Biggest mistakes home buyers make when buying a home
My latest video talks about the Top 10 mistakes people make when buying a new home. Take a few minutes to watch this video and leave me a comment with other mistakes you have seen buyers make.
The number one biggest mistake people make when buying a new home is not getting pre-approved for a loan. Prequalify or preapproval means that you’ve spoken to a lender or mortgage individual and have given them information such as your income, expenses and tax returns, etc. and they’ve looked at your situation and have giving you some sort of guidelines as to the price of a home you can afford.
People are always looking online at real estate sites only to find out that they’re looking at something they cannot really afford. It’s really a good waste of time to be searching for something that you cannot even afford to buy. Get with your lender and find out your target price before you start looking and know exactly how much Home you can buy.
Number two. Shop for a loan. Home mortgages come in many different flavors and can come from many sources. Big box lenders such as Chase Bank, Wells Fargo or Bank of America are obvious sources but there are many other choices out there. Mortgage brokers typically work with 10-20 or even 50 different lenders and can work with you depending on your situation whether you have solid gold credit or poor credit, a bankruptcy, foreclosure or other past credit difficulties. Many of the big box lenders will not even look at you if you have any of these marks on your credit. Also consider contacting a credit union if you belong to one or can join one. They usually lend out their own money and can have better rates than a commercial lender.
Number three. Know your credit situation and FICO score before you talk to a lender. You may not be able to get the exact score but you can get a good approximation of what your FICO is. If you have had problems in the past with your credit or you’re score seems low, you should talk with credit repair specialist. You might be surprised that a paid off collection accounts still appears on your credit report or even an erroneous item from someone else could show up! You may only need some simple documentation to prove that these are no longer part of your credit history.
Number four. Not looking for a first time buyer or down payment assistance program. There are numerous programs that are available through cities, counties, states and the Federal Government that might help you make your down payment or ease the burden of coming up with the down payment money. I’ve got a separate video on this channel that goes into specific detail on this topic but you would be surprised at how many programs there are to get you down payment assistance or even a grant….which is free money that doesn’t need to be repaid.
Number five Understanding closing costs. Closing costs are fees that you will incur in addition to the purchase price of the home. Your REALTOR or closing agent will be able to help you calculate these costs which will include things like escrow fees, attorney fees, documentation fees, loan origination fees, and other assorted costs that might be attached and need to be paid before the home can be purchased.
Number six. Fail to negotiate terms with the seller. Did you know that you can actually negotiate some of the fees and costs associated with buying your home? Sellers will sometimes help with paying closing costs, repair costs, or even what is called a rate buy down. A rate buy down is when money is paid to the mortgage company to lower your interest rate by a quarter or 1/2 percent or more. Typically this will cost 1% of the price per quarter percent of the loan but many times a seller will pay that to help you out.
Number seven. Not getting or not understanding a home inspection. Home inspection companies are usually hired by buyers to look at the house before the purchase is made. Many times home inspectors will find problems with the home that should be addressed before the home is purchased. Once you get the home inspection report go through it line by line and look at the items that are noted by the inspector. Sometimes these items are small repairs that can be made by the homeowner; things like replacing an electrical cover plate or changing a dead bolt lock. Other items are safety related and can also be handled easily by you, the seller or a qualified repair person. Other times there are more major issues that need to be addressed such as termite damage, cracks in the foundation and systems like heating and air-conditioning that need repair. Sellers could assist in paying some of these costs but they are not under any obligation; homes are generally sold “as-is”. Another aspect of the inspection report is the informational section. These are items that are included strictly as a reference to the new home owner. For example, the inspector will note where the main water shut off valve is located, where the electrical panel can be found, where the gas shut off is etc. Make sure you familiarize yourself with these items once you become the homeowner. When to lights go out, it's good to know exactly where the breaker panel is located.
Number eight. Not reading the homeowners association documents or other deed restrictions on your new home. This can be overwhelming because HOA documents might be several hundred pages of rules, regulations and budgets. Homeowners association typically will have some restrictions on your usage of the property which can include the color you can paint your house, the number, size and breed of pets allowed, if can park in the driveway, when you can leave your garage door open, your ability to rent the property in the future and more. Don’t get blindsided by not looking at these items before you make a purchase. It would be unfortunate to buy a property with intentions of turning it into a rental home, only to find out that you can’t do it because of HOA restrictions you didn’t read.
Number nine This is a big one! Do you not make any changes to your finances or buy any major purchases before the closing of your new home. Financial changes will have a huge impact on your ability to obtain the loan. Just know that the loan underwriters will be checking your credit a day or two before closing, so any major changes will show up on your credit report. This means no job changes, no large cash withdraw from your checking, savings or retirement accounts. And do not deposit large amounts of cash into your bank accounts. This will trigger an investigation and delay the closing.
Also, do not make any major purchases while your home is under contract. That means that you cannot buy new appliances, new furniture or a new car while you’re in the closing process. Do not apply for any new credit card accounts, even if you were offered something simple like a retail store credit account that will give you an extra 20% off today’s purchase. This will cause a change in your credit picture and a delay or possible denial of your loan. So, do not take out any new loans as it could adversely affect the purchase that you were about to make of your new home.
And number 10 is do not try to time the market. I’m not saying that you should not be aware of the ups and downs and fluctuations of the market, but do not adopt the attitude that you are going to wait till the absolute lowest point in the market to pull the trigger and make your purchase. It’s impossible to determine the bottom of the market until it has already passed. Do your homework, talk to your financial advisors and move forward quickly when you find the property that meets your needs. It’s always great to look back and know that you got the best deal possible but it’s nearly impossible to time the market.
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