Home Buying 101: Mistakes to Avoid
After a number of fits and starts over the past 18 months, the housing market is poised to show improvement this spring. The combination of underlying strength in the labor market, affordable mortgage rates and the reduction in FHA borrowing requirements and costs is expected to bring more first time homebuyers into the market. Additionally, many buyers who went through foreclosures, bankruptcies or short sales during the downturn now have repaired their credit enough to qualify to buy a home again. RealtyTrac predicts that about half of the 7.3 million who lost their homes to foreclosure or short sales from 2007 through the end of 2014, will return to the market and buy a house. In this year alone, there could be at least 250,000 of these so-called “Boomerang Buyers”, followed by another million or so in the subsequent seven years.
If you are ready to jump into the market, take care to avoid these common home buying mistakes:
1. Not running the numbers: It’s important to understand how much home you can afford to buy and whether home ownership might preclude you from addressing other important financial issues in your life. Use this great rent vs. buy calculator from the New York Times — renting might still be the better deal in your area. And don’t forget to add in a line item for ongoing upkeep. A good rule of thumb is to include one percent of your purchase price as an annual budget amount for repair and maintenance.
2. Not correcting credit report mistakes: If you have not done so in a while, go to AnnualCreditReport.com and request your free copy. It’s important to correct any errors on the report before you start the mortgage process.
3. Waiting too long to get pre-approved for a mortgage: The mortgage process requires plenty of time (up to 90 days in some cases), patience and follow-through. Start early, compare apples to apples and ask the broker to itemize the total costs that you should expect to pay.
4. Going it alone: As much as everyone complains about realtors, it’s tough to go through the home buying process alone. In some markets, buyers’ brokers are available, but the most important qualities in brokers are: honesty, experience, good connections with other agents; and good referrals from buyers like you. Remember that most agents represent the seller, not the buyer.
5. Getting too attached to a property: As my mother, a realtor, likes to say: “A house is like a man…there’s more than one for you in the world!” Some buyers get so attached to a particular home, that they end up blowing their budget or becoming disheartened if they lose the property. Buck up—there are lots of properties out there!
6. Failing to include a contingency clause in the contract/having too many contingencies. One of the most common contingency clauses is one that is related to securing a mortgage. The clause protects you if the loan falls through or the appraisal price comes in much higher than the purchase price. Should one of these events occur, the seller would refund your down payment. Without the clause, you can lose that money and still be obligated to buy the house. On the other hand, if your offer is loaded up with contingencies, you may spook the seller.
7. Not hiring a real estate attorney: This is a major transaction, so don’t cheap out when it comes to legal fees. Even if your mortgage company provides a lawyer, hire your own to draft all of the necessary documents and to ensure that your interests are being represented at every step of the process.
8. Blowing off the home inspection: Think you’ve found your dream house? Maybe, but unless you have an engineer walk through the premises with you, you might be buying a new roof in a couple of years. Don’t get freaked out if a problem arises during the inspection–remember that it can often be solved with a simple adjustment in price.
9. Assuming foreclosures are great deals: The pace of foreclosure sales is slowing down, but in case you run across what you think is a gem, remember that the property likely has been unoccupied for a while and could need major repairs.
10. Buying a home based on a “The Best/Worst Places to Retire” list: These compilations provide great headlines and may even help guide you, but they can’t possibly take into account the details of your personal situation.