For those of you out there who have yet to take the plunge into home ownership, here is a few things to consider. Renting vs Buying is something that can be researched ad nauseam as everyone seems to have an opinion on what is best for you. I am going to go on the assumption that you have decided to buy and that is why you are reading this. What I want to talk about is a few of the biggest, and most common mistakes first time buyers make. Hopefully this will help you avoid these pitfalls and make you home buying experience a good one.
Contrary to popular belief, the first step once you have decided to buy is not to go look at houses. Shocking, I know. The first step in every home search is to talk to a lender. Actually, talking to two or three is even better. And when you do this, ASK QUESTIONS. Failure to ask enough questions of their lender is the #1 buyer mistakes. They don’t come away from talking to lenders with all the information needed to make a sound decision. You know at the very least know how much how you can afford, not how much the lender will give you. There is a difference. Know the monthly payments, with taxes and insurance included. How much of a down payment will you need? How much will closing costs be? With financing options, most people believe the end all be all is the rate. While the rate is an important component, it is just one part of the entire equation. Compare the fees, Private Mortgage Insurance (PMI), the type of loan compared to others, etc. There is a lot to take in, but find a good lender who will walk you through all of the parts and help you understand. If you understand and are comfortable with the financing, it will make the process of looking more fun.
The second thing piggybacks off the first, RESEARCH. First time home buyers typically do not do enough research. This can cause some buyer’s remorse after the fact when they end up in the wrong loan, wrong neighborhood, or wrong house. Working with a good Realtor can alleviate much of this as they will bring the information to you. You then just need to use it to make the decision.
Know what you want and need. That seems obvious, but too many times buyers come in to the process having not thought much beyond the number of bedrooms, baths and garage spaces within the amount of money they can spend. As you can imagine, that is a pretty broad search criteria. Creating an overwhelming number of options. On the other hand, some come in with a laundry list of “needs” shrinking the pool of potential houses down to roughly one, and it sold last week. Leaving them frustrated that they “cannot find anything.”
Sitting down and making a list of wants and needs is a good start. But let me put a twist on it. Instead of going about it as most would, “Ok, we have to have 4 bedrooms, 3 baths, and 2 garage spaces…” and listing off all of the needs first. Instead, try having fun and first listing all of the awesome things you WANT. No holds barred. You think a pool would be nice? Write it down. Underground Batcave? Sure, why not? Bowling alley? Hey, the White House has one, why not your pad? Write it down. This should help you open up and be creative. Fill that sheet of paper up. Use more than one sheet if need be. Now that you have done that. Go back through it and circle the things that you absolutely will not buy a house unless it has it. This will help you really focus on what is important, and what is really just something extra you hope to get. Now, you have your wants and needs identified. And hopefully narrowed the pool, but not eliminated it entirely.
Next on this list is something your Realtor should help you with, and that is doing enough to make your offer an appealing one to the seller. This goes beyond the numbers. What do I mean? Sellers want the buyer to be ready, willing, and able. What does that mean? Ready. Means you have done the work up front, know what you want, have identified their house as it, and are committed. Willing. You are in a place where you will be negotiating seriously on the house. This is not a time to just be “trying it out” or only wanting to throw very low offers out there to see if you can get a deal. In other words, you are willing to work to reach a fair deal. Able. This here is the money. You are able to bring the money agreed upon to purchase, at the time the purchase is to take place. If you don’t meet the criteria for all three of these, you cannot be considered a serious buyer and a seller is not likely to accept an offer you may present.
Lastly, many times buyers become excited by the idea of getting a deal and not thinking about resale. They have seen the advertisements boasting the idea that you can get a house for no money down, and 50% off asking price, etc. Not understanding that in most markets, something like this is just not reality. There are deals out there. But think about, why is it a deal? There is probably a reason for it. Is the house priced low because it was poorly maintained? This can bring about problems with financing. Banks are not going to lend money on a house that could fall apart the next time the wind blows. And your insurance guy is probably either going to tell you to take a hike, or laugh all the way to the bank with the over-inflated premiums you will now be paying. Does the design, function or location of the house demand the low price to overcome these downfalls that cannot be fixed? You know, that house next door to the Wal-Mart might be a steal. But guess what, when it is time for to sell, it will be a steal again. This time with you on the short end of it. Many people like to shop at Wal-Mart, but very, very few want to be their neighbor.
All of this might seem overwhelming. However, picking the right Realtor can ensure that none of this will be an issue. They will help guide you through the process and help you be prepared and make the best decisions for you. Seek out information and help. It is out there. And it is free. No reason not to use it.
John, good information. Please do a post elaborating financial terms. Such as interest rates and how credit rating impacts best rate . Understand the percent of household budget guideline when determining how large a house payment is comfortable over all. Pre approved loan processing is an excellent tool in bargaining and in protecting against over buying. Approval of buying $ power does not always align with personal budget. Too many first buyers got in trouble purchasing more house than they could afford even when approved.
Consider Real Estate taxation in the area and proposed growth. Experienced taxation escalating on a our house. Established 1991 in Illinois at purchase tax 3, 000. In 5 years it was 5.000 today it is 9,000 a year
Explain PMI what it is, why it’s added, and why the home owner must notify the lender when the number of years are met and the required percent of down payment is met . The Lender Is Not required To Notify Buyer To Remove PMI when conditions are met.
Caution emotional buying. This house may meet your desired wants but emotion leaves us vulnerable to decision making. Stay pragmatic to maintain a sensible buying position.
From experience and some poor decisions.