It’s natural for first-time homebuyers to feel overwhelmed by all the unfamiliar realty jargon and complicated procedures they encounter when home shopping. Most of these challenges can be easily overcome, but there are some mistakes, that if made, can result in deep disappointment and financial problems.
Here is a list of rookie mistakes that you should avoid if you want to make smart home-buying decisions:
- 1. Not getting pre-approved for a mortgage: Pre-approval enhances the chances of your offer on a home being accepted because it assures sellers that your financial position and repayment capacity are fully verified. However, pre-approval is not a guarantee for the loan amount you will ultimately get. You are neither bound nor advised to engage the lender who first issues the pre-approval letter, so shop around for better interest rates even after you’ve gotten approval.
- Ignoring miscellaneous fees and costs: Assuming the listed price of a house to be the final price can lead you to pay much more than you had bargained for. Closing costs, homeowner’s fees, agent’s commission, home insurance, taxes and maintenance are not included in the listed price but should be factored into your buying budget to set your expectations correctly.
- Not exploring all financial options: For buyers who don’t find willing lenders, the Federal Housing Administration’s concessional loan that insures the mortgages of first-time homebuyers, is a great option. As a result of this guarantee, lenders who are skeptical about your qualifications will be more inclined to lend to you. As a bonus, the FHA requires a down payment of only 3.5% from borrowers.
- Relying on the seller’s home inspection report: Blindly relying on your seller’s home-inspection report can lead to unpleasant surprises later on. It’s best to hire your own personally-vetted inspector; accompany him on the home tour; ask probing questions; and read the inspection report thoroughly. You may spot problems that should be addressed before buying or subtracted from the asking price.
- Not considering the long term value: Ignoring the big picture for small gains is a big mistake. For instance, it may be short-sighted to dismiss a property in an up-and-coming neighborhood that is likely to appreciate because the plumbing is old or the roof needs to be replaced. Soliciting your realtor’s advice when it comes to analyzing resale value, appreciation and market trends can help you make better investment decision.
- Not hiring the right realtor: A realtor who is familiar with your desired neighborhoods, has a strong real estate background and is aware of financial options available to first-time home buyers, will be your best fit. Your realtor should provide referrals for underwriters, lenders and inspectors (which will make pre-approval easier); explain procedures (foreclosures, contingency clauses, etc.), outline eligibility and documentation required for each step; and be responsive and accessible at all times.
Purchasing a home is a long-term financial obligation and your best insurance against making costly mistakes is to engage a professional realtor. But what services can you expect from a realtor and how will you know which one to hire? I’ve tried to make this an easier decision in my new eBook: