We’ve had a few questions recently regarding possible mistakes when buying a home, and how to avoid making them. In this segment, we’ll discuss a few of the wrong ways to navigate the home buying process, and a few tips particularly important for first time buyers.
Should I Buy a House? | Mistakes When Buying a Home
Whether you think you’re ready to buy a house, or just considering your options, information is what you need in order to help you come to a decision that works for you. Or maybe it is the best move for you, but not quite the right timing. It’s difficult to make these choices without proper guidance, and we hope this piece helps you in your quest.
Should you buy a house? What I like to do when making a big decision like that is reverse engineer the outcome. What do you ultimately want? Why do you want it? Then, once you have identified the what and the why, reverse the steps to form the how.
Let’s create a human, Becca. Becca is 29 and trying to figure out whether to buy her first home. She wants a yard so she can garden, at least 2 bedrooms so she can have a home office and enough space for her dogs and parents when they visit. Becca runs an eCommerce business, so she’s self-employed and has managed to save $70,000 toward a down payment.
She works from home or at a coffee shop most of the time, so she doesn’t need to be close to work, but would like to be conveniently located near grocery stores and fun downtown activities.
Becca has determined that she wants to live in Monterey, and she’s learned that she can buy a single family residence for around $600,000 in the Casanova/Oak Knoll neighborhood. She likes the location – close to Safeway, the car wash, gas stations, Costco, five minutes to Trader Joe’s and the mall – Becca is content. It’s 950 square feet, but the lot is pretty big so she might be able to expand the home down the road. Becca met a nice agent at an open house a while back and saved his number.
Becca likes the house, and now it’s time to make a decision. Does she continue renting or does she pull the trigger?
Common Home Buying Mistakes
Here are some possible mistakes when buying a home that we hope Becca won’t make!
- Attempting to time the market
- Choosing the wrong loan
- Not understanding the neighborhood
- Overlooking important terms besides price
- Not taking full advantage of the due diligence period
- Neglecting other costs
Timing the Real Estate Market
One mistake buyers, both new and seasoned, make is trying to time the market in order to buy low and sell high. We are in an up market, and prices have been rising for quite a long time, which sometimes makes buyers weary of buying when the market is strong. They weigh their options and figure it’s best to wait until a market correction.
The trouble is there are consequences to waiting such as the rise of interest rates. When we consider rates were in the high teens in the1980’s, rates are still very low in the 4’s at the time of writing this. However they are not as low as last year when they were in the 3’s, and there has been talk of rates rising again in 2018. An increase in your interest rate can price you out of the home you really want to buy.
A big part of buying a house is knowing the “why?” Why are you doing this? How is it going to help your life? Often times, you’ll find there are reasons that outweigh waiting for a dip in the market to get the best price. One of those reasons might be paying rent while you wait for the price you had in mind. If you continue to pay rent, you’re contributing to someone else’s net worth instead of your own.
The Wrong Loan
A good loan officer will work diligently to explain your options to you and find out what works best. It is such an integral part of the purchase process because of the timing involved. There are strategies to locking in the rate you need in order to pre-qualify for a mortgage or loan, and there are different loan repayment programs that might work better for you than others. Discuss with your lender what a comfortable down payment would be, and what you are comfortable with spending monthly for your mortgage.
Consider other costs associated such as property taxes paid biannually on the Monterey Peninsula, possible Home Owner’s Association fee’s, insurance, other possible taxes if you are in a development. Looking at the big picture of your mortgage will allow you to be more prepared than just looking at principal and interest. This is a very important component of mistakes when buying a home!
The Wrong Neighborhood
You know what they say – location, location, location! When you’re house hunting you’re probably making a list of the most important features. Location should be a major part of your decision even in Monterey County. If you’ve found a house you like, take time to drive the street and see how you feel about your surroundings.
The house may have a Viking range and 300 more square feet than you need, but does it look like a place you are going to be happy coming home to every day? You can always update the house over time, but you can’t pick it up and move it.
The Wrong Terms
Often times in contracts there are other terms besides the price that can weigh heavily on the outcome of the escrow. Timing is a big factor: how soon do you need to move in and how soon are the sellers willing to close? What kind of a due diligence time frame are they willing to accommodate?
Neglecting Due Diligence
Inspections cost money, but it’s your opportunity to find out what you need to know about the house that may not be visible to the naked eye. Some listings are presented with inspections up front, others are not – just depends on what strategy the listing agent and seller took. If inspections are not presented and you have a 17 day due diligence period, take advantage of the timeline by having a home and pest inspection.
The home inspection might call out items for further evaluation by other licensed specialists such as roofers, chimney sweeps, electrician’s, soil engineers, septic services etc. Once you have the home inspection, confer with your agent to determine what other inspections might be necessary.
Overlooking other Costs
Sometimes buyers overlook many costs associated with buying a home such as title and escrow, loan, appraisal, property taxes, insurance, or homeowners association fees if applicable. Requesting a buyer’s settlement statement from your agent will help break down those costs to give you full financial picture. One common misconception is buyers paying brokers. Buyers do not pay the agents, the commission is taken out of the seller’s proceeds upon closing escrow so the seller pays the fee.
Conclusion | Mistakes When Buying a Home
We hope this guide on mistakes when buying a home helps you in your home buying process, and we’re always happy to answer any questions you might have. Reach us at 831.250.3399 or find our contact info here!
What happened to Becca? She’s a fictitious, but let’s assume she weighed her options and found a down payment and monthly mortgage program that she was comfortable with after diligent efforts from her lender to find the right fit.
She had a successful escrow and conducted inspections in order to find out what she needed to learn about the home. She negotiated a few important safety repairs from the inspection, and she feels good about moving forward to close. The keys to success when buying a home are information, preparation, and execution.