For many people, buying a house is not only the largest purchase they’ll ever make in their lifetime, it’s also one of the biggest investments they can make to grow their wealth.
So it makes sense that emotions are likely to be heightened. But getting swept up in the excitement and anxiety of the homebuying process can sometimes lead buyers down the unfortunate path of misguided decision-making.
When you factor in the frenzy of today’s real estate market, one in which homes are in short supply and bidding wars are the norm, it only augments the chances of buyers eschewing common sense for emotionally charged mistakes.
“Things happen fast in this market,” according to Jeremy Ford, a Realtor with RE/MAX Real Estate Group. “Some people are having buyer’s remorse for acting too quickly.” He also acknowledges that in a super competitive market, when sellers are receiving multiple offers, “sometimes you have to move quickly to get the house you really want.”
Craig Williams, a real estate agent with Coldwell Banker Vanguard Realty, has even seen some buyers waive inspections to make their offer more enticing to the seller. “I would not recommend doing that unless you are prepared for the worst,” he advises.
Educating yourself on the process of buying a home and having awareness of the typical mistakes buyers make is the best defense to ensure you don’t fall prey to the same pitfalls other buyers have before you. As Ford advises, “Have a plan, be prepared, and don’t settle.” Below are five of the things you should avoid to ensure your house-hunting experience is a happy — and financially favorable — one.
Not Researching the Neighborhood
Location, location, location. It’s the first rule of real estate. Just because a home may check off all the items on your wishlist doesn’t mean you should overlook the neighborhood it’s in. After all, “It may be lacking in the one element that is most important to the buyer,” according to Sharon Swinford, a real estate sales consultant with Keller Williams. School ratings, traffic patterns, crime rates, future development plans — these all impact the resale value of a home. It’s also useful to know the home’s proximity to grocery stores, restaurants, hospitals, and mass transit.
“Before you start shopping, explore the areas you think may be a good fit for your new home,” suggests Williams. “Real estate agents are required to practice under fair housing laws, and we are not allowed to steer buyers to or from certain areas.” This is why he says it is extremely important for homebuyers to look at all of the neighborhood data on their own. Something that would also be prudent to remember? While you can make improvements to a home, you can’t change its location.
Not Getting Pre-Approved for a Mortgage
Shopping for a house without getting pre-approved is akin to putting the cart before the horse. “Always consult with a lender before house shopping — this will allow you to develop a budget and see how much home you actually qualify for,” says Williams.
There is a difference between getting pre-qualified and pre-approved. A pre-qualification letter from a lender is simply based on unverified financial information the buyer provides, whereas a pre-approval is a statement from the lender that the buyer’s finances have been verified and they actually qualify for a mortgage. According to Swinford, “This letter gives a prospective buyer an edge when it accompanies a purchase agreement. This is very important during a competitive buying market!”
To avoid any surprises during the transaction, Ford recommends asking the lender for an estimated cost sheet to ensure you can cover the closing costs and afford the monthly payment. “Asking for the seller’s assistance with closing costs used to be common, but in a seller’s market, it’s next to impossible when there are competing offers,” he says. It’s also a good idea to shop around with various lenders to find the best interest rate. “Shop mortgages just like you were buying any other big-ticket item,” advises Williams. “Finding the right loan program can save you a lot of money over the term of a loan.”
Not Using a Real Estate Agent
Between finding listings that meet your criteria, negotiating the purchase price, coordinating with inspectors, title reps, and lenders, as well as managing the sheer volume of paperwork required to buy a home, a real estate agent is an invaluable resource for buyers. “It is the agent’s duty to assist and help protect the buyer,” says Swinford.
Having a seasoned professional in your corner to guide you through the process — and sometimes prevent you from making poor decisions — is wise. It costs the buyer nothing to use a real estate agent, since the commission is typically paid for by the seller. Just be sure to “read reviews and do your homework before you select an agent to work with,” says Williams. It’s okay to interview a few agents to find the best fit.
And when you do hire a Realtor to represent you, be sure to heed their advice. One trend Ford has witnessed among his clients is the tendency to rely on the opinions of others, typically family and friends, who may be familiar with the real estate process but not necessarily savvy on the current market conditions. “I had buyers who had a three percent interest rate about a year ago. Their parents told them never to buy a house at asking price.” Given that most houses are selling for over-asking, the clients missed out on a house they wanted. And now the same client’s interest rate went up to five percent, which is a difference of $350 to $400 per month.
Waiving a Home Inspection
When you find the house of your dreams, which also happens to be the dream house of seven other buyers, it’s understandable that you would want to make your offer as enticing as possible to the seller. But waiving an inspection is typically not a good idea. Structural issues, a rotten roof, and outdated mechanical systems like electrical, plumbing, and HVAC can all lurk behind the facade of a beautiful home. “These things all show the importance of using a qualified home inspector,” says Ford.
In fact, most real estate transactions are contingent upon an inspection. This gives the buyer an opportunity to learn of any repairs that are necessary and what it would cost to fix them. The buyer has the option to request that the seller either make the repairs themselves or give a discount on the purchase price to account for the cost of the repairs. Be aware that not inspections are created equal, though. According to Williams, “Standard home inspections do not cover everything, so be sure you know what the inspection entails.” Mold, radon, and termite are generally specialized inspections you have to request separately.
Making Changes to Your Financial Status
The biggest thing lenders like to see in your financial picture is consistency. In fact, you should expect to have them pull your credit twice, once during the pre-approval process and again just before closing. This is to ensure that nothing in your financial situation has changed that would affect your ability to borrow money and pay it back. If anything has changed, it could affect your interest rate and mortgage payment — or worse, disqualify you from getting the loan.
According to Swinford, buyers should avoid “changing jobs, making a large purchase, or anything that alters their finances.” Now is not the time to close existing accounts, sign up for new credit cards, or apply for any new loans. When you’re buying a home, maintaining the status quo in your finances is the name of the game.
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