10 Home Searching Mistakes You Can't Afford
Most advice articles usually tell you what you should do, but just as importantly, there some things you shouldn't do. Here are the 10 most frequent home searching mistakes that consumers make - and that you should avoid.
- Don’t hire just any agent to help you find your house: All real estate agents are not the same. You want to work with only one agent, who listens to your needs and helps educate you about your choices. A good Realtor will respect your interests, advocate and negotiate for your position, and assist you with referrals to other necessary service providers. Interview agents you are considering to hire and make sure you like the Realtor before signing an agreement with him/her. If you don't like the answers you get during an interview, move on politely and look elsewhere. And above all, stay away from relatives; unless Aunt Amy or Nephew Nick fit the description above, keep looking. Sign agency with a Realtor as soon as possible into your home search, otherwise no one is actually looking out for your interests.
- Don’t choose the wrong loan consultant / mortgage: With the advent of instant refinancing, home loans are no longer the lifetime obligations they used to be. Still, you don't want to be saddled for even a short period of time with the wrong mortgage because your loan consultant could only show you one type of loan package option.
Listen to your Realtor and get a referral to see a loan consultant at the beginning of your home search process so you have lots of time to learn about what mortgage products are out there. Try to use an independent loan consultant - one who is not obligated to use a particular bank or plan - so the two of you can investigate all your different options, putting your choices side-by-side and do the math, making sure to compare worst-case scenarios. Independent loan consultants get no kickback for referring you to one program over another, so you don't have to worry about being steered in the wrong direction. If instead, you do choose to go to different independent banks or credit unions for your quotes, be sure to look at initial interest rates, future interest rates and payments (if different), and the possibility of prepayment penalties so that you can later make "apples to apples" comparisons.
- Don’t confuse "preapproved" and prequalified" with a loan commitment: With the new NC real estate contract ('07 version), it is very important that you have a clear understanding of who will lend you what money and how fast they'll agree to give it to you. The terms "preapproved" and "prequalified" are debatable terms in real estate because not all lenders define them the same way. According to one school of thought, when you are prequalified, the lender is making an educated guess about how much you can borrow based on what initial information you've provided. When you are preapproved, the lender has verified everything you have told him or her up to that point and is offering to lend you up to a given amount at current interest rates - under certain conditions.
Meet with a lender (preferably one referred to you by your agent) early in your home search process to make sure that you know the upper limits of what you can expect to borrow and what exactly you will have to do (or, in some case, not do) to qualify for that loan.
- Don’t mess with your credit or your taxes: The minute you start searching for a home, be very careful about doing anyting that could change your credit scores negatively. Similarly, be ready to discuss your taxes and don't plan on amending them without first talking to your loan originator. A good loan consultant can help you determine the best way to identify, remedy, and improve your credit score if you talk with them early enough in the home buying process. However, after that, postpone any major purchases until after you buy your house - this includes furniture, appliances, cars, etc. Even if you pay your bills on time, lenders tend to focus just as much on how much credit you have available to you as they do on timeliness of payments. So being up to your ears in car loans and credit cards is a sure way to be turned down for a mortgage. Talk to your loan consultant early in your search so you know exactly what you can and cannot do and how to make the best of your financial situation.
- Don’t lie on your loan application: Exaggerating your income on a mortgage application or putting down other untruths is a federal offense. Simlarly, claiming one thing on your taxes when you actually did another will be found out. Lenders rarely prosecute liars, but if they find out later, they will probably call your loan due and payable immediately... which could mean you lose that house your just "bought" and most likely lose quite a bit of money in the process.
And don't ever sign your name to a loan application that is not completely filled out, either. Some unscrupulous loan officers have been known to stretch the truth to get a client approved, but it's the borrower who ends up paying the price, often in the form of unaffordable monthly loan payments. Again, ask your Realtor for a referral to a reputable loan consultant.
- Don't confuse what you can borrow with how much you want to borrow: Very often, clients are surprised with the potential loan amount lenders say that are allowed to borrow - it's usually much more than they expected. Be careful though. While you may be qualified to take that amount of mortgage, whether you want to actually saddle yourself with those levels of payments each month is another thing. Sit down with your lender and discuss what type of monthly payments are comfortable for you (including some padding in case things get tight) and then go backwards to figure out how much home you really want to afford. Also make sure you are discussing the full monthly payment (PITI = Principle, Interest, Taxes, Insurance) when having these talks. Then let that monthly number guide your home search, not what you are approved for. Better to be safe, and fiscally responsible, than sorry.
- Don't forget all the "hidden" costs of owning: While your PITI mortgage payment will probably be the biggest portion of what your home will cost you on monthly basis, remember to also figure in all the little payments that might push you over the financial edge. Electricity, heat, gas, water, sewer, trash, insurance, yard care, minor/major repairs, and HOA dues may all seem insignificant until they are added up each month. Make sure you consider what the total monthly cost of owning a home will be when determining your home search budget.
- Don’t assume everything will be easy during the buying process: Buying a house is a major life decision, both financially and emotionally. While it is an exciting and, hopefully, fun process, it can also be very trying and stressful. Especially given today's tight-fisted lending climate and the nuanced requirements of the ever-changing real estate paperwork, the buying process will require your full attention and commitment. You Realtor should go over what you can expect (both positive and negative) during your purchase and you should take her recommendations and advice seriously. Buying a house is a major decision which requires a major commitment during that process. Respect yourself and your Realtor by taking it seriously.
- Don’t skip a home inspection: Failing to make your purchase contingent on a satisfactory home inspection could be a very costly mistake. Independent home inspectors examine houses from stem to stern. They should be able to tell you if the roof and/or basement leaks, whether the mechanical systems are in good shape and how long the appliances might last. It is a great opportunity to learn about how the house yu've chosen functions and what you can do to keep it in good shape. So don't pass up a home insepction just to save a few hundred dollars - it’s money very well spent. Ask your Realtor to give you a referral to the very best people in this industry.
- Don’t let your friends and family hijack your home search: Very often when people start searching for a home, everyone around them starts giving them advice and warnings about what to do and what not to do. While this is usually heartfelt and well-intended, it can also be very stressful and confusing. Remember that you hired two trusted professionals to guide you through this process: a Realtor and a mortgage loan consultant. Use these two resources to ask questions, get advice, and bounce off ideas. They are not only exposed to the in's and out's of real estate on a daily basis, but you have hired them specifically to educate you and watch out for your interests. Your family and friends may want to help you, but very often, they are merely recounting their personal preferences and experiences. Ultimately, they're just not as knowledgable about the nuances of the home buying process as the professionals are. Remember that you are the one who has to live in and pay for your home buying decision: find and hire trusted advisors to help you make wiser decisions.