8 Dumb Things that Smart People Do When Buying a Home If you re bound and determined to buy a house, here is some advice from recent home buyers, sharing things they wish they had known before they bought. Every year, I see dozens of home buyers fall into the same traps over and over again. I know that no one likes to take advice, especially when excited about buying a home! But taking a few steps before you launch into a full-bore house hunt can put you far ahead of the game. First off, when buying a home, there are two people you want in your life: a mortgage professional and a real estate professional. Chances are you already have a relationship with one or both of these. If one of these people has been communicating with you regularly for a long time whether through the mail or some other means and occasionally asking how they can help you with real estate, it is likely they ll also stick with you through the arduous task of finding and buying a home. Reach out to them first pay them back for their persistence! They ll probably have a great recommendation for other professionals you ll need along the way, too. In addition to finding the right professionals, you ll want to avoid making certain kinds of mistakes along the way mistakes that other buyers wish they had avoided. You can learn from their mistakes and come out ahead! Here are their words to the wise:
Pre-qualifying means having an interview with a mortgage professional where you examine your credit and finances early, so that you don t start shopping for houses, thinking everything is going to be fine. I ve seen too many disappointed even heartbroken home buyers who found their dream home and then discovered they couldn t qualify yet. Mistake #1: Not Getting Pre-Qualified A little preparation goes a long way. Meet with your mortgage broker many months before you plan to buy a home. The further in advance, the better. If you re thinking of buying a home in 12 months, now would not be too soon. Why? The whole purpose of pre-qualification is to discover what you need to clean up before you ll be granted a loan. The mortgage professional will ask about your credit, employment history, and finances, and point out any red flags that might interfere with getting a loan. You will learn about the costs of a loan, what purchase price you qualify for, and what your monthly payments might be. Now you will have time to improve your financial situation before you start house-hunting. Perhaps by paying off some debt you will be able to raise your credit score, which can improve your interest rate, and lower your payments. Perhaps by taking on an extra job, you ll be able to save more down payment funds, which might eliminate the need for costly PMI. And there are dozens of other possibilities that, given time, can result in putting you in a better financial position than you are today. FastNewsletters 2014 2
A pre-approval letter is a result of the lender reviewing your documents and determining that you are likely to be approved for a mortgage which is a special type of loan secured by real estate. The pre-approval letter is not the same as approval. The letter is not a guarantee of a loan, but it is a healthy indication of your ability to get the loan. Mistake #2: Not Getting a Pre-Approval Letter Based on your pre-approval letter, which is attached to your offer, sellers will be more inclined to accept your offer, and real estate agents will take you more seriously, sometimes offering incentives. The pre-approval letter tells everyone involved that you are not going to be wasting anyone s time. Sellers can feel secure that if they accept your offer, you will be able to perform, and not leave them hanging. Realtors will be grateful to work with a highly qualified buyer who isn t going to spend hours touring houses, only to drop off at the end. To get a pre-approval letter, first meet with your lender to have a prequalification discussion. If everything looks good at that level, fill out a loan application. The loan application starts the pre-approval ball rolling. Now the mortgage professional can pull your credit report, and you can begin gathering and submitting documentation, such as pay stubs, tax returns, bank statement, employment verification, etc. The time involved in getting a pre-approval letter varies widely. Someone with stellar credit, a regular pay check at the same job for ten years, tens of thousands in savings, and no skeletons in their financial closet is going to be able to sail through the pre-approval process, probably getting a letter from the lender on the spot. Others will have hoops to jump through and it may take a week or even months to gather documentation and fix problems. FastNewsletters 2014 3
Mistake #3: Not Leaving Enough Time Mistake #4: Not Staying Cool Some home buyers are under the impression that they can find a house, buy it, and move in within a few weeks. They plan their move according to this time-table, which is not based on the realities of real estate. When you consider that just getting a loan can take 30 to 45 days, then add two to 12 weeks to shop for a home, and another week to negotiate with the seller, you could be looking at three to four months before you re in your new home provided there are no sticking points. The gist is that if you want to be in your house by the time the kids start school in September, you ll want to be meeting with a lender in May. Or if you want to be in by Christmas, start with the lender at least by August. Could it go faster than that? Yes, absolutely! And that s another problem The flip side to planning ahead and being prepared is that sometimes you do find the right house faster than you expected to. When that happens, you don t want to lose it! If you ve already started the conversation with a lender, you re ahead of the game. Now you can ask if he or she can fasttrack your approval. This is the time you ll start to get stressed! When things do start to happen, don t try to conduct business as usual in your life, because you won t be able to. It s useful to not be starting a new job, not be getting married, not be having a baby, etc. when buying a house. Of course, those are often exactly the things that precipitate a move, so it s a bit of a circular argument. Still, if you know things are going to be stressful and they will be then you can make adjustments. Your kids won t have as much of your attention. You may have to take some time off from work. You and your spouse could begin bickering. Communicate with people, and you ll get through it just fine. FastNewsletters 2014 4
Mistake #5: Not Finding Hidden Defects before Buying Many home buyers have lamented the fact that they didn t spend more time and money discovering the problems with their new home beforehand. Sure there s a home inspection. But the home inspector is a generalist. His or her job is to investigate all the niggling details that a competent person could see if they had a good enough checklist. If there are dangling wires, the inspector tests to see if they re live. He ll turn on the dishwasher and make sure it works. She ll check the grounding on the plugs. He ll note softness in the wood where there might be rot. You definitely want a home inspection by a generalist. Then when he or she points out problems, if they re scary enough issues, you should hire a specialist for a bid. If the generalist says the roof has a patch that s worn off, but looks sound right now, get a roofing specialist to bid on fixing that spot. Once the roofer is up there, he may just discover that your roof is on its last legs and you ll be ponying up $12,000 for a new one by this time next year. You may be fine with that if you want the house badly enough, the new roof might be a price you re willing to pay. But if it s not, you want to know about it before you buy. By the way, make absolutely certain to get references to other buyers for your home inspector! Call them and ask if they were satisfied with the inspection they got. FastNewsletters 2014 5
Mistake #6: Being Over- Cautious Sometimes the real estate market is so hot that you don t have time to think. When a property comes on the market on Friday and the seller is likely to choose an offer by Sunday, you won t be able to dither. You may not know if this is the dream home yet. You may not know if there are problems with the neighbors. You may not know if the roof needs replacing. You may not know if termites have eaten the walls. But if you don t make an offer and get control of the property, you will never know. If you do make an offer, you still have time whatever time is agreed to in the contract to find out those things. If something doesn t measure up, you can back away from the deal without harm. But beware of accepting counter-offers from sellers who want you to waive your inspection rights. You should always do an inspection. You may be asked to accept a property as-is. That is not the same as waiving your inspection rights. You still have the right to inspect, but are agreeing that you won t ask the seller to make any repairs. You may still walk away from the deal without harm when you accept an as-is deal. Be careful if a specific condition is added to the counter offer. For instance, if the seller spells out that the roof needs replacing and that by signing the agreement, you agree to not pull out because the roof needs replacing, then you are stuck with that clause. FastNewsletters 2014 6
Your real estate agent could be your best friend in a real estate deal. Duh! Yet many home buyers treat real estate agents as if they were clerks at a local big box store one is as good as another. Real estate agents will bend over backwards to help you if they know you re going to be loyal to them. Since you re not actually paying them anything (the seller pays), there is no contract between you and the real estate agent. It can be easy to walk away. Agents know that, so they ll usually provide exceptional customer service. Mistake #7: Juggling Real Estate Agents The really good buyers agents might refuse to work with you until you have a lender-approval letter, and many of them will ask you to sign a buyerbroker agreement with them a kind of loyalty document. It s up to you whether you sign or not. And it s up to the agent whether he or she represents you or not. Beyond great customer service, a good agent is knowledgeable in ways you can t even imagine. The more they get to know you, the smoother your deal will go. Why? Because behind the scenes, they re working the other players in the game. They re making sure the lender is jumping through all the hoops fast enough on your behalf, putting your file first each day. They re soothing the ruffled feathers of sellers who have to show their houses 86 times a day. They re contacting seller s agents to try to get information that will help you if you want to make an offer. They re calling, coordinating, and mapping multiple appointments with sellers who all want you to be at their house at a precise time. And this is all before you ve even made an offer! Then comes the real work. FastNewsletters 2014 7
Mistake #8: Over- Extending Financially Finally, a really silly mistake for any buyer to make is to over-extend themselves financially to buy more house, or a house with more problems than they can really afford. Affordability is not about whether or not you have the money to make the payments. Affordability is about whether you have that money and STILL have money to do all the other things you want to in life. Be careful of paying off all your debt just so you can qualify for a higher payment. Maybe that debt is something you will want to carry. Maybe you want to be able to buy clothes at the Gap. Closing your Gap card might allow you to qualify for another $200/month in payments, but the next time you want to go shopping, you may not have the money because it s all going to the house. That s just a small example, yet a real scenario. I ve met people who have nice houses, but never go on vacations or buy a new car, simply because they ve put all their income into their house payment. Be smart, buy within your means! Final Word You re a smart person. You don t need to make dumb mistakes when it comes to buying a house. Just go through this list and heed the advice, and you ll come out all right in the end. The real key is planning ahead. If you re reading this, you must be thinking about buying a home in the near future. Go ahead and reach out now to a mortgage professional, and start a relationship with a good real estate agent maybe the one who gave you this great report! It s not too soon to start. FastNewsletters 2014 8