Let’s face it: Buying a home is a major investment. However, for many people it can end up being more expensive than it needs to be due to some costly mistakes. Here are eight blunders to avoid, and some helpful tips that could mean the difference between financial security and financial distress.
1. Not Understanding the Market
Once you find your dream home, you don’t want to overpay for it. Your offer price should be based on what comparable homes in the area have sold for in the last six months. If you don’t have a firm understanding of the comps, you are bidding blind.
You should also take into account the condition of the house and current market demand when determining your offer price. Is the home getting multiple offers? Has it sat on the market a long time? Will it require a lot of upgrades? A good Realtor® will assist you in sorting through these issues and help you come up with an optimal offer strategy.
2. Buying the Wrong Home
What are you looking for in a home? It’s a simple enough question, but the answer can be quite complex. Plenty of buyers have been swept up in the emotion and excitement of the buying process, only to find themselves owners of homes that are either too big or too small. Or, maybe they’re stuck with a long commute to work or a dozen unexpected repairs. The decision you make on the house you buy may have a lifelong impact.
Take the time upfront to clearly define your wants and needs. Download our Savvy Buyer Guide, which takes you through a Buyer Profile System to help you determine the most important criteria for your new home. Then use this as a point of reference to evaluate every home you visit.
3. Forgetting About a Survey
When you make an offer to purchase a home, make sure you ask for an updated survey of the property that clearly marks its boundaries. You want to make sure that a fence or storage shed in the back yard is not really on your neighbor’s property. This could cause headaches down the road should your neighbor get their own updated survey when it's time to sell their home.
4. Not Getting A Home Inspection
Although sellers are required to disclose all known material defects about their home, there may be some unknown issues. Make sure that you have a thorough inspection within a week of ratifying the contract. An inspector is there to spot the things you don’t know to look for, like if the chimney is in great shape or whether those little cracks in the foundation are a big deal. The inspector will give you a report of any items that they recommend should be fixed. If there are significant items that need repair, you may be able to negotiate with the seller to drop the sales price. In other words, the inspection is worth every penny.
5. Not Budgeting For Unexpected Costs
Make sure you uncover all costs, large and small, that are associated with the purchase of your home. Ask for all fees to be disclosed to you during each step of the home buying process.
You should also make sure that you buy within your means. It’s important to remember that monthly payments include not just the mortgage, but interest, taxes and insurance, something that buyers can often forget about when figuring out their budget.
It’s a good idea to get pre-approved for a mortgage so you know how much a bank is willing to lend you before you make an offer for a home (read a previous blog on this topic for more information). You will also save time by looking at homes that you know you can afford instead of yearning for something out of your price range. And, it will put you in a better position over another bidder with no pre-approval.
Also, while it’s still possible to buy a house with as little as 3% down, you’ll have to pay private mortgage insurance (PMI) until your equity in the home exceeds the 20% mark. If you can’t put 20% down, your loan is considered risky. PMI protects the bank if you default on your mortgage.
For a larger list of unexpected costs, download our Savvy Buyer Guide.
6. Not Being Prepared for Closing
Take your time to review all closing documentation, including your loan papers, a day or two before settlement. Make sure you understand what you are signing, and that no costs or information provided is unclear. If you try to rush through this process on the day of settlement, you may run into last minute issues that you can’t fix without altering the terms of the deal.
7. Buying a Home Through the Listing Agent
The listing agent represents the seller’s best interest, not yours as the buyer. Work with a buyer’s agent to get representation that will benefit you. Working with a good agent will save you much time and stress. A buyer’s agent can set you up with an auto email feed that sends you alerts when a new property comes on the market that meets your criteria, help you navigate a 50+ page legal contract (the purchase offer), and negotiate the best terms on your behalf.
8. Not Asking for a CLUE Report
Before you purchase a home, have your insurance agent perform a “CLUE Report” (Comprehensive Loss Underwriting Exchange) on the property you are buying to determine if the sellers made any claims on the subject property. This is important, because it may cost you more to get insurance if they have made previous claims.
Recently, a CLUE report revealed a history of water issues that was not disclosed on a home that was under contract. The sellers didn't think they had to disclose these past problems, but the report brought the water issues into the light to be be resolved before settlement.
While this list is not exhaustive, being aware of these issues will help you avoid a few common mistakes as you contemplate buying a new home.
Need Help Buying a Home?
Are you beginning the home buying process and need some real estate expertise? Contact one of the trusted Realtors at the Eric Stewart Group for assistance. Over the last 30 years, we have helped more than 2,500 happy clients buy and sell homes. And, if you haven't yet, download our FREE Savvy Buyer Guide. Jam-packed with invaluable home buying tips, it will help jumpstart your efforts to get your dream house for the best price! And for more information, tune into the July 24 archive of Eric's radio show on WMAL 105.9 FM where he discusses the Savvy Buyer Guide and how to help buyers find the home that is best for them.
