We’re only human. But most of the time, making a big mistake is going to cost you more than a little slipup. And with close to 6 million homes sold in 2015, according to National Association of Realtors and U.S. Census Bureau data, it’s safe to say there’s a pretty big margin for error leading up to closing day. Whether it’s your first go-round, or your second, third, or even fourth time buying a home, you’ve probably been given some misinformation about the buying process.
5 home buying mistakes most people are making (plus 2 bonus tips)
We’re here to make home buying easy. We can set the record straight and save you the headache.
These are the most common (and most easily avoided) mistakes we see among our buyers:
Go big or go home, but not when it comes to getting a home loan. If you start looking at houses without understanding what you can and want to afford — factoring in the possibility that your job could change in the future — you might fall in love with a house that’s above your price range. There’s a quick fix most people forget: Meet with your mortgage lender first to get prequalified. Even better, get a conditional approval to nail down your price range and show a potential seller you’re serious about buying.
“When you’re ready to buy, don’t shop empty-handed,” Cedric Stewart, team leader of Entourage RG at Keller Williams and 13-year veteran residential and commercial sales consultant, says. “Visiting a few open houses is great because it helps you get a feel for what homes in the market are like. However, falling for a home before you’ve been prequalified puts you in a bad position, especially in a hot market.” Where houses sell in a week or less, Stewart says, your dream home won’t wait for you to find all your docs and get prequalified.
Forgetting about your credit score.
Have you checked your credit score lately? We’re all eligible for a free credit report each year, but many people don’t take advantage of this real-life perk. Your credit score can directly impact your mortgage loan rates, for better or worse. Any errors on your credit report should be corrected immediately by contacting a credit bureau, so that nothing can hold you back from a good interest rate. To keep bills on time, and to keep your credit score up, consider tracking your income, bills, and expenses with the HomeBudget app.
Forgetting about the taxes.
You’ve probably heard that it’s ideal to put 20 percent down on a house, but nowadays, most loan officers are making recommendations on a case-by-case basis. Since your finances are totally unique, there may be different tax benefits to be had for putting down more or less money on a house.
Chat with your accountant and communicate with your mortgage lender to clarify the tax implications before you settle on a down payment amount.
Factoring in taxes and down payment matters — it can influence how much you can afford to bid on a house. “This is not 2009,” Stewart says. “Homebuyers shouldn’t expect to get a steal on any and every home for sale. Well-priced properties in good shape don’t last long in most markets and often have multiple offers.” According to Stewart, bidding below asking price in these situations is a recipe for disaster.
Forgetting about the APR.
Here’s yet another thing most people don’t know about the home loan process. Every mortgage lender can charge different fees, which is why it helps to shop around. On top of that, you’ll also be seeing an APR (annual percentage rate) that’s probably going to be higher than the first interest rate you saw on your loan. This APR includes your mortgage interest rate, plus a few other charges like loan points and fees. Comparing APR to APR (apples to apples) among lenders is the most effective way to compare the numbers on your loan.
Buying a house doesn’t have to be hard. Getting prequalified online can be easy when you use a free app.
Picking the wrong people to work with.
You might have gathered that choosing the right mortgage lender is kind of a big deal. A good lender can save you money and make the whole home buying process a lot smoother. Comparing lender fees and APRs helps, along with asking about lender credits that may pay out several thousand dollars at closing. Sticking with a lender who does in-house processing, underwriting, closing, and funding keeps everything in one place.
Once your lender helps you get that dream home under contract, the next most important step is to order any/all necessary inspections, Marc Carver, Principal at The Carver Property Group, a technology-based, luxury real estate company, says. “Start with the initial property inspection. The initial property inspection is the first line of defense for the homebuyer. This inspection could uncover any potential problems (minor and major) that may require additional, specialized inspection services. For instance, cracks in a foundation may be serious enough for the property inspector to recommend a structural engineering inspection.” Carver saw this play out recently with his first-time buyer clients, and the concern was great enough to terminate the contract.
Picking the wrong type of loan.
If you feel good about your lender, then letting them point you in the direction of the right loan should be easy. A good loan officer can find you a loan that meets this simple rule of thumb: Your monthly mortgage payment should never exceed a third of your monthly take-home pay.
Nailing your ideal loan doesn’t necessarily guarantee smooth sailing, however. Carver explains that buyers also need to be aware of — due to the ultra-competitive nature of some markets and price points — the prevalence of multiple offer situations. “This can often lead to buyers bidding up the price of a property beyond the subsequent appraised value. With cash buyers, this is not so much a problem as their purchase is not dependent on financing. However, in the case of most first-time buyers that are utilizing a mortgage for the purchase, the lender will require an appraisal. The amount approved for the final purchase will have to be in line with the appraised value,” Carver says. If it isn’t, then the buyers’ loan may be denied. And that dream home suddenly becomes unattainable.
Thankfully, this is why loan officers exist — to help you navigate the many different mortgage loan types and potential bumps in the road.
Making big life changes during the financing process.
Life throws its share of curveballs, but when you’re trying to get a home loan with a low interest rate, it helps to stay put and hold off on any big decisions. Quitting or changing your job, buying a big-ticket item like a car, cosigning on another loan, charging up your credit, and switching bank accounts can all impact your home loan approval process. Up until closing day, it’s better not to mess with a good thing.
Once you get the keys to your new house, though, don’t let that complacency sink in. “Many people buy and have a list in mind of things that they would like to change, update, or upgrade, but after they get into the home and get ‘used to’ it, they forget that list. Then when they go to sell, those same things become impediments to the next buyer,” Christy Murdock Edgar of Writing Real Estate says. Edgar recommends making a list of all the things you don’t love about the house right after closing or during the final walkthrough. Then, refer back to it periodically to continue adding value to your home. Edgar says, “This will make it much easier on you when it comes time to sell.”
For educational purposes only. Please contact your qualified professional for specific guidance.
Sources are deemed reliable but not guaranteed.