Buying a home? Avoid These Common Buyer Mistakes!
For most of us, buying a home is the single biggest financial transaction we will make. It’s exciting and fulfilling, but it can also be overwhelming, even downright frightening.
The pitfalls are many but fortunately most are commonplace and we can tell you how to avoid them. Real estate agents, bankers, lawyers, accountants and other experts in the real-estate game each have their own lists of the worst mistakes a buyer can make.
Here’s a look at some of the common mistakes made by home buyers (especially first time buyers).
Mistake #1: Confused Buyers – Don’t start looking before you figure out what you are looking for!
There may be a big difference between the kind of home you want and the kind of home you need. To avoid wasting time, causing yourself and your real-estate agent frustration, and running the risk of regretting your choice later, realize that it’s important to satisfy the needs first and the wants last. In the long run, the greatest view in the world is not likely to make up for not having enough bedrooms.
Here’s an example of a checklist you could use to help clarify and identify your ideal home
Mistake #2: Shortsighted Buyers – Don’t forget to factor in your FUTURE NEEDS!
What will you need in 5 years, or 10? Try to estimate your future needs as well as your immediate needs. Buying a home now that’s big enough to accommodate a larger family, a home-based business or in-laws joining the family may be a better financial move than having to find a larger place in just a few years.
Mistake #3: Unrealistic Buyers – Figure out how much you can afford to pay BEFORE you start looking.
Determine what you can realistically afford to pay for a home, remembering that there is a myriad of costs that you probably haven’t even considered. (See our Special Report on Closing Costs). Factor in mortgage insurance, appraisal fees, inspection fees, transfer taxes, lawyer fees, provincial and federal taxes. Get financial advice from as many sources as possible.
Mistake #4: Unapproved Buyers – Get pre-qualified for a mortgage. Show me the money!
Many sellers want to know that you can really afford the home before they will take your offer seriously. You can go through the application process for a mortgage and have financing in place before you even start looking.
Here are four important advantages you gain by getting pre-approved:
1. Pre-qualification letters are not all equal. Getting a pre-qualification letter is easy. You just call a mortgage broker or lender, provide some basic financial information, then wait a few minutes for the letter to come through your fax machine. Getting a “pre-qual” from a Web site is just as easy. Enter some information, click “submit” and voilà. A much better and more reliable way is rather than taking your word on faith, the lender should ask for documentation to confirm your employment, the source of your down payment and other aspects of your financial circumstances.
Granted, this is more time-consuming than the seemingly much easier way but the additional due diligence is exactly why ours carries more weight.
2. You’ll know how much money you can qualify to borrow. Most home buyers have a rough idea of how much they would feel comfortable paying every month on their mortgage. However, there’s no quick-and-dirty way to translate that monthly payment into a specific maximum mortgage amount because other factors — down payment percentage, mortgage insurance, property taxes, adjustable interest rates and so on — are part of the calculation. And, you might not be qualified to borrow as much as you think you should be able to borrow, depending on your income, your debts and your credit history.
3. You’ll have more leverage in negotiations with the seller. Sellers often prefer to negotiate with pre-approved buyers because the sellers know such buyers are financially qualified to obtain the financing they need to close the transaction. A pre-approval letter is an especially favorable point in a close multiple offer situation. And, you might feel more confident about making an offer with a pre-approval letter in hand and the knowledge that you’ll be able to obtain a mortgage.
4. Your real estate agent will work harder on your behalf. A pre-approval letter signals to your real estate agent that you’re a well-qualified buyer who is serious about purchasing a home. The increased likelihood of a closed sale — and a commission — will naturally motivate your agent to devote more time and energy to you. In fact, some agents won’t even show property to buyers who don’t have a pre-approval letter.
A few caveats: Pre-approval letters aren’t binding on the lender, and are subject to conditions such as documenting your income, an appraisal of the home you want to purchase and are time-sensitive. If your financial situation changes (e.g., you lose your job, buy or lease a car or run up credit-card bills), interest rates rise or a specified expiration date passes, the lender will review your situation and recalculate your maximum mortgage amount accordingly.
Mistake #5: Cash Poor Buyers – You may not be as cash poor as you think you are!
Consider every possible source of cash — do you have insurance policies or retirement saving plans that can be used for buying a home? Look into the rules thoroughly even if you think you aren’t eligible; your banker or your real estate agent may not be aware of all the loopholes either. While many retirement plans limit dipping in to first-time homebuyers, the definition of a first-time buyer may simply be someone who hasn’t owned a home in the past five years.
Mistake #6: Don’t let credit issues stand in your way!
Most lenders and loan officers have no idea how to analyze your credit to help you plan a way to get into a home should your credit have some “dents & dings”. In fact, research has shown that more than 80% of credit reports have errors on them. These can be fixed. In fact, there are ways to get past credit issues put behind your once and for all.
The first step is to find out what is on your credit report. Federal law says that you have a right to receive a free credit report every year from all three credit agencies: Experian, Trans Union and Equifax. Don’t go to those “free credit report” websites. They make their money by signing you up for credit monitoring and other services. The site set up by the credit agencies mandated by Federal Law is: www.AnnualCreditReport.com. Here you can request your free credit report from one, two or all three bureaus. If you want your credit score, you will be charged, but the credit report is free.
The second step to repair credit is to challenge any incorrect information. Incorrect information can be the name of the account, dates when it was opened or closed, limits, balances, payments