Common new home buyer mistakes

By glblguy

sold

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:

Get Pre-Approved

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!

Closing Costs

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.

Shop around

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


8 Responses (including trackbacks) to “Common new home buyer mistakes”

  1. Thankful Says:

    Great list! One thing to note is that getting pre-approved is a hard pull on your credit, and the pre-approval usually only lasts a certain amount of time, in our case three months. For us, it was almost two years from first pre-approval to actual purchase. Since we re-upped our pre-approval 4 or 5 times, it affected the interest rate on the mortgage as each of those hard pulls dinged our credit scores a little. For many buyers with longer credit histories, it might not have such an effect, but my husband’s credit still had some long-ago problems. Definitely do it when you start looking, but know that you don’t have to always have one throughout the process if you’re picky about the house you want like we were!

  2. Tyler@Frugally Green Says:

    I’m a younger guy starting to gear up for my first home purchase and have been doing TONS of research. So far, I couldn’t agree more about the points you make, but I have been slowly leaning away from the idea of using a realtor.

    I have done a lot of reading about representing yourself and have even met with a few realtors to see what they can offer me, and I haven’t been blown away by anyone. When I mention that I had considered representing myself, the most common response is, “Would you represent yourself in court, or would you hire a lawyer?” This comparison really annoys me.

    Do you really always need a realtor? My strategy without one would be to make offers that would force the sales agent to drop their commission to a standard fee for a two agent transaction in order for the owners to accept. It seems like with the current state of the housing market, this might take a few tries, but could net me a fair chunk of savings.

    What do you guys think? Can a determined and studied first time buyer get ahead without a realtor? I would still be hiring an attorney to review contract documents.

  3. MyJourney Says:

    GLBL,

    The only one you are missing is have an attorney look at your real estate contract. They are usually lengthy and written in an archaic language with reference to warranties and such not even in the contract.

    Also, I don’t think $500 qualifies as expensive when purchasing a home. Even if the home is $200,000 (impossible to find where I live) that is 25 of 1% or .0025 of the purchase price for the knowledge that you had the whole house looked at. PLUS it gives you negotiating room for seller’s concession.

  4. Dramon Says:

    Good post. I would add from mistakes we have learned from:

    1. I would add to the resell to think about location aspects that would make resell more difficult. This is one area that a realator can help. For example, too close to a school, backup up to a road.

    2. Schools – make sure they are good even if you don’t have kids now. Makes resell better and if you do end up having kids you don’t have move or pay for private schools

    3. If part of an HOA, check it out as some are difficult and have special assessment

    4. Talk to neighbors – a bad neighbor can make your life miserable

    5. drive the neighborhood at different times of day

    6. make sure you can handle the drive times during rush how. We once based our estimates of if it is livable during weekend looks at the house. Only to find our Rush hour traffic was miserable.

  5. Julie Says:

    In response to Tyler, as a realtor I can offer you a few points..
    #1: The buyer’s agent represents you and your interests, making sure you see all documents pertaining to the home..some of those docs come from systems you won’t have access too, such as MLS systems.
    #2: When there is a buyer’s agent and a seller’s agent involved, there is a split of the commission..why would they split the commission when there isn’t another agent involved? You would just be the lowest offer…No incentive there.

    In response to Myjourney..in our state, our contracts through our statewide system, the ones we MUST use are drawn up by attorney’s and approved by the Board of Realtors. They have spaces that have to be filled in,such as address, amount of sale, closing date, etc.. If it is the same in your state, it would save you the expense of having an attorney look at the contract.

  6. DDFD at DivorcedDadFrugalDad.com Says:

    Nice tips! People need to go into a home purchase with their eyes wide open . . .

  7. Diana Says:

    When we bought our first and only house 4y ago, the seller paid the agent’s commision. So it made sense to us not to skip the realtor (separate one than the seller’s agent).

    Yeah, scope the location at different times – this is very very important. Also, if you feel something in the house is not to your liking and is “bugging” you, ask yourself – when you buy it and look at it every day, can you live with it?

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