1: Failing to Have a Plan
You need a clear plan when deciding to buy a house. Evaluate your current situation. Do you currently own a home? If so, will it be necessary to sell before making another purchase? Are you renting? How much time is left on your lease? Do you and your family plan to use the backyard? What is important about the location of your house? Do you want to live within 10 minutes or one hour from the office?
Make a list of features that are important in your home. Write down desirable locations you would consider, an acceptable price range, the number of bedrooms and bathrooms, and any other amenities. Be specific. You will unlikely find a home that offers every feature you desire. However, without a wish list, it will be more difficult to recognize a home that meets your expectations.
Provide Your List to Your Realtor
Your realtor will look for homes that match your criteria. This will save you time – you won't need to look at homes that do not fit your needs and desires.
A proper game plan will save you time and reduce the hassle of shopping for a home. Spend a little time in advance and save a lot of time and money in the future!
2: Thinking, "I Can't Afford a Home"
Many people feel that they cannot afford a home, but affording a home has never been easier!
Mortgage rates are more flexible today than ever, and the tax laws favor homeownership like no other tax shelter.
Homeownership is a durable (real) investment. Although no one can say if a specific home will appreciate, the odds generally favor the homeowner.
Numerous unique tax advantages are available to homeowners. The thousands of dollars you pay in mortgage interest are deductible, and this tax deduction alone can sometimes make owning your own home cheaper than renting with after-tax take-home dollars. Check with your accountant.
See the dramatic difference that homeownership will make.
3: Failing to Properly "Screen" Your Realtor
The quality of your home buying experience depends on your skill at selecting the best-qualified person. It is interesting that in the real estate business, someone with many successfully closed transactions usually costs the same as someone inexperienced! Bringing that experience to bear on your transaction could mean a lower price at the negotiating table, buying in less time, and with minimal hassles.
Agents make it their business to provide every service connected with your home search, from expert advice in the early stages to careful settlement monitoring. The more closely you work with your agent, the better your needs are known and the more effectively you can be served.
- Your agent should be a skilled win-win negotiator!
- Your agent should have access to the MLS systems: a computerized system that will assist in locating the home that fits your needs and desires.
4: Failing to Get Pre-qualified for a Mortgage Loan
Before shopping for a home, you must determine how much you can afford. Once you are pre-qualified for a mortgage, you will know what your buying power is. You will save time by looking only in your price range.
This process is simple. A lender will ask basic questions about your history, run a credit report, and determine your buying power. You can even get pre-approved for a loan! Imagine, for a moment, if you and your realtor initially draft your offer for the home you select, you are already approved for the loan in advance. No stress, no worrying about qualifying, no concern about your ability to qualify would stand between you and the home of your dreams.
In today's market, a pre-approval can be a powerful negotiating tool. The old system saw the buyer spending many hours locating the perfect home, carefully drafting an offer, awaiting acceptance of the offer, consulting a loan officer, and filing a multitude of forms and applications, and sometimes this was all a waste because, for whatever reason, he was turned down for the loan.
5: Choosing a Loan Based Only on the Interest Rate Myth
I have been told that a fixed-rate mortgage at today's rate is the best mortgage loan. But many different types of loan programs are available. It is a mistake to think you should get the same loan just because Aunt Sue got an 8.5 percent 30-year fixed rate.
It would help if you got together with an expert who can explain the many different types of loan programs. Each program may have special benefits for you and your specific needs.
When considering such an important decision, it is best to explore all possibilities. It may well be that a fixed rate is the best type of loan program, and it may also be that you can save a significant amount of money by exploring alternative adjustable programs.
A full-service lender with relationships throughout the mortgage industry must be in today's market. Lenders need the flexibility of the small business owner with the clout of a large company.
Today there are almost as many different loan programs as there are housing options. A few considerations are:
- Anticipated time in the home
- Available asset base
- Current income situation vs. future income situation
It is wise to pick a program that fits your lifestyle. Example: If you pay off a loan in fifteen years versus thirty years, you will save a lot of money in interest expenses. It is important to note that these savings are due to repaying the loan half the time, and the savings is not due to significant savings in interest rates. You would expect that there would be a much lower interest rate since the loan has a quicker repayment and, therefore, a loan with less risk. The difference in interest rate is not that significant. Rates on 15-year loans may be 1/4 percent to 3/8 percent better than 30-year rates. Payments on 15-year loans will be approximately 25 percent higher every month.
Mortgage Loan Process
Myth: I should go to my bank to get the best loan at the cheapest interest rate. Typically a commercial bank will own a separate business entity that shares the bank's name and happens to offer mortgage financing. But this does not mean you will get a special deal just because you are the bank's client. The bank's mortgage subsidiary has no special access to your financial records as you might expect. The bank's mortgage subsidiary must request your financial records from the bank just as any other mortgage company. Your mortgage loan process will not be simplified or viewed differently from any other applicant making a request.
Most people who go to their bank's mortgage subsidiary believe that their loan payments will always be made to their bank; thus, all of the individual's banking needs will be under one roof. However, most mortgage subsidiaries sell their loans on the secondary market and may sell the loan servicing just as any other mortgage company will.
Another important consideration is that a typical bank mortgage subsidiary works with a small number of mortgage products. You may not find a wide variety of loan programs, and your loan officer may not have a good comprehension of all the different programs offered. It is doubtful they can adequately advise you on the best program for your needs. It is possible that you, or the property you are buying, may need to have special underwriting to approve your loan application.
6: Failing to Obtain a Home Inspection From a Qualified Inspector
A home inspection report on the structural and mechanical condition of the home, and after the inspection, you will have the facts you need to decide between buying your home.
A well-qualified building inspector who has adhered to federal licensing standards can spot problems that you might not be able to see. Expect problems to be clearly explained, repair expenses closely calculated, maintenance costs estimated, and a written report delivered within a day or two.
Most home-purchase contracts are written conditional on the outcome of several inspections. These inspections may include several items, including inspection for wood boring insects, excessive amounts of radon gas, structural soundness, and the heating, wiring, and plumbing condition. When the contract is written, it should identify who will be responsible if there are problems with the results of any of these inspections.
Well-written home inspections can create a safety valve for both the buyer and seller. If poorly written, the result can be heartbreak and lawsuits.
7: Not Knowing Your Rights and Obligations
Real estate law is extensive and complex. The contract for sale and purchase is a legally binding document. An improperly written contract can cause the sale to fall through or cost you thousands of dollars for repairs, inspections, and remedies for title defects.
- You must be certain which repairs and closing costs are your responsibility.
- You must know whether the property can legally be sold "as is" and how deed restrictions and local zoning will affect the transaction.
- If defects in the title or property conflict with local restrictions, you or your realtor must remedy them.
I will ensure you understand the technical jargon of selling your home. It is my job to know the laws governing real estate transactions.
8: Failing to Make Your Inspection
Be sure your sales contract is worded so that any "earnest money deposit" must be returned in the event the house fails inspection. If a major defect is found, you can cancel the contract and have your deposit returned, bargain for a lower price to compensate for the cost of repairing the problem or have the owner make needed repairs before the sale.
Check Various Areas
Even before you get to the point of a contract and having a professional inspector look at the house, there are many items you can check yourself as you are shopping for a home:
- Structure/Basement: Check the foundation for cracks or water marks.
- Floors: Are they level?
- Roof: Does it sag?
- Water damage: Look for unevenly painted ceiling or wall; mildew odor in basement; signs of re-plastering or re-tiling in just one area of a room.
- Water pressure: Flush the toilet and turn on hot and cold water faucets simultaneously to test.
- Plumbing: Ask what type of pipes are installed and their age. If applicable, ask when the septic system was last inspected and cleaned. Stand near the tank to detect odor or soggy ground.
- Wiring: A 100-amp system is typical in modern construction and uses a one-inch main line leading to the fuse box. Appliances such as dryers or ranges require a 220-amp line. Notice if lights flicker or don't work. Check for electrical outlets, usually at least 2 in each room.
- Energy efficiency: Ask to check last year's heating and cooling bills. Determine if proper insulation has been used.
- Pests: Be alert for small accumulated sawdust in the basement, which might indicate an insect problem. Obtain the date and results of the last wood-destroying pest inspection.
A Few Final Tips
- Ask to see the seller's survey when the seller bought the house.
- When shopping, take a copy of the "Home Buyer Checklist" to stay alert for possible problem areas. Avoid "surprises" by keeping your eyes open.
- Be certain that you are clear on problem areas that convey the property and repairs that the seller agrees to make. Have this list with you when you go for your walk-through.