Avoid These 14 Common Home Buyer Mistakes
Eric Stewart ● September 15, 2022
Common Mistakes to Avoid When Buying A Home
Let’s face it: Buying a home is a major investment. However, for many people it can end up being more expensive than it needs to be due to some costly mistakes. Here are 14 home buyer mistakes to avoid, and some helpful tips that could mean the difference between financial security and financial distress.
1. Not Understanding the Market
Once you find your dream home, you don’t want to overpay for it. Your offer price should be based on what comparable homes in the area have sold for in the last six months. If you don’t have a firm understanding of the comps, you are bidding blind.
You should also take into account the condition of the house and current market demand when determining your offer price. Is the home getting multiple offers? Has it sat on the market a long time? Will it require a lot of upgrades? A good Realtor® will assist you in sorting through these issues and help you come up with an optimal offer strategy.
2. Starting Your Home Search Before Finding Out Your Affordability
Another item from the home buyer mistakes to avoid is understanding how much you can afford. You can contact a mortgage company to help you with this step.
It’s helpful to know your affordability before starting the search process so you don’t overestimate what type of home you can afford. Imagine having your heart set on a home just to find out it’s way above your budget! Finding out your affordability and setting reasonable expectations from the start will save you from disappointment in the long run.
3. Not Getting Pre-Approved
This mistakes goes hand-in-hand with mistake #1. Pre-approval is another important step to take care of at the start of your home search process. While this step confirms how much money the bank is willing to loan you, it also shows to home sellers that you are a serious buyer. The market is especially competitive for buyers right now, and a pre-approval letter will make you a more qualified buyer than competitors who may not have gotten pre-approval.
4. Forgetting About a Survey
When you make an offer to purchase a home, make sure you ask for an updated survey of the property that clearly marks its boundaries. You want to make sure that a fence or storage shed in the back yard is not really on your neighbor’s property. This could cause headaches down the road should your neighbor get their own updated survey when it’s time to sell their home.
5. Not Getting A Home Inspection
Although sellers are required to disclose all known material defects about their home, there may be some unknown issues. Make sure that you have a thorough inspection within a week of ratifying the contract. An inspector is there to spot the things you don’t know to look for, like if the chimney is in great shape or whether those little cracks in the foundation are a big deal. The inspector will give you a report of any items that they recommend should be fixed. If there are significant items that need repair, you may be able to negotiate with the seller to drop the sales price. In other words, the inspection is worth every penny.
6. Ignoring the Neighborhood
One of the biggest home buyer mistakes to avoid is ignoring the neighborhood. While you may be willing to sacrifice the location for the perfect home, don’t sacrifice too much. Remember that you can always make updates to your home, but you won’t be able to change the neighborhood. It’s important to consider the neighborhood’s crime statistics, school district, any development plans in the works, local traffic, etc. Some of these may be a deal breaker for you!
7. Not Budgeting For Unexpected Costs
There are many hidden costs associated with buying a home that many people don’t realize. It’s important to take these costs into account when figuring out your budget as they may affect what your budget limit is. Some of these costs include mortgage insurance, closing costs (often 3-4% of the price of the house that you’ll have to pay out-of-pocket on top of the down payment), title insurance, home inspection, appraisal fees, and moving expenses.
Make sure you uncover all costs, large and small, that are associated with the purchase of your home. Ask for all fees to be disclosed to you during each step of the home buying process.
You should also make sure that you buy within your means. It’s important to remember that monthly payments include not just the mortgage, but interest, taxes and insurance, something that buyers can often forget about when figuring out their budget.
It’s a good idea to get pre-approved for a mortgage so you know how much a bank is willing to lend you before you make an offer for a home (read a previous blog on this topic for more information). You will also save time by looking at homes that you know you can afford instead of yearning for something out of your price range. And, it will put you in a better position over another bidder with no pre-approval.
Also, while it’s still possible to buy a house with as little as 3% down, you’ll have to pay private mortgage insurance (PMI) until your equity in the home exceeds the 20% mark. If you can’t put 20% down, your loan is considered risky. PMI protects the bank if you default on your mortgage.
For a larger list of unexpected costs, download our Savvy Buyer Guide.
8. Not Being Prepared for Closing
Take your time to review all closing documentation, including your loan papers, a day or two before settlement. Make sure you understand what you are signing, and that no costs or information provided is unclear. If you try to rush through this process on the day of settlement, you may run into last minute issues that you can’t fix without altering the terms of the deal.
9. Not Hiring an Agent
Agents offer many benefits, including access to the MLS (Multiple Listing Service), expertise in what type of house you can afford and what’s available in your target area, negotiation help, and much more. Plus, an agent’s commission is typically covered by the seller, so you can enjoy all of the benefits at no cost to you!
10. Buying a Home Through the Listing Agent
The listing agent represents the seller’s best interest, not yours as the buyer. Work with a buyer’s agent to get representation that will benefit you. Working with a good agent will save you much time and stress. A buyer’s agent can set you up with an auto email feed that sends you alerts when a new property comes on the market that meets your criteria, help you navigate a 50+ page legal contract (the purchase offer), and negotiate the best terms on your behalf.
11. Emptying Your Savings for the Down Payment
A good rule of thumb is to have three to six months’ worth of expenses saved after making your down payment and paying other costs. This allows you to make any necessary repairs that may come up and to have a decent emergency fund.
12. Applying for Credit Before the Sale is Final
Taking on new credit before the closing process is over is a huge no-no. Your mortgage officer will be monitoring your credit score from the start of the closing process until the deal is completed. By taking on new debt, you risk your mortgage approval and could even lose out on the deal.
13. Buying the Wrong Home
What are you looking for in a home? It’s a simple enough question, but the answer can be quite complex. Plenty of buyers have been swept up in the emotion and excitement of the buying process, only to find themselves owners of homes that are either too big or too small. Or, maybe they’re stuck with a long commute to work or a dozen unexpected repairs. The decision you make on the house you buy may have a lifelong impact.
Take the time upfront to clearly define your wants and needs. Download our Savvy Buyer Guide, which takes you through a Buyer Profile System to help you determine the most important criteria for your new home. Then use this as a point of reference to evaluate every home you visit.
14. Not Asking for a CLUE Report
Before you purchase a home, have your insurance agent perform a “CLUE Report” (Comprehensive Loss Underwriting Exchange) on the property you are buying to determine if the sellers made any claims on the subject property. This is important, because it may cost you more to get insurance if they have made previous claims.
Recently, a CLUE report revealed a history of water issues that was not disclosed on a home that was under contract. The sellers didn’t think they had to disclose these past problems, but the report brought the water issues into the light to be be resolved before settlement.
While this list is not exhaustive, being aware of the home buyer mistakes to avoid can help you as you contemplate buying a new home.
Need Help Buying a Home?
Are you beginning the home buying process and need some real estate expertise? Contact one of the trusted Realtors at the Eric Stewart Group by clicking below.
Over the last 30 years, we have helped more than 2,500 happy clients buy and sell homes. And, if you haven’t yet, download our FREE Savvy Buyer Guide. Jam-packed with invaluable home buying tips, it will help jumpstart your efforts to get your dream house for the best price!