Top 10 Mistakes When Buying a Home
If you're like most people, purchasing a home is the biggest investment you'll ever make. The process can be very complex. Here are ten key points to help create a successful and more enjoyable experience for you. Since your home could cost you 25 to 40 percent of your gross income, you have good reason to conduct research, ask questions and study the process with care.
- Looking for a home without being pre-approved. As a potential buyer competing for a property, you have a better chance of getting your offer accepted by being as prepared as possible. That's easy to understand when you consider the seller's point of view. Which potential buyer would you favor?
Neither pre-qualified nor pre-approved. This buyer provides no evidence that her or she can afford to purchase your property. You may wonder how serious he or she is since he's not at least pre-qualified.
Pre-qualified. This buyer has met with a mortgage broker (or lender) and discussed their situation. The buyer has informed the broker regarding his income, expenses, assets and liabilities. The broker may also have seen his credit report. The buyer provided you with a letter from the broker stating an opinion of what the buyer can afford.
Pre-approved. This buyer has provided a broker written evidence of income, expenses, assets, liabilities and credit. All information has been verified by a lender. As a result, much of the paper work for this buyer's loans has been completed. This buyer will probably be able to close quickly. He/she provides you with a letter (pre-approval certificate) from the lender. You're as certain as possible that this buyer can close.
As a potential buyer, you can see that being pre-approved will give you the best chance of getting your offer accepted. This is critical in a competitive situation.
- Making verbal agreements. Don't sign a document containing instructions contrary to your verbal agreements! For example, the seller verbally agrees to include the washing machine in the sale, but the written purchase contract excludes it. The written contract will override the verbal contract. Your state may require that contracts for the sale of real property be in writing. Do not expect oral agreements to be enforceable.
- Choosing a lender just because they have the lowest rate. While the rate is important, consider the total cost of your loan including the APR, loan fees, discount and origination points. When receiving a quote from a lender or broker, insist that the discount points (charged by the lender to reduce the interest rate) be distinguished from origination points (charged for services rendered in originating the loan).
The cost of the mortgage shouldn't be your only criterion. You want to have confidence that the company you select is reputable and will deliver the loan with the terms and costs they promised. If in the final hours of the transaction, you determine that the lender has suddenly increased its profit margin at your expense, you won't have time to start again with a different lender. Ask family and friends for referrals. Interview prospective mortgage companies.
- Not receiving a good faith estimate (GFE). Within three business days after the broker or lender receives your loan application, you must receive a written statement of fees associated with the transaction. This is both the law and the best way to determine what you'll pay for your loan. Bring the GFE with you when you sign loan documents. You should not be expected to pay fees which are substantially different from those contained in your GFE.
- Not getting a rate lock in writing. When a mortgage company tells you they have locked your rate, get a written statement detailing the interest rate, the length of the rate lock, and program details.
- Use a "dual agent" (an agent who represents the buyer and the seller in the same transaction. Buyers and sellers have opposing interests. Sellers want to receive the highest price; buyers want to pay the lowest price. In the standard real estate transaction, the seller pays the real estate commission. When an agent represents both buyer and seller, the agent can tend to negotiate more vigorously on behalf of the seller. As a buyer, you're better off having an agent representing you exclusively. The only time you should consider a dual agent is when you get a price break. In that case, proceed cautiously and do your homework.
- Buying a home without professional inspections. Unless you're buying a new home with warranties on most equipment, it's highly recommended that you get property, roof and termite inspections. This way you'll know what you are buying. Inspection reports are great negotiating tools when asking the seller to make needed repairs. When a professional inspector recommends that certain repairs be done, the seller is more likely to agree to do them. If the seller agrees to make repairs, have your inspector verify that they are done prior to the close of escrow. Do not assume that everything was done as promised.
- Not shopping for home insurance until you are ready to close. Start shopping for insurance as soon as you have an accepted offer. Many buyers wait until the last minute to get insurance and do not have time to shop around.
- Signing documents without reading them. Whenever possible, review in advance the documents you'll be signing. (Even though some specifics of your transaction may not be known early in the transaction, the documents you'll sign are standard forms and are available for review.) It's unlikely that you'll have sufficient time to read all the documents during the closing appointment.
- Not allowing for delays in the transaction. In a perfect world, all real estate transactions close on time. In the world we live in, transactions are often delayed a week or more. Suppose you asked your landlord to terminate your lease the day your purchase transaction was scheduled to close. A day or two before your scheduled closing date, you discover your transaction is delayed a week. In a perfect world, no one is inconvenienced, and your landlord is willing to work with you. More likely, however, your landlord is inconvenienced and angry. Will you be thrown out? Will you have to find interim housing for a week or more? The eviction process takes a little time, so the sheriff won't immediately remove you, but this type of stress-producing episode can be avoided. How? Terminate your lease one week after your real estate transaction is scheduled to close. That way, if there is a delay in closing your transaction, you have some leeway. This approach might cost a little more; then again, it might not.