Buying a home is an incredibly exciting milestone in your life. Whether it’s purchasing your first house or forever home you’re making a big decision with lasting consequences. You aren’t just buying a house, you are building a home. That is why it is so important not to make these mistakes. There are so many things a home buyer needs to know before buying the home of their dreams. Here are 13 of the most common mistakes for homebuyers to avoid.
1. Emotional purchase
The number one rule when buying a home is to not make an emotional purchase. Perhaps you fell in love with the home before you knew anything about it other than the superficial details. And then you’re invested in the home and can be hesitant to walk away when the seller’s price is too high or they find substantial issues in the inspection. Over time the excitement of the home search can weigh on you. You are just so ready to move out of your current place you settle for something that isn’t worth it or you don’t love, making a settling purchase. Maybe you don’t have the time to look because the school semester is a month away or the new job is starting in two weeks and you make a quick decision. Making an emotional decision can cause you to overpay, pay out hundreds or thousands of dollars in maintenance repairs, or simply have buyer’s remorse. Take your time and think about what is right for your family, your future, and your finances.
2. Not Being Pre Approved
A mortgage pre-approval letter should be one of the first steps for any potential home buyer. This is a letter from your lender stating they have done due diligence assessing your finances and have approved you for the loan amount listed. Completing this process before you begin your search will give you a realistic price range you can afford, so you do not emotionally commit to something that isn’t possible financially. It also helps to attach this letter to your offer on a home. It sets you apart from other bidders, letting the seller know you are not wasting their time, as you absolutely have the money to purchase and it saves time on paperwork as well.
3. Not Factoring in the Neighborhood
As important as it is that you love your home, it is also crucial that you like your neighborhood. Even a great home can lose its appeal if the neighborhood is terrible. How are the schools? Are their parks or shops nearby? Are the streets safe from excessive traffic? Is there a Homeowners Association (HOA)? Is there an established healthcare system close by? What school(s) is the home zoned for? Is it a high crime area? While these may not seem like important questions now, they will determine your commute to run errands and countless other areas of your life. It may also factor into the value and ability to sell your home in the future. Your realtor will be able to tell you if the neighborhood is trending up, potential rezoning, or if businesses are expected to come to the area that could increase or decrease the value of your home.
4. Using All Your Savings
Having enough money saved for a large down payment is very beneficial as it affects your payments for the life of your loan, saving you hundreds to thousands of dollars. But first time home buyers may not be aware of the cost of maintenance for a homeowner. Appliances going bad, water heaters and pipes breakdown, leaks crack, storm damage—it all adds up. And while some repairs can wait, if you spent all your savings buying the house, you might not be able to afford to fix larger maintenance issues. You may also need to account for interest rate changes over time, or simply life; starting a family, medical bills, getting laid off, or other unexpected expenses.
5. Not Shopping for Mortgage Lenders, Rates, and Loan Programs
Shopping for lenders and mortgage rates may seem daunting, but it is almost as important, if not more than, as touring more than one home. There is more than one type of lender available. There are also incentives or benefits for first time home buyers, veterans, etc. Not shopping for a mortgage rate can leave you stuck with an interest rate that could have been lower and thousands less from the overall loan. There are also loan programs that could benefit buyers in different situations financially. Programs that offer minimum requirements or offer a higher debt or lower credit score cutoff, could be beneficial for homebuyers that have struggled financially in the past. However, there can be caveats to manage the risk that could lead to you paying more than you want, so do your research.
6. Not Conducting an Inspection
One of the biggest, and most costly, decisions that a home buyer can make is to fail to conduct an inspection from a licensed building inspector before you sign. New fixtures and paint mean nothing if the wiring in the home is not up to code, or the foundation is cracking. Your buyer’s agent should have in the contract, an inspection contingency giving you an allotted time for you to bring an inspector into the home. This due diligence contingency is great because it usually stipulates potential buyers can break the contract, should they find undesirable faults in the home. Even if the faults are nothing major, they may offer you leverage for price negotiations. Inspections can be pricey along with the other add-ins in a sale, but potential maintenance issues could cost you more in the long run.
7. Adding to your Credit Presale
Lenders consider several factors in the price of a mortgage. One of the most important is your debt-to-income ratio. If your debt and lines of credit exceed your income to a certain degree, they are unlikely to approve your loan. One common mistake among home buyers is to be approved for the loan, and open up other lines of credit, such as a credit card or a car loan before they purchase the home. This adds another item to the scales and lenders can revoke your approval just as you have found the house of your dreams.
8. Underbidding a Fair Sell Price
Another mistake buyers make is lowballing an offer on a property that is priced appropriately. It is an easy mistake to make, to want to haggle. And some homes are priced differently to incite a bidding war, or they just have some wiggle room because there are certain repairs needed. But if a house is priced to sell, underbidding can hurt your chances. A good agent will be able to assess the home’s value, the neighborhood, and other homes sold in the area to advise you on a price.
9. Being Sold or Scared Away On Superficial Details
Just like first-time car buyers, first time home buyers have a tendency to fall in love with a bad house because of the fancy details, instead of the bones of a house. While features like unique fixtures or accent walls are appealing, they can be purchased and replicated in a good home that has been maintained. In the same way, buyers can also be scared away from a good home, failing to see the potential. When you are touring homes, look past the surface for red flags that could point to hidden or future problems. The cost to fix major issues in the structure of a home can be devastating to home buyers.
10. Not Placing a Large Down Payment
First time home buyers are often tempted to make a small down payment at the start of the mortgage. A small down payment is a costly mistake. The size of your down payment affects not only your monthly mortgage payments but the amount you pay overall in interest. The general recommendation is a downpayment of 20% of the cost of the loan. That is because putting that much of the loan upfront lowers the amount of risk the lender is taking, potentially lowering your interest rates. Not to mention that a down payment of 20% or above exempts you from having to pay private mortgage insurance (PMI) each month. Even if you don’t have 20%, find the right down payment that translates to an affordable down payment that you can live with. Although it seems daunting to pay thousands of dollars at one time, it can save you thousands in interest and insurance over the life of the loan.
11. Not Considering a Homes Sell Ability
Looking for a house can be exciting. But buyers spend so much time thinking about moving in and nesting, that they tend to forget about the possibility of ever leaving. Those issues with the home or neighborhood that you are willing to live with, other buyers might not. Life changes very quickly. Maybe your work asks you to relocate, you get a new job, your family outgrows the home, your kids leave the nest and the house seems too big, you become grandparents and you want to move closer to the grandkids, or your age or health issues make the house too big to maintain. No matter what happens you don’t want to be stuck in your home or potentially with two mortgages while you wait for the first one to sell.
12. Thinking the Grass is Always Greener
While it is a good idea to be cautious, take your time, and not make emotional decisions, there is such a thing as going too slow. In your search, you may wait to put an offer on a good home because you believe you will find a better one. It is a great way to miss out on good homes. Some homebuyers make the mistake of waiting for the “perfect” home that may not exist with all their desired features and price range. Obviously, you want to find your dream home, but be realistic and manage desires.
13. Buying a Home You Have Doubts About
The best mistake to avoid is purchasing a home you have serious doubts about. This is more than a house, it is your home. The rule when shopping for clothes is if you don’t love it, don’t buy it. This applies tenfold for home purchases. It is one of the largest purchases you will make in your life, so buyer’s remorse can be unsettling if you experienced doubt before the purchase.
These are only some of the common mistakes buyers make when purchasing a home. Many of these homebuyer pitfalls can be easily be avoided by hiring a knowledgeable, professional realtor. At Blue Realty, we are here to help. We can help you find the perfect house, so you can make it home. If you are considering a home in the mountains of Western North Carolina, we are here to help!