Common new home buyer mistakes
I was talking with a co-worker recently who was preparing to purchase his first home. He recently got married, and has been renting for a few years. He felt that he had a good down payment and with the economic stimulus benefits for new home buyers, now was the time. I couldn’t disagree with him, for him it was time.
Now is a great time to buy a house, but there are some very common new home mistakes that I shared with him and will share with you as well:
Most new home buyers don’t understand the difference between being pre-qualified vs. pre-approved. A pre-qualification is just a mathematical formula that mortgage companies use that serve as guide to how much home you can afford. It is in no way a commitment that you can actually get that amount of money. A pre-approval is just that, a commitment from the mortgage company that they will loan you the money. Being pre-approved will not only allow you to focus on the homes you can actually afford and are approved for, but can often give you more negotiating power as well. It’s similar to purchasing a car and bringing cash with. Something about having cash in hand sure can motivate a seller to negotiate!
We made this mistake too. Everyone always focuses on the purchase price and down payment, and seems to forgot how expensive closing costs can be. Beyond the down payment, you will need extra funds to pay your lawyer’s fees, property taxes, land transfer taxes, etc. There is a ton of little fees and costs that most new home buyers don’t consider. Your real estate agent can give you a very close approximation of what the costs will be. Once you make the offer and begin the purchase process, your lending company will provide all of the actual costs for you. Just don’t forget these additional costs, and make sure you have the cash available so you can close.
The mortgage business is very competitive and by shopping around you can often save yourself a significant amount of money through lower rates or even deals where the mortgage company will pay your closing costs. Many first time home buyers to to their bank, take the first deal that’s offered. Don’t make that mistake. Shop around. Use the internet to find available deals and competitive rates. Call the various local banks and ask them for their rate. Have a lower quote from another bank or mortgage company? Ask them to beat it. Just like anything else, a little negotiation can go a long way and on a 30-year mortgage a few interest rate points can save you a significant amount of money.
Think about resale now
I know it’s difficult to think about right now, but you will sell your home someday. Given this is your first home, statistics show you’ll sell it in about 4-5 years which isn’t long. Make sure you don’t fall in love with what you think to be the perfect house, only to turn around a few years from now and be upside down on the value. Consider the potential resale value of your home in 5 years and make sure you’ll either break even, or better yet profit from the sale. This will enable you to purchase an even nicer home next time. Again, a good real estate agent can help you determine the potential resale value.
Use a buyer broker
We made this mistake. We purchased our first home in a new development and the selling agent worked for the builder. We worked directly with that agent as our buying agent as well. Lesson learned the hardway. In this scenario, the agent is not working for you, but for the builder. They won’t act in your best interest, and frankly we were border lined scammed on a few things.
When buying your first home, find a buyer’s broker. This will be real estate agent that will sign an agreement to work in your best interest. A good and ethical agent will truely do this as well, even at the cost of their own commission.
Skipping the home inspection
Here’s another mistake we’ve made: skipping the home inspection. Regardless of whether the house you intend to purchase is new or used, have it inspected by an independent and licensed inspector. Again, your real estate agent can recommend someone. While it will be expensive (ours was around $500 on the home we now live in), it was worth the weight in gold. He found a number of items in the home that we made the sellers repair before moving in. The inspection also provided us with tremendous piece of mind that the home we were buying didn’t have any significant, hidden issues.
Photo by: Nadia308