you'll be required to purchase private mortgage insurance. Depending on the size of your loan, PMI can add hundreds to your monthly payment.
Mistake #2: Not getting your credit in order. A credit report details your borrowing history, including any late payments and bad debts, and typically includes a credit score. Lenders lean heavily on your credit report and credit score in determining whether, how much, and at what interest rate to lend for a home. Most require a minimum credit score of 620 for a home mortgage.
You are entitled to free copies of your credit reports (https://www.annualcreditreport.com/cra/index.jsp
) annually from the major credit bureaus: Equifax (http://www.equifax.com
) , Experian (http://www.experian.com
) and TransUnion (http://www.transunion.com
). Order and then pore over them to ensure the information is accurate and it is essential that you correct any errors before you buy. If your credit score isn't up to snuff the easiest way to improve it is to pay every bill on time and pay down high credit card debt. Your realtor or a professional mortgage consultant can often advise you as to how you can get credit problems cleared up or completely eliminated from your credit report before you apply for financing and make an offer on your home.
Mistake #3: Not taking into account your present homeowner or renter status.If you already own a home and must sell it before you buy a new one, it´s best to get a realtor to do a complete market analysis on your present home. This allows you to know how much you can sell your current home for before you make an offer on a new one. If you are leasing or renting the lease expiration date will give you a timetable for your purchase.
Mistake #4: Not working with a Professional Buyer´s Agent.The agent you are working with does not necessarily work for you. Unless your agent is working as your buyer representative, he or she may be working for the seller. Usually, a buyer agent´s service is free since their commission is paid by the seller or homebuilder. Be sure to select a real estate professional who has your best interest at heart. Extra tip: Try to select an agent who has earned the national "Accredited Buyer´s Representative" (ABR) designation. These are agents who have extensive experience and training in specifically representing buyers.
Mistake #5: Not getting pre-qualified or pre-approved for a loan before you search for a home. Getting pre-qualified by a professional lender will let you know in advance how much mortgage you can afford. Generally, you can afford a home priced 2 to 3 times your gross income. Remember to consider the costs every homeowner must cover: property taxes, insurance, maintenance, utilities, and community association fees, if applicable, as well as costs specific to your family, such as day care if you plan to have children. Start gathering the paperwork your lender needs. Most want to see W-2 forms verifying your employment and income, copies of pay stubs, and two to four months of banking statements. If you're self-employed, you'll need your current profit and loss statement, a current balance sheet, and personal and business income tax returns for the previous two years.
Then you will need to consider your financing options. The longer the loan, the smaller your monthly payment. Fixed-rate mortgages offer payment certainty; an adjustable-rate mortgage offers a lower monthly payment. However, an adjustable-rate mortgage may adjust dramatically. Be sure to calculate your affordability at both the lowest and highest possible ARM rate.
Getting pre-qualified/approved in advance allows you to make an offer on your home with confidence that funding is available. Furthermore, most good agents and informed sellers will not consider your offer to purchase without having been presented with a pre-qual/approval letter from a lender.
Mistake #6: Not making a home wish list. Be honest about which features you must have and which you'd like to have. Handicap accessibility for an aging parent or special needs child is a must while granite countertops and stainless steel appliances are in the bonus category. Come up with your top “must-haves” and also your “wants” to help you focus your search and make a logical, rather than emotional, choice when home shopping. Likewise, make a short list of your top community priorities, such as commute time, schools, and recreational facilities. Ask your agent to then help you to the target neighborhoods based on your priorities.
Mistake #7: Not requesting a market analysis of the home in comparison to similar homes in the neighborhood from your realtor before making an offer. A home is not just a place to live-it´s an investment in your future. View several homes before you make an offer so you know what´s on the market. Be certain you´re making a wise investment.
Mistake #8. Not planning for the purchase offer in advance.
Discuss with your agent in advance how the offer process will work after you have decided on a home. There are a few critical steps which I recommend:
a. Ask questions. Ask your agent for information to help you understand the seller’s financial position and motivation. Are they facing foreclosure or a short sale? Have they already purchased a home or relocated which may make them eager to accept a lower price to avoid paying two mortgages? Has the home been on the market for a long time or was it just listed? Have there been other offers? If so, why did they fall through? Guess what…the more signs that sellers are eager to sell, the lower your offer can reasonably go.
b. Work back from a final price to determine your initial offer. Know in advance the most you're willing to pay and the home’s market value. Then with your agent, work back from that information to determine your initial offer which can set the tone for the entire negotiation. An offer too low may offend sellers emotionally invested in the sale price; an offer too high may lead you to spend more than necessary to close the sale.
c. Avoid contingencies. Sellers favor offers that leave little to chance. Keep your offer free of complicated contingencies such as making the purchase conditional on the sale of your current home. You do however, want to retain contingencies for appraisal, loan approval, home inspection, and disclosure checks.
d. Remain unemotional. Buying a home is a business transaction and treating it as such helps you save money. Consider any movement by the sellers, however slight, as a sign of interest, and keep negotiating. Also, each time you make a concession, ask for one in return. If the sellers ask you to boost your price then ask them to contribute to closing costs or pay for a home warranty. If sellers won't budge, make it clear you're willing to walk away; they may get nervous and accept your offer. Also, once a term has been agreed-upon do not try to go back and revisit that specific term again.
e. Don't let competition change your plan. Great homes and those competitively priced can draw multiple offers in any market. Don't let competition propel you to go beyond your predetermined price or agree to concessions (e.g., waiving an inspection) that are not in your best interest.
Mistake #9: Not negotiating with the owner to provide a home warranty. A home warranty can save you thousands of dollars in repairs and often be obtained for as little as $300.00 for a year. A typical warranty covers the electrical, plumbing, heating and air conditioning systems as well as major home appliances. Always request one in your offer to purchase.
Mistake #10: Not inspecting a home before you buy it. Hire a professional to inspect every aspect of the home thoroughly. This can save you many thousands of dollars in costly repairs and hundreds of headaches in the future. A thorough inspection can also allow you to negotiate for any repairs prior to closing.