Common Home Buying Mistakes To Avoid

For many first-time home buyers, and a good number of second and third time buyers, the home buying process can be a stressful and complicated process. Mistakes and missteps during the process can have a costly and long-term impact on the buyer. Luckily, home buyers can turn to and rely on the expertise of real estate professionals – Realtors, Lenders, Real Estate Attorneys, Settlement Agents - to guide them through much of the process. Yet there are areas where the home buyer is solely responsible and must avoid making mistakes on their own. In this post we look at a handful of the most common mistakes home buyers make and how to avoid them.

Not understanding the process

Buying a home will be the largest financial commitment that most people will ever make, yet many home buyers enter the real estate process with little understanding of what is involved in buying a home. By taking the time to research the real estate buying process the home buyer will not only be better prepared for what’s to come, but will be more adept to avoid mistakes while they work their way through the process.  

Not being organized

The real estate process is a very document intensive process. In addition to the personal information that the home buyer will have to provide the lender during the loan application process, there are contracts with the Realtor, the contract for the sale, appraisal, title searches, and a range of state and federal documents that are generated during the closing process. Home buyers will find the mortgage and closing process much smoother if their documents are well organized.

Not Shopping Around

When buying a car, most people will shop multiple dealerships looking for their ideal car at the best possible price. The same dedication to finding the right car should also apply to finding the right home and the right mortgage. Taking the time to fully vet a home will increase the likelihood of the home being a good fit. Finding answers to questions such as are the taxes affordable, is upkeep be within budget and is the school system good will give the home buyer greater peace of mind that they are purchasing the right home. The same approach should be taken when shopping for a mortgage. Obtaining quotes and reviewing the mortgage products of multiple lenders results in not only obtaining the best rate but the mortgage product that is best suited for the home buyer.     

Not Understanding the terms of the mortgage

As the real estate market crashed in 2008, one of the largest contributing factors was that borrowers failed to understand the terms of their mortgages. Millions of home buyers purchased homes in the overheated real estate market using adjustable rate mortgages (ARMs) that carried very low “teaser rates”. Many did not understand that the interest rates on these mortgages would adjust in 3-5 years and failed to take into consideration the impact of the increased rate. The result was an incredibly large number of people that could no longer afford their monthly mortgage payment. A mortgage is a contract and like any contract should be fully understood before entering. Taking the time to fully understand the terms of the mortgage will avoid any nasty surprises in the years to come.

Getting Pre-Approved but not Pre-Qualified

In today’s real estate market, most people get some form of pre-approval. With a pre-approval in hand, prospective home buyers can prove to the seller that they are likely to get financing to purchase the home. Few home buyers take this process to the next step and get pre-approval. This step benefits both the seller, as they get the proof that financing is possible, and the buyer, as pre-approval will give them a better idea of how much a lender may be willing to lend. Granted the amount of the pre-approval is subject to appraisals and other underwriting considerations, it will help potential buyers in identifying homes that fall within their financing price range.

Not factoring in all expenses

There is a mindset that home buyers should “buy as much house as they can afford”. The key word in this phrase is “afford” and it is often attached to the monthly mortgage payment. However, home buyers must also be able to “afford” property taxes, insurance, electricity, upkeep and maintenance on the property. Additionally, they will need to “afford” their personal/ family life expenses such as vacations, new appliances, braces for the kids, and the occasional new car. Home buyers must consider all the financial requirement of the home they plan to purchase and how that will impact their personal/ family life. While one may be able to afford a $2,000 a month mortgage and the cost of upkeep, if it means no vacations and having to drive the current car for the next 15 years the house may not really be “affordable”.