Avoid These 8 Home-Buying Mistakes
March 13, 2018The prospect of buying a new home can be exciting. Once you zero in on that property and prepare to make an offer, all types of dreams begin to rush in like your new commute to work, your first time having family or friends over, grilling out, enjoying the scenery of your space. As exciting as all of this sounds, before you make your offer, you must take a moment consider the long game. You must de-romanticize the process and the think about selling before you buy.
Here are some mistakes you should avoid so the home of your dreams doesn’t become a nightmare.
Mistake #1: Buying too much house
Why it’s a mistake: You met with your lender and they gave you the amount that you can qualify for in terms of a mortgage. That number may look good but a lot of times it is the top amount that they are willing to lend you, but not necessarily what you can afford. Just because you can qualify for that much does not make it the ideal amount to finance.
How to avoid: Do not rely on the lender to set your target. The right house is the intersection of your family’s needs/wants and cost. Take a moment to list the must haves for your home purchase. Then examine your budget and determine how much you can dedicate toward housing while maintaining savings and your standard of living. Then use a calculator to determine how much of a loan you will need to achieve your goal.
From there determine what properties satisfy your must haves at the right price. You will eventually need to work with a mortgage company, but you should have good idea of what you plan to pay for a home going in and not just what you qualify for.
Mistake #2: Buying too little house
Why it’s a mistake: You risk outgrowing it too quickly and losing money by have to sell again too soon. Realtor costs, attorney’s fees, and mortgage closing costs can make the cost of buying home expensive. Multiple transactions in a short period of time can make it very costly without yielding growth in your equity.
How to avoid: When you decide on what house makes the most sense, be sure it is at least a five-year decision. Are you looking to grow your family (get married, have kids, adopt a dog) in the near to midterm? If so it makes sense to buy with that in mind. When we moved into our home we were expecting our first child. Now we are family of five and thankfully we have not had to move because of the additions. If we had to move 5 years in we would have likely lost money on the sale due to the mortgage crisis.
Mistake #3: Buying because it’s a “good deal” and not because you love it
Why it’s a mistake: You’re going to come home to this property every day so you better love it. It’s true that owning a home is a good way to help increase your wealth, but that shouldn’t be the primary consideration in choosing. Buy a home that you won’t mind living in even if it falls in value for a little bit, rather than speculating and trying to make a buck, and risking that you’re stuck in a money pit you hate.
How to avoid it: Ask yourself if you could keep living there beyond your initial plan. If the answer is no, keep shopping or consider the house as investment property and NOT your primary residence.
Mistake #4: Getting in a bidding war and overpaying
Why it’s a mistake: It’s easy to let our competitive side get the best of us, especially when we find something we really love. But unless you’re bidding on a home that is under-priced in order to sell quickly, making an offer for higher than the asking price could cause problems both with the appraisal (you may not actually get approved for the mortgage you need if the appraisal comes in a lot lower than your offer price) and should you have to sell sooner than you plan.
How to avoid it: Unless you live in a hot market right now (like Denver), it’s best to stop at the asking price when it comes to a bidding war.
Mistake #5: Buying a home that’s 15 – 20 years old with all original appliances, roof, HVAC etc.
Why it’s a mistake: You found the right size house in the right neighborhood and it seems to be at a steal of price. You notice the house can use a little TLC and the appliances are a little outdated but you can always update that later right? Not so fast. You want to make sure you take the value of that TLC into account when making your offer.
How to avoid it: If you are purchasing a house it is imperative to determine when major repairs and replacements are due. Once you know where you stand with the age of these items consider your cost to update or continuously repair such items. Be sure that you take this cost into account when you compare it with similar properties in the area that have been recently renovated and make sure you are getting the house at a discount. Also request the seller include or give a cost concession to purchase a home warranty.
Mistake #6: Thinking you can easily flip
Why it’s a mistake: Watching too much HGTV can lead to thinking that flipping a house takes only 23 minutes of hard work. The truth is house flipping is a lot harder than it looks on TV. It takes not only real estate knowledge but financial savvy, budgeting discipline, and some good luck.
How to avoid it: Go into the flipping process with a healthy appreciation for what it will take to earn a profit. You can do this by researching real estate in your area and networking with local professionals that specialize in investment real estate. Offer to help a friend or acquaintance that is actively flipping or renovating their own home. The free labor will be valuable to them but the lessons learned will be even more valuable to you. If your primary focus is not getting your hands dirty but reaping the profits there are national and local investor networks that pool their money but pay professionals to do the work.
Mistake #7: Not attending the inspection or ignoring warnings that the inspector uncovers
Why it’s a mistake: As much as you are excited about the prospect of buying a home, it is the job of the home inspector to see all the warts that you may miss. The home inspector gives you the opportunity to address any issues, usually at the seller’s expense, before the home becomes yours.
How to avoid it: Talk to your home inspector and review their process to make sure they are as thorough as possible. The best way to do this is speak to multiple inspectors. Make sure to attend the home inspection and ask questions. When I bought my first home the home inspector could show me imperfections in the home and gave me tips on how to care for the home. For my last home purchase, I not only had an inspector but a very finicky friend that happened to be a builder to pick apart the home. We walked away with a comprehensive list to of things to present the seller.
Mistake #8: Taking the home buying “package” rather than finding the best team for you
Why it’s a mistake: It may feel easier and less confusing to take on the home buying team offered by your Realtor or your lender but “one size fits all” does not apply to one of the most important financial transactions in your life. As mentioned earlier there is a long list of interested parties to the home closing process.
How to avoid: Be leery of taking anyone’s predetermined home buying team without understanding everyone’s role and comparing to them to determine if you are getting the best deal. Shop around for everything. Are your Realtor’s commissions competitive for the market? Shop for mortgage rates and compare your options. Pay attention to how to how and why the home inspector, closing attorney and even title insurance is chosen.
Buying a home is a milestone to be proud of — taking steps to avoid these mistakes can help you enjoy the fruits of your labor for potentially decades to come.