It
happens every day. First-time homebuyers, partly due to enthusiasm,
partly due to ignorance, make costly mistakes during the home buying
process. Take Jonathan for instance. Jonathan hasn't slept in days.
Like a freshly caught fish, he flips around all night then wakes
drenched and exhausted. As with many first-time homebuyers, Jonathan
got hooked: He bought more house than he could reasonably afford.
To
help you keep your sanity and your cash, become an educated consumer
and avoid the mistakes that others have made before you.
Mistake
#1: Not planning ahead. From the moment you think about buying a home, start
planning. Home buying is a time-consuming and demanding process, and
it behooves you to utilize your management skills early on.
Start
by requesting a copy of your credit report. Carefully examine it for
errors, and clean it up before you talk to a lender.
Are
you currently renting? Check your lease for an early release clause.
If you'll be subject to penalties, try to time your closing with the
expiration of the lease.
During
this planning phase, consider your life over the next five to seven
years. Do you plan to start a family? Will an in-law eventually move
in with you? Will you be working from home? The number and layout of
the rooms you require will depend on your answers.
If
you qualify for financing based on a dual income, will you be able
to survive on one salary in order to fulfill a long-range plan, such
as one parent staying home to raise a child? Once you've answered
these questions, establish a plan. Then direct the process with
reference to the plan. Don't let the process dictate to you.
Mistake
#2: Failing to understand the home buying process.
First-time homebuyers need to ask questions. Lots of questions. So
choose a real estate agent who has experience working with the
uninitiated and is willing to explain the entire home buying
process—from viewing homes to negotiating, to financing, to escrow
and closing—in detail, and explain it again until you understand
it.
Mistake
#3:
Getting in too deep. It can happen when homebuyers shop
outside their budgets or over-extend themselves. What can you do to
avoid getting hooked? Monitor your expenses for a couple of months.
Then, based on your findings, develop a budget that truly reflects
your lifestyle. Talk to a real estate agent who can provide insight
into new home expenses and taxes. Then revise your budget.
It's
smart to ask your lender to pre-approve, rather than pre-qualify,
you for a mortgage. Pre-qualification only tells how much you can
afford. Pre-approval goes a step further. Your lender will
thoroughly evaluate your application—including verifying
employment information and financial disposition—then clear you
for a loan of a determined amount. Having your loan pre-approved
gives you a sizeable advantage: Your new status as a cash buyer
makes you more attractive to the seller.
Once
you learn how much of a home you can afford, stay within your
budget. Just because you've been approved for a certain amount,
doesn't mean you'll feel comfortable with monthly payments at the
high end of the range. Ask yourself if you can live with these
payments. Do they fit your established budget? If not, rethink your
spending limit. Your new home should give you great pleasure, not
hold you hostage.
When
you relay your price range to a real estate agent, ask to view
properties within that range only. By restricting yourself, you'll
avoid disappointment later on.
Mistake
#4: Being ruled by the heart and not the head.
Curb appeal can be a powerful force. It's the first-time buyer's
kryptonite. By disengaging the mental faculties, it leaves the
homebuyer emotionally vulnerable. To counter its effect, you must be
objective. Brutally objective.
Look
at many homes, including an assortment of types of homes. When you
view a property, list the positives and the negatives. Take along a
tape measure and record the measurements of all the rooms. Make
certain your furniture will comfortably fit into the space. Visit at
various times of day to see how much natural light floods the rooms
and check for changes in traffic patterns, especially at local rush
hours. Have an inspector or engineer pick apart the property. And
recruit a friend to view the home and provide you with objective
feedback. Ask if he or she can picture your family living there and
discuss the whys and why nots. Jot down the points for later review.
Also,
think about how long you plan to own the house. Would it be
difficult to resell? List the negatives. Could you eliminate or
reduce them?
Mistake
#5:
Buying into an unknown location. Don't stop your inspection
at the property line. Examine the surrounding area. Is it safe, well
maintained and moderately quiet? Is it convenient to work, schools
and shops? Ask about zoning and that lovely forest of vacant land
across the street. Could the highway nearby be widened in a couple
of years? How far is the train? Within ear shot? If you're not
familiar with the area, ask friends and colleagues about it. Do your
research.
Mistake
#6: Signing without understanding the financing. Here's
where it helps to be a quick study. First-time homebuyers have to
contend with an assortment of mortgage types and the associated
jargon. Your real estate agent can be a great resource.
Shop
around and compare. When you decide on a lender (a bank, your credit
union, or a mortgage lender) and a mortgage, get every detail in
writing, in particular, the lock-in rate, points and fees. And
request a copy for your file. You should also request an estimate of
your closing costs, which generally run between 3% and 6% of your
loan. Inquire about prepayment penalties. Have the lender attach an
addendum to your contract that specifies that no penalties will be
imposed for prepaying the loan. This step could save you a good deal
of money.
Before
you get to the table, read all the documents related to the purchase
of the property, and have a professional review them. You're signing
a binding, legal document. Make certain you understand the
conditions of the loan.
Learn
from the mistakes of others. It's the best way to ensure a
first-time homebuyer a good night's sleep.
If you have questions about this or any other
home buying or selling subject, confer with the real estate
professionals who can help provide you with more detail…
We
can be reached at (310) 265-2130
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