Here are some of the most common mistakes buyers make when buying a home. What we pontiffs wanted to do is better inform our loyal followers to these so they will be better prepared going into the process all together. We understand that many will know to go with a Carrigan Group advocate and you can avoid many of these problems, but some can’t and so this will help you better inform your agent to protect yourself.
1. Ignoring the costs and effects of low credit score…
What score should I have? Well I wish I could tell you but I can’t it varies, there is so many variables involved, what is your income, what type of credit do you have, what is the amount of liabilities do you have, and are you leveraged too high? But I can tell you that below 650 it will cost you, in many ways this number will affect you and your wallet. For example, your car insurance will be more expensive, your loan interest may be higher, your payments for furniture and other installment contracts will be higher, you may be turned down for loans, apartments, and even jobs because of it (regardless that it is against the law, you may never know the real reason) and you may be required to put more money down.
So ignoring the warning signs and the report itself can have a terrible effect on your score and your financial history. Pull that report, look at it, analyze it, and fix what you can now. Look at items in which you had negative notations, but now you have been on time for two years or more and have the negative items removed. Double check to make sure there are no mistakes on the report or possible an issue of identity theft or identity mistake, it can happen. Pay down balances that are close to the limit, or even ask for a higher limit (but don’t fill that extra amount). There are many things you can do to help your credit, call us and we can help, BUT DON”T call these scam artists who claim they can improve your credit for a mere $3000.00. Check your credit score early and fix what you can now.
2. Know how much a house you can afford….ALL the costs involved
One mistake many buyers make is they ask for a particular payment, or have a specific payment in mind and they don’t take into consideration the other costs either direct, related, or hidden that are involved in owning a home. Many people say, I need a payment of no more than $1900.00 a month or I can’t afford the home. They then get a quote from a loan officer who says “sure we can do that, here is a loan amount of $.......00 with a payment of only $1800.00 a month, how do you like that?” However, this payment does not include insurance, HOA dues, other assessed taxes, property insurance, monthly utilities, pool maintenance, gardening maintenance, etc. Remember that some of your monthly costs will go up and that you will still have other costs that you had before and you should take those into consideration as well.
What you should do is ask the loan officer if the payment quoted is taxes insurance, PMI, interest, and principle included. Remember your loan officer does not have an insurance quote for you nor does he/she know the average utilities you will have for your new home. Have them in mind by researching those costs, and you will have a better idea of all the costs involved in owning your home and what it does to your monthly payment. Always shoot for a lower house price then you want to afford so you don’t over stretch yourself, especially if this is your first home. Understand that there are tax incentives to owning your home but also there are maintenance and other costs as well.
3. Failing to have an agent represent you and staying loyal
This should be an obvious one, and of course it is also a touchy subject. Many people just don’t understand how Agents get paid. It is easy for those so called investment gurus to slam agents and commissions paid, and yet will they give their advice for free? Will these same experts give you their book free, let you attend their costly seminars for free, or even have no strings attached? After giving you their advice are they personally responsible for the outcome? Are they economically tied to the successful outcome of your transaction like a realtor is?
No, you see, there are those who have bought so many houses, and investment properties who understand the ins and outs of a transaction and also can afford to lose a few thousand dollars, but not the average consumer, the average consumer needs someone who will represent them, and their interests.
An agent only gets paid if you buy a house and the transaction closes, in the interim however, the many hours driving to and from houses, the faxing and research and the length of escrow the agent receives nothing. They don’t get paid until it closes AND there is enough money left over at the end of the transaction. So remember no one likes to work for free, and you need to be loyal and honest with your agent. If the agent is not doing their job, let them know, and if you get no response, dump them. But remember, trying to straddle the fence and have multiple agents working on your behalf will mean that once they figure this out, they will dump you or worse, string you along and not care whether your interests are taken care of or not. After all, you didn’t think enough of them to consider their interests either.
Remember that a listing agent works for the seller, an REO broker works for the bank, an auctioneer works for the seller, and if they represent you too, who’s interest will first be sacrificed? The buyer’s (yours) that’s whose interest will fall down the list of priorities first. So don’t be fooled into thinking they will aggressively try and get you the best deal. If you believe the experts, then the agent is out for only their commission at worst and at best there is a conflict of interest and they are going to try and get the highest price for the house. Where you, on the other hand, have an interest in getting the lowest price for the house possible.
4. Focusing on your wish list is not a reality check
When you go and look for a home you want it all, you want what you don’t have now, or what others have that you like. However, that may not be out there, or at least not in total. A house needs to meet your needs at a minimum and then needs to have the highest priorities on your list met. You may or may not get all of them in one home, or in the home that accepts your offer. You need to prioritize, and step back from the transaction and think rationally rather than emotionally. Am I saying you need to compromise on your dream? No, but you will need to come to a realization that your dream home is not out there unless you build it, and even then once you live in it you will see issues.
What we recommend is always update your priority list and keep realistic about your chances of finding all of your wants in one house. Be open and honest with your agent and always talk about your likes and dislikes as they will change. As we talk about in our podcast and blogs, you will be making many offers and looking at many houses before completing the transaction ultimately. So things happen and the housing market is volatile. Although many homes are on the market, many are not going to match what you need or want.
5. Assuming foreclosures and auction are such a great deal…
Remember, these same investors and banks who got us into this mess are also the ones trying to put the blame solely on the agents out there trying to sell this inventory. Foreclosures are a trustee sale, that means the bank now owns them and they have not seen the property, and sellers make no warranties as to its condition. You also may not even be able to see the home prior to bidding. You have to also understand that the reo brokers work for the bank and not you, as stated above they do not have your best interests at heart. Watch out for the fine print, you may still have some costs that won’t be knocked out by the foreclosure, and you may be responsible for evicting the current tenants who are not so happy to be leaving. I have seen owners smash the property up just as escrow closes, and there is NOTHING a bank or reo broker will do about it.
Auctions are all these problems and can even be worse. They add insult to injury and they charge you an extra 5% just for the opportunity to not preview the property beforehand, accept the property as-is, and sometimes force you to use their loans which are also high priced. Price conscious buyers need to be educated and wary at the same time, some of these auctions allow you to bring an agent with you, do so, and have cash on hand or you will be out, and be ready to compete with the other investors who are out there and gave you the advice not to use an agent (so they can get you to screw up and they can swoop in and buy).
Short sales can also be difficult and time consuming, so make sure you are prepared for what might happen. Listen to our podcasts that talk about these type transactions, so you can be better prepared in the end. And on a side note, these silly buses that truck unsuspecting buyers around only show you the properties they want to show you (their own listings and we have spoken about that problem above) and yes you can make an offer, along with the other 50 people on the bus with you, great odds there huh?
6. Assuming your first offer will be accepted
Many buyers get frustrated when they find a house, and make an offer they believe was good, and don’t want to sit patiently for an answer. And if the answer comes at all, it seems that a property that when we made an offer surprisingly, now has multiple offers and they are all higher than yours. Believe us, we know how frustrating this is, and many a buyer gets angry and frustrated to only leave the process entirely. Well, what is going on then? Well, there are many truths, and not all things on the up and up. Am I saying there are bad agents out there? Yes, Yes I am, there are desperate, hungry, jaded, unethical, and do anything to make a dollar agents out there. Are there professional buyers who have done their homework and are willing to pay all cash to get a home? Yes, yes there is. There are agents who hold on to a listing so they can double end the deal (represent both sides themselves), and there are homes which are priced too low in order to attract more buyers into a bidding war.
Then what should you do? Have patience, and stick with your advocate. Remember that many times you can bid and then never hear from them again, so please be patient and keep bidding, and keep looking. Many listings on the market today are priced well below what they should so that many buyers will bid and they can counter offer the price upwards. Some people bid very high on a well priced listing in order to start a bidding war, artificially inflating the going asking price. They do this knowing that the price they offered will never make it to appraisal and thus the bank will renegotiate to a price closer to what you were offering all along. Sometimes we as your advocate can make sure the offer is well thought out and well within the good price range, and we can also speak to the broker of the agent’s listing (that sometimes can work against you), but that does not ensure we can overcome the shady dealings.
So the quick answers are, be patient, look for homes a little below your price range in order to have room to price up your bid to get the house, remember that your offer has to compete with other buyers who want the house so don’t ask for too much, and again worth repeating be patient, be patient, be patient.
7. Not buying with contingencies
This can be a big one if you are on the wrong end, buying a home knowing that it must meet your loan criteria, or that you must close on your current home is crucial. Missing this one could cost you your home; I have seen it many times before. An agent writes an offer and sends it to us without contingencies. When in the offer, and by talking with the agent you can tell there needs to be one. That client is going to be very upset when those contingencies are not met and they can’t pull out of the deal. Make sure you have a good advocate who knows how to write an offer (not simply putting it on their assistant to do, or their pre-done template offers).
8. Scrimping on inspections (home and termite)
This too may sound obvious, but I have been on the other side of transactions where the buyer’s agent allows, or even encourages their client to forgo an inspection because the seller won’t pay for any repairs. Well that agent needs to find a new line of work, because it is clear they don’t understand the need nor the value of these inspections.
A home inspection, a good thorough one, will help you pin point the most pressing problem areas that will need to be addressed once or before you move in. A termite problem will allow you to see where the problems lie in the pest area, or the rotting wood that will need to be replaced, or even the good news that there is nothing pressing to deal with and you should be happy to buy the home. At least you will know, and better prepared.
Pay the inspection, because the agent, who doesn’t press you to do it, won’t be there when you find out the extent of the damages because you were the buyer and you had a responsibility to do those inspections. Don’t expect to come after an agent who told you that you should do these inspections and you decided not to, it’s just plain silly.
9. Not getting a home warranty
These warranty plans are a great deal, depending on who you use, they can save you a bundle of money on repairs. Oh, and a great tip is, you can buy these warranty plans anytime you like. Even after you have the home, remember whether your agent, seller, or you pay for it, it will help you in the long run. What are they? Well they are a policy that you can purchase for around $400.00 that in the event your ac or your water heater breaks down, for a small fee (between $25-$55 dollars) they will fix it or replace it, you can also get it on septic systems, roofs, ACs, appliances, and the like so remember the first year you WILL have some issue that a home warranty will come to the rescue. I will have a podcast later to discuss this very issue, with lots of tips on what to buy. Why not spend the $450.00 now instead of the $1000.00 later.
10. Don’t shop for other things while getting a home
I can tell you that this has happened a few times with some clients of mine, they are so excited to get the new home and they buy a few other things to go with it, like a spa, or a new truck. Then all of a sudden just before funding the bank checks your credit again and whammo your debt to income ratio is off and now you don’t qualify for the loan anymore. Watch it, and be careful, better yet, don’t buy anything until everything closes.
11. Getting the right mortgage
We all have seen what the last buying craze did to the overall economy. I blame banks and many an agent for that, but I also blame the consumer. Many a consumer saw the appeal of fast and easy money to buy the house of their dreams that was way too expensive but they believed they had the time and opportunity to later change that bad loan out for a good one. Well we know where that philosophy got them right? So please get a good loan, even it is for less than you wanted, and assume that things get worse before they get better, and ALWAYS work on improving your financial situation to better withstand the effects of the economy down the line.
Get a good loan officer, ask questions that may stump them, if they make something up, dump them now, or pay the price later. Ask them about their toughest deal and how they got it fixed, and see if you can speak to that client. Remember once the advocates have done their job, it will be up to the 2 most important people in the world at that given moment, the loan officer and the escrow agent to close it in the end. Have a bad loan officer who can’t get the deal funded and knew all along, or didn’t ask the right questions and sure enough the deal falls out at the last minute, and who do you think you’ll blame??? Don’t fib, we know, the AGENT, that’s who, I have seen it many times, every month they write a check for a bad loan and they get angry at us, and forget that we didn’t do the loan and you got yourself into it. So do your homework, you will thank us for it later.
12. Save save save your money, ask ask ask for money
It used to be that you went to a wedding and they had gifts for the bride and groom, and usually it was money in order to have a down payment for their new home. Those days are gone (or maybe coming back). In this day and age, one positive thing that has emerged is, you have to have skin in the game, you have to have some money down to get a home now. That’s reality, and it’s a good thing. So save your money, don’t buy that new 4x4, or that new quad, save your money for a down payment or the costs associated with your purchase. Always ask for money, ask it from the seller, but don’t go overboard, see if you can’t work in certain costs into the loan or the deal so you can get into that home, be creative.
13. Get utilities turned on in time
Okay you have had all the stress and excitement imaginable to get into your new house, you are ready to move in on the weekend, and you have done it, only to find out you missed one crucial thing, the utilities are not on. Great, you roll with the punches and eat by candle light, but after call the evil electric company and Gas Company and Water Company, you find out they cannot do anything to Monday and maybe have someone out by Wednesday. Now your romantic elation about your house has dropped to record lows and you need to stay somewhere else and the glow has dimmed on your new home experience. I have had it happen with new tenants and buyers of other agents who buy one of our listings. What we try to do is gently remind the client that you will need to get those things turned on and get ready to change your address and such. So remember that this is a simple thing that can cause a real headache in the end when it happens.
14. Be flexible and be patient, and stay positive
Remember that there is a bit of the wild-wild-west in this housing frontier. No one can guarantee a smooth buying process (sometimes it happens but it is rare). Remember that the “experts” also have an angle, and your uncle’s/sister’s/friend’s/coworker’s/neighbor’s experience is not indicative of your possible outcome (you don’t know all the variable involved in their deal). Be patient, trust your advocate, and be prepared with the right kind of knowledge and you can minimize the false expectations and thus increase the level of pleasure and excitement that can accompany your house buying experience, and turn the process of buying a house and making it your home more fulfilling.
Well I hope this was informative for you, please contact us today for all your real estate needs, and even questions. Remember to subscribe to the blog and to our podcast to continue to hear our 8 cents on issues in real estate that make a difference to you.
ryan
This is awesome, my boyfriend was lookin into buying a home, and half of the things you listed, HE WAS DOING! So thank you very much.
Posted by: Jacqueline Smith | June 08, 2010 at 08:31 PM
Great post. I really don't know why anyone would skip buying the warranty, especially during the first year. I know that when I look to buy a house impounding the taxes will be on my wish list! I don't want that bill twice a year!
Posted by: Ami Sylvester | June 08, 2010 at 08:03 AM
This was very helpful to me. I will keep coming back to read these articles. Right now I am working on making my credit better so when My husband and I decide to buy a house we can do what was stated in this article. Thanks
Posted by: Kimberly Rush | June 07, 2010 at 01:38 PM
This was an excellent article. I will definitely think about all these things when we do decide to go into the market. I found myself saying, "Oh I didn't think about that!" Seriously, though when I am starting to shop I will put those things as priority!! Thank you so much for educating me through out these past few weeks. I will follow your blog!
Posted by: Cheryl Nakamura | June 03, 2010 at 08:47 PM