5 mistakes homebuyers make
It's a great time to buy a house. But don't let these common blunders derail you.
This post comes from Brandon Ballenger at partner site Money Talks News.
If you want a new home and can afford it, now is an exciting time to buy. The National Association of Home Builders says homeownership appears to be more affordable than it's been in 20 years. Interest rates are low. And there shouldn't be a supply problem: RealtyTrac predicts a lot more foreclosures ahead.
One potential fly in the ointment? Getting the loan. That's one of several factors that can turn a buyer's market into buyer beware. In the video below, Stacy Johnson talks about potential buying blunders. Check it out, then read on for more.
As you already know if you're a house hunter, mortgage financing is no walk in the park. "Extraordinarily tight standards currently prevail," Elizabeth Duke of the Federal Reserve said in January. "Borrowers who likely had access to mortgage credit a few years ago are now essentially excluded from the mortgage market."
Why the tight standards? Once bitten, twice shy: Lenders left standing after the foreclosure tsunami are requiring more documentation, stricter appraisals and bigger down payments.
Here's another look at potential buyer pitfalls.
Months before you set foot in your first house -- a full year is better -- start preparing. Check your credit scores. A low score will keep you from qualifying or result in higher rates that will cost you thousands of extra dollars over the life of the loan. (To see how much, check out this calculator from credit score company FICO.) If you find you have credit score problems, address them.
When your credit score is as good as you can make it, go loan shopping. To learn more about cutting through fees and getting the best possible deal, check out "Follow these 3 steps to save thousands on your next mortgage."
Don't expect much help from your agent. Since they're motivated to close the sale, many will want your offer to come as close as possible to the asking price. That's why knowing things like neighborhood "comps" (comparable prices of similar nearby homes) is so important.
Never submit a written offer that doesn't include a time period to thoroughly inspect the house. The primary reason is obvious: It protects you from a potential disaster. But another, more subtle reason is nearly as important. The results of an inspection may help you negotiate a lower price, because an inspection nearly always reveals problems with the home.
A real-estate agent can refer you to a qualified home inspector, but you can also look up local home inspectors at the American Society of Home Inspectors website. The few hundred dollars they charge could be the best money you'll ever spend. If you're looking at a foreclosure or short sale, this is doubly important, because if the owners couldn't afford to keep the house, they probably couldn't afford to maintain it properly.
One contingency was noted above: an inspection contingency. But there are others, including not being able to get financing, not being able to sell your existing home or a low appraisal. In general, the more outs you have, the better. But the opposite is true for the seller. If you give yourself too many escape hatches, expect some pushback.
Dumb move: not crossing "t's" and dotting "i's." Buying a home is an emotional decision. That translates into potential problems for those using their hearts instead of their heads.
Entering into a contract to buy the house of your dreams will feel like the end of the process, because you've shifted from hunter to homeowner mode. You're mentally arranging your furniture and deciding what color to paint the kids' rooms.
Don't let down your guard yet. The process of closing on your new home is an opportunity for the professionals on the sidelines to throw a few fees your way. Carefully go over the paperwork, and understand everything you're expected to sign and every fee you're expected to pay. If you don't understand something, ask about it. If you find a fee you didn't expect, challenge it. And if the paperwork blizzard leaves you feeling like a deer in the headlights, hire help.
More on Money Talks News and MSN Money:
Let's give an example of the difference between a stupid buyer and a smart one by taking a property in the distinctly "sought after" area of Cupertino, CA. Address is 1154 Kentwood Ave. The asking price is $998,000. The stupid buyer listens to the realtor saying, "What a lovely house in a good school district and the comparables recently sold at $845K and $840K. If you offer $840K, you are getting a deal if they take it."
The smart buyer researches the history and finds this house sold in 1996 for $333,000. (Redfin.com) Now in today's dollars that means the seller paid $483,000 for this house for which they are asking $998K. Used an inflation calculator. Assume a historic appreciation rate of 4%, the value is about $624,000. That gives our seller $141,000 in pure profit in today's dollars assuming no major renovations since 1996. If there are problems, less than $624K seems fair. If there were significant renovations, more than $624K seems fair.
It's always a good time to buy a house if you're well thought out offer is accepted. Money (may) Talk News, but a fool and his/her money are soon parted.
You can get a very good home inspection from National Association of Certified Home Inspectors and Independent Home Inspectors of North America. American Society of Home Inspectors is not the only player in North America.
Elm-City Home Inspections
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