The top 6 homebuying blunders to avoid
Avoid these homebuying mistakes
- Having bad credit and messy finances
- Grabbing the first mortgage offer
- Confusing the roles of real estate agents
- Lowballing a purchase offer
- Underestimating costs and fees
- Foregoing contingencies
Buying a home is probably the most expensive investment you’ll ever make. Do your homework and you can position yourself to close on the ideal house at the best price, thus avoiding six common mistakes people make when buying a home.
1. Having bad credit and messy finances
Well before you look for properties, assess your finances. Take stock of your income, savings and debt to develop a budget. Having this figure in mind can help you eliminate homes you can’t afford. Check your credit score early and take steps to improve it if necessary. Credit has a significant impact on your mortgage eligibility and rates and takes time to strengthen. You should also consider how much of a down payment you can afford. Weigh the costs and benefits of a low — 3 percent to 5 percent — down payment that will carry private mortgage insurance (PMI) premiums or a more standard 20 percent down payment that gives you some immediate equity in your new home. Research down payment assistance programs to see if you qualify.
Financing your new home involves purchasing a financial product — the mortgage — which many buyers consider an afterthought. Nearly half of American homebuyers do not compare mortgage lenders before purchasing a home, and more than three quarters apply with only one lender or broker. One of the most significant places a homebuyer can cut costs is in the loan itself: an interest rate 0.5 percent lower saves you thousands of dollars over the life of the mortgage. Compare lenders and get preapproved before house hunting. Not only will this give you a concrete idea of how much you can afford, it also gives a home seller more confidence in your ability to obtain financing, making your offer a stronger candidate.
3. Confusing the roles of real estate agents
It is easy to mistake the role of real estate agents in the buying process. A listing agent works for the home seller and lists and shows the property. A selling agent, on the other hand, is hired by the buyer to help locate prospective homes and negotiate the lowest purchase price. Many buyers decide not to use a selling agent, and instead work with the listing agent who is showing their prospective home — and ultimately working for the seller. It can be wise for you as the buyer to employ a selling agent with a solid understanding of the market to help identify properties right for you at the best price. Moreover, the home seller typically pays for the commissions of both their listing agent and the buyer’s selling agent. Be aware that these costs are sometimes lumped into the price of the home, but with an understanding of reasonable prices in the area you can avoid getting overcharged.
4. Lowballing a purchase offer
Trying to play the market — or the home seller — in an attempt to get an absolute rock-bottom price rarely pays off. It’s difficult to anticipate where housing prices will go, so if your family and finances are in a place where buying makes sense, go for it. Once you’ve identified your budget and have researched and discussed with your selling agent what the home you are seeking should cost, make a sincere offer. Lowball offers can irritate sellers or be rejected outright as nobody likes an aggressive, lengthy and expensive negotiation. Furthermore, purchasing a home to live in based on an attractive price alone is usually a poor idea.
5. Underestimating costs and fees
Your home purchase will likely come with fees for the mortgage origination, home inspection, home appraisal, escrow, taxes and sometimes title insurance, as well. In addition to these closing costs, you also will face periodic property tax, homeowner’s insurance and in many cases PMI fees as soon as you complete the purchase. These costs can add up, so budget for them in advance.
6. Foregoing contingencies
Don’t let emotions cloud your judgement when making a purchase offer, no matter how keen you are on the property. Having a home inspection and home appraisal contingency in your offer grant you important protections. A home appraisal and home inspection are different things. Your lender will typically arrange for a home appraisal to confirm that the home value is in line with the purchase price. You as the buyer should arrange a home inspection — with an objective professional, not simply someone recommended by the listing agent — to get a comprehensive understanding of the home’s condition and what costs you might face down the line. With such contingencies in place, if the appraisal or inspection come back significantly out of line with what was presented by the seller, you have the opportunity to back out of the deal.