Real Estate Trends and Tips… 8 Common Mistakes First Time Homebuyers Make
In a recent CNBC article (7.17.2014), freelance journalist Maggie Overfelt reported on eight of the most common mistakes first-time buyers make and how to avoid them. Her information is spot on – enough so that I’m taking this time to share it with you. Questions, comments – call me at 727-686-2859 or email me at firstname.lastname@example.org
1. They don’t even consider renting as the better financial decision. Despite all the good that comes with owning a house—home equity, tax benefits and comfort in knowing what your housing costs are going to be over a period of time—when it comes to the heap of costs associated with buying, it may be a better deal financially to rent. (Buyers can find help with online calculators that compute home costs into equivalent monthly rents.)
2. They’re not prepared to compete in an all-cash market. Buyers must be ready to make very quick decisions as their markets heat up. “Much of the lower-priced stuff goes quickly,” said loanDepot’s Norris. Before even starting your search, save as much as possible for a down payment, clean up any blemishes on your credit report and get preapproved for a loan. “The first-time homebuyer needs to be very savvy and have an upfront preapproval letter that will help give the seller confidence that [the buyer] can close the loan and obtain the funds,” Norris said.
3. They put the car before the home.Your debt-to-income ratio is one of the first things lenders look at when it comes to assessing how well you’ll be able to afford mortgage payments. “It’s a big deal for folks not to load themselves with debt before they buy a house,” said Glenda Gabriel, a neighborhood lending executive at Bank of America. “[Debt] could be the difference between approval and not being approved.” According to loanDepot’s Norris, customers’ debt—attributed today mostly to student loans followed by things like car payments—has gone on average from $40,000 in 2010 to $51,000 today. “It would be much easier to own a home if you can show a history of saving and not have gotten yourself into too much debt,” he said.
4. They put too much faith in online loan information. While many credit counselors and financial advisors advocate researching mortgages online—it’s a good place to check with the city or county where you want to buy to see if you qualify for products like VA loans and FHA loans—interviewing and working with lenders in person can greatly help demystify the lending process. The process can differ based on a buyer’s qualifications, how a mortgage company operates and current market economics.
“Go to different places and talk to loan officers to get a feel for what the differences are between similar types of loans,” said ClearPoint’s Pierce, who suggests attending first-time home buying classes.
5. They put too much faith in online home values. When it comes to checking out houses and neighborhoods online, real estate agents have become wary of what clients find at sites like Zillow and Trulia, which can give buyers a false sense of home values. “My rant of the moment is Zillow and what we have to undo,” said RED’s Barrentine. “If a buyer believes that the actual value of the property is $1.1 million [as listed online] when it’s really $1.3 million, it’s a real disservice to the client. You really should [spend time] with someone that understands the market, someone who’s there day in and day out.”
6. They skip the home inspection. About 10 percent of recently bought homes weren’t inspected, according to Bill Loden, president of the American Society of Home Inspectors. These buyers were trying to cut costs, forgoing the fee that inspectors charge to perform a two to four-hour search to flag material defects of the property, but those defects can result in thousands of dollars of damage down the road. Inspection rates start at $450, on average, and vary depending on a home’s size and how it was built, according to Loden.
7. They forget to check the (wrong) emotions at the door. In a competitive market where multiple offers may essentially be the same, “the sellers will choose almost every time to sell their home to someone who [appears to] really love it,” said Amy Mizner, principal of real estate firm Benoit Mizner Simon & Co. “Most buyers don’t realize they are being ‘interviewed’ by the listing broker, and if they complain the whole time or get exasperated about what are ultimately small-ticket items, they will make a bad first impression.”
While it’s important to note cracks and inquire about things like potential rodent problems in wooded areas, Mizner said buyers should not become fixated on these things while seeing the home. Save those questions for a broker, who should help clients do due diligence after a home tour. Becker said lots of factors—the house’s façade isn’t to your taste, for example—turn out to be relatively cheap, easy fixes. She added, “If you’re being overwhelmed by red flags, often that’s when you can renegotiate your deal or take advantage of an amazing location with a house that may have a functional issue that may turn out to be a very easy fix.”
8. They expect their home’s value to appreciate over time. Many first-time homebuyers invest their life savings into a home, hoping to turn a healthy profit when they sell five, six or seven years down the road. “I think a lot of people got burned doing that in the 2000s,” Carden said. “And while to a certain degree it’s really nice to get home equity for money you’d be paying for rent, it’s a large asset that’s not very liquid.” Buy a house to live in, Carden said, and be prepared for lots of unseen upkeep costs that range from mowing the lawn to emergency repairs. “Stocks are far better investments than real estate,” he said. “I’ve never had to call a plumber because a mutual fund started leaking.”