Biggest Home Buyer Mistakes: What First Time Buyers Need to Know

Few things are more exciting, or terrifying, than buying your first house. You’re joining forces with a spouse or partner, or bravely going alone, on one of life’s great adventures and biggest investments. “The ache for home lives in all of us,” Maya Angelou said. The house hunt sends your hopes soaring, then plunging like the screaming 400-foot drop at Six Flags Great Adventure—and that’s just the first day. Keep those emotions in check and this list in mind, and you’ll snag that dream house without sinking in the quicksand of the biggest first-home buyer mistakes.

1. Get Pre-approved.

Like a house, your search needs a solid foundation, and involves a little digging…into your finances. Before rushing to look at houses online or on the land, get a free copy of your credit report at annualcreditreport.com. The higher the score, the more likely you’ll be pre-approved for a low-interest mortgage. Then get that pre-approval.

A mortgage pre-qualifying letter doesn’t mean much these days. It’s just an estimate, not a promise, “based on the information that you have provided,” says David Reiss, a Brooklyn Law School professor and real estate law expert. “It may not take into account your current credit report, and it does not look past the statements you have made about your income, assets, and liabilities.” A mortgage pre-approval letter does all that, including an underwriter’s review of your bank statement, credit report, salary and pay stubs.“This makes you as close to a cash buyer as you can be,” says Lea Lea Brown, a vice president and mortgage banker with PrivatePlus Mortgage in Atlanta, “and gives you a huge advantage in a competitive market.” Making an offer on a house only to find that you can’t afford it is a big hurt you should never have to experience.

2. Hire a Realtor Who Works Hard for You.

A successful businessman and his wife moving from overseas were looking for a house in Raleigh-Durham, and their Realtor kept trying to entice them into the status of million-dollar houses, which they could afford. But the couple made it clear they wanted a house in the $400,000 range to save for their young children’s colleges, and other expenses.

Make sure your Realtor really listens to you. Ask friends for recommendations, check the Realtor’s social media reviews, expect to find a trusted counselor and a real expert on the area’s history, schools, crime, etc.

Million-dollar sellers, “Realtor of the Year” and other awards are a good sign of a productive pro, says Ron Phipps, a past president of the National Association of Realtors. “These agents are the best as judged by their peers. That’s a huge endorsement.” So long as the Realtor of the Year calls you back pronto. In a hot urban market, you can lose an offer if you don’t respond in a couple of hours.

3. Don’t Offer the List Price!

One of the best first time homebuyer tips we can offer you is this: be a cool buyer, not a hot buyer, ie., Don’t fall in love with one property. Fall in love instead with the smart deal. Or at least for goodness sake don’t let the house owner or Realtor (who is most often a seller’s agent not representing you) know that you have fallen in love at first sight. A polite compliment will do.

Keeping cool violates your DNA and millions of years of nesting evolution, but you’ll have a stronger nest in the long run if, like Kenny Rogers said, you “know when to hold them, know when to fold them, know when to walk away” from a real estate deal, says real estate investor Candice Bakx-Friesen. That’s easier to do when you’re grounded in what’s important, says Zillow writer and University of Chicago professor Harold Pollack. “Buy for the long run. Assume you’ll own your home for at least five years. Buy to improve your life, not to speculate with your money…Don’t look at houses above (your) budget.” The cool buyer also learns from neighborhood house sales from Trulia or Zillow or courthouse records, discovers the real reason the seller is moving—A divorce?

A new job that requires a fast move to Chicago?—and hires a tough-minded housing inspector (not your Realtor’s go-to friend) who’ll spot the faulty wiring that can help you drive down the price. Buyer beware: You’ll be pressured in a hot market to ignore all caution, forgo inspections, and make your first offer your best offer, and even offer the list price – or higher!

4. Shop Around for Mortgage Rates.

It’s crazy: You’ll work hard to save sixty bucks on a hotel room and sixty cents on an organic chicken, then kiss tens of thousands of dollars goodbye by not shopping for a mortgage. In the first national study of this “head-scratching” phenomenon, by the Consumer Financial Protection Bureau, fully 47 percent of home buyers “didn’t seriously consider” more than one lender, and 77 percent “applied to only one,” says Kenneth Harney, a Washington Post columnist and former member of the Federal Reserve Board’s Consumer Advisory Council.

“Comparison shop to get the best mortgage,” says University of Chicago Professor Pollack. Most buyers trot right over to their Realtor’s go-to lender, not realizing, “in fact, they’re partners, sharing profits generated from clients,” Harney said, instead of shopping on-line, at major players such as Zillow and Lending Tree, where 342 mortgage companies compete and “the median spread between annual percentage rate (APR) quotes was six-tenths of a percentage point during the week ending March 11,” 2018).

That means on a $300,000, 30-year fixed rate mortgage, you could save $26,780. (That’s a lot of organic chickens: a six-pounder for the whole family every Sunday for the life of the loan, and for a couple years for the two of you, after the kids leave for college).

5. Don’t Spend Your Last Dollar at Closing.

You’ll need some dough left over for the dream house—or when dreams defer. “Keep a six-month strategic reserve after (the) down payment,” says University of Chicago Professor Pollack. “Stuff happens.” Your ego can happen. They call it “house poor” for a reason, and we’ve all seen some version of it: A couple invites you to their soaring new Yuppie Mansion living room for a glass of Beaujolais nouveau, and you’re sitting on their college mattress. They can’t afford the perfect sofa yet.

“If you can’t spend your income the way you want to because so much of it is going to housing expenses, you’re house poor,” says Debra Neiman, a financial planner at Neiman & Associates Financial Services in Arlington, MA. The rule is don’t spend more than a third of your pretax income on housing costs, including the mortgage principal, interest, property taxes, insurance, utilities, and maintenance. The Money Pit, the 1986 Tom Hanks comedy, is a remake of a 1948 Cary Grant comedy, Mr. Blanding Builds His Dream House, because the dream house that turns into a nightmare is a problem that doesn’t go away. It’s funny, in a movie.

6. Get Educated.

It’s not the old days of newbie guess-work mistakes, whether you’re having a kid or buying a house. Today banks and lenders advise or require an online homebuyer education course to prepare you for one of life’s biggest decisions, like hospitals mandate childbirth courses for an expecting couple.

Non-profits organizations like InCharge offer online courses you can take to fit your schedule, with detailed advice on everything from saving and budgeting for a home to improving or disputing your credit score to finding incentive or help programs, such as down payment assistance programs or grants available in your area. The $75 to $100 fee that’s typical for such courses is a money-saving “no-brainer,” according to U.S. News & World Report. For the educated there are a wide variety of programs, including renovation loans for fixer-uppers or down payment assistance programs—you don’t have to be low-income to qualify—“that can make your home of choice more affordable by providing assistance with the closing costs or the down payment,” says Chantay Bridges of TruLine Realty in Los Angeles.

Sources

Gordon, Lisa. (2017, June 20) Mortgage Pre-Qualification vs. Pre-Approval: What’s the Difference? Retrieved from https://www.realtor.com/advice/finance/pre-qualified-vs-pre-approved-what-mortgage-shoppers-need-to-know/

Ericson, Cathlie. (2016, August 18) Is Your Dream Home Out of Your Price Range? There’s Hope Yet. Retrieved from https://www.realtor.com/advice/buy/dream-home-out-of-your-price-range/

Dratch, Dana. (2018, April 10) 7 tips for picking a great real estate agent. Retrieved from https://www.bankrate.com/finance/real-estate/7-tips-for-picking-a-real-estate-agent-1.aspx

Pollack, Harold. (2018, January 24) Buying a home? Here are 10 things you should know. Retrieved from https://www.today.com/home/buying-home-here-are-10-things-you-should-know-t121394

Bakx-Friesen, Candice, ND. Keep More Cash in Your Pocket with These Four Negotiation Tactics. Retrieved from https://revnyou.com/real-estate-negotiation-tactics/

Harney, Kenneth R. (2018, March 21). Shopping around for a mortgage can save you thousands of dollars. Retrieved from https://www.washingtonpost.com/realestate/shopping-around-for-a-mortgage-can-save-you-thousands-of-dollars/2018/03/19/a67c0f04-2ba5-11e8-8688-e053ba58f1e4_story.html