Buying a home – especially buying your first home – is a big step. You may think you thoroughly understand the process, but even smart and experienced buyers make mistakes when buying a home. Here are the most common home buying mistakes, and how to avoid them.
Not Doing Your Research – It’s important to do market research not just on the home itself and the comps (comparable sales) in the area, but also in the neighborhood. No matter how beautiful it is, your home is situated in a particular neighborhood. If that neighborhood is bad – or missing amenities you enjoy – this is going to affect your experience of your new home. So, if you have kids (or might have them in the future), make sure to check on the schools in the area. If you enjoy eating out and socializing, make sure you know what kind of restaurants and bars are nearby. And everyone enjoys not getting mugged or burglarized, so check with the local police station regarding crime statistics in the area. Real estate blogs and sites like Zillow and Trulia can also be good sources of neighborhood information.
Buying More House Than You Can Afford – It happens all-too-often: you’ve told your realtor what you can afford, and they come back to you with a house that’s just outside your price range – but it’s SO perfect! It’s tempting to stretch your carefully-considered boundaries, and to start rationalizing, “It will be hard at first, but I’ll probably get a raise next year…” Remember, just because a lender will give you a loan doesn’t mean you should borrow the maximum amount they allow. Only you know your priorities and sometimes it does make sense to rethink how much you can afford. But don’t get swept away by emotions and buy a house that’s going to make it impossible to take a family vacation for the next ten years – or more importantly, leave you vulnerable to the financial shocks that happen to everyone from time to time.
Failing to Get Your Financial Ducks in a Row – Before you seriously start hunting for houses, you need to have a realistic idea of what you can afford and whether or not you can qualify for a loan. Ideally, you should create a long-term budget that includes all your living expenses as well as all the projected expenses of your new home. Don’t forget to include not just your mortgage, but your taxes, insurance and PMI (private mortgage insurance). You should also check your credit report. And then, if everything looks good, you should get pre-approved by a lender. While some people only seek a letter of pre-qualification, a pre-approval letter is preferred by most sellers and will signal to them that you are a serious buyer.
Tipping Your Hand – Sometimes you see a house and you just fall in love. It happens. But try not to let the seller or their agent see how you feel! Obviously, if you make an offer on a house, they know you like it. But if they sense that you love the house, they’re going to think you’re willing to pay top dollar for it and will be much less likely to negotiate on price. Play it cool, and keep in mind that even if this house seems perfect for you, there are other great houses out there. You don’t HAVE to have this one.
Failing to Put Contingency Clauses in Your Purchase Offer – A good buyer’s agent will make sure your interests are protected. You want to be able to back out of the deal if there are substantial issues with the property – that’s why you need a home inspection clause. And you also want to be able to back out – without penalty – if for some reason you are unable to obtain financing (mortgage contingency). If you cannot close the deal without selling an existing home, then you may need to include a home sale clause as well.
Not Getting a Professional Inspection – Maybe the house is new construction, or maybe you think you’re savvy enough to spot all the potential issues yourself. Neither of these is a reason to skip a professional home inspection. Home inspections are not very expensive compared to the cost of the home – and the potential costs of fixing major defects. Home inspections can sometimes be had for under $200 (though the national average is $325). They are important even in the case of brand-new construction. Just because all the home’s systems are new does not mean that they were installed correctly. Having the home inspected by a professional is something every homebuyer should do.
Not Accounting for All the Costs – There are a lot of costs associated with buying a home in addition to the actual price of the home. A good buyer’s agent will make sure you’re aware of these ahead of time and make sure you have the funds needed to close the sale. If you’re not working without an agent – or your agent isn’t as on-the-ball as they should be – you may be in for a nasty surprise once you finally see the Estimated Closing Statement.
Buying the Wrong House – Looking for a home can be exhausting. And especially in a seller’s market, you may end up putting in offers on homes you don’t get. Sometimes this happens over and over, which obviously can be very frustrating. As a result, sometimes buyers end up putting in offers on homes that aren’t really right for them, just because they’re tired of looking and want to buy something. This is a mistake. While holding out for the “perfect” home is unrealistic, you need to find one that you’re ultimately going to enjoy living in. Don’t rush. Take a break in your search if you’re becoming frustrated, but make sure any home you’re bidding on is going to be a good place for you and your family to live.
Being Close-Minded – The other side of the settling-for-too-little coin is expecting-too-much. It’s fine to have a “wish list” of all the things you want your new home to have. But unless you’re building a home from scratch, you’re unlikely to find everything you want. Don’t cross a home off your list because it doesn’t have all the features you wanted. Keep the big picture in mind, and remember that you may be able to add a swimming pool, or a skylight, or whatever feature you thought you had to have, at some point after you own the house.
Not Having a Buyer’s Agent – You are not required to have an agent to purchase a home. But unless you are a real estate professional, it’s probably a good idea. The agent’s commission will be paid by the seller (no out-of-pocket cost to you), and a good buyer’s agent will look out for your interests every step of the way. They’ll also be familiar not only with all the usual procedures involved in a home purchase (home inspection, appraisal, etc.) but also with the mountains of paperwork.
A good buyer’s agent will be invaluable during the escrow process, but they will probably be a huge help well before that. With access to the MLS (Multiple Listing Service), they are going to greatly expand the pool of homes that you have access to. Their knowledge of the local real estate market is also going to help you find good deals and make appropriate offers.
Counting on Appreciation – While homes in many major metropolitan areas have risen substantially over the last decade, we should have all learned from the collapse in home prices in 2007-08 that home appreciation is not inevitable. Even in a generally rising market, there are no guarantees that your particular area or home will appreciate in value. While you can’t control the real estate market, you can (and should) carefully consider the general marketability of your home. Obviously, it appealed to you – but does it have features that appeal to the market in general? If you needed to sell it in a couple of years, would you likely be able to recoup your money?
There is no way to control every aspect of the home-buying process, and at the end of the day, you probably won’t handle everything perfectly. But by preparing, you can avoid the worst of the mistakes and end up purchasing a home without regrets.