AVOIDING THE 10 BIGGEST HOME BUYER MISTAKES
The following buyer’s mistakes, although not inclusive, are the ones that have consistently appeared in my decade of real estate experience.
MISTAKE #1 - Not Obtaining a Mortgage Pre-approval. It may seem strange to start the home buying mistakes with finance but there is an old real estate sales maxim “If you can’t finance it, you can’t sell it.” As a home buyer, your similar maxim should be “If I can’t finance it, I can’t buy it.” There is no sense wasting your valuable time looking at or making a purchase offer on a home which requires a new mortgage if you weren’t able to get one.
Your first stop as a homebuyer should be a mortgage lender’s office where you can get pre-approved in writing for as large as a mortgage as possible. Most lenders are free service for pre-approval. You may have to pay small fee for credit report.
Most lenders use ratios to qualify home loan borrowers. For example, some lenders say your home loan payments should not exceed 28% of gross family income and your total monthly loan payments, such as for an auto loan and credit card loans, should not exceed 36%. All mortgage lenders are not the same! If you have excellent income and a perfect credit report with no delinquencies more than 30 days, your mortgage will be considered “A” and you will get the lowest available interest rate.
The loan pre-approval increases the chances your purchase offer will be accepted from the home seller.
MISTAKE #2-Not Timing Your Purchase Correctly. One of the biggest mistakes is that home buyers take too long to acquire your home. If you take a year to acquire a home and the market appreciate 10%, the market value of a $100,000 house rises to $110,000. Translated, this means that you need an extra $10,000 down payment to have the same equity in the home that you could have purchased it at the beginning. Another consideration in an appreciating market is the return on your investment (down payment). The paper return on a $5,000 down payment, ($100,000 home that appreciates at the rate if 10%) is $10,000 or 200%. Imagine with a steady growth over just a few years what your annual return will be!
MISTAKE #3 – Not Determining What Type of Home Do I Want, What Features Must I Have. The next key question for home buyers shifts the focus to the type of home you want. Include the features it absolutely must have, and what features you would like it to have within your price range.
Please take some time now to write on a separate piece of paper the type of the home you want and the features it must have. Be reasonable and practical.
MISTAKE #4 – Only consider Location while ignoring other factors such as, how long will my job commute be, and what is the quality of the community. Even location has its pros and cons. None is perfect. Commute to work during the morning rush hour and home again in the evening rush hours. Those far-distant suburbs, which seem so quiet and wonderful on the weekends, will seem much less desirable after you’ve survived an hour or more commute each way. Unless there is no alternative location for you to buy a home, wasting more than one hour each way getting to and from your work each day may not be a smart use of your time. Also before buying a home, please carefully check the quality of schools in the community where you are considering buying a home.
MISTAKE #5- Not Using a Real Estate Agent Who will Represent You as a Home Buyer If you are buying a house, to use an agent will help you to familiar with neighborhoods. The agent knows of local trends, it will give you access to all the available properties. The agent knows your local area and can give you professional services. The agent can give you information that you don’t have access such as new noisy development being built near the home you buy. When you sign the purchase contract, the agent can protect you from cost mistakes and speak for your best interests.
Please note - ads are sometimes createdto make the phone ring! Many of the homes have some drawback that's not mentioned in the ad, such as traffic noise, power lines, or litigation in the community. What's not mentioned in the ad is usually more important than what is. For this reason, I want you to be very careful when reading ads.
Remember that the person writing the ad is representing the seller and not you! The most important thing you can do is has someone on your side looking out for your best interests. So whether you decide to work with me or not, pick an agent you feel comfortable with and enlist the services of that agent as a buyer's broker. Then you become a client with all the rights, benefits, and privileges created by this agency relationship, and you're no longer just a shopper. Did you know that many homes are sold WITHOUT A SIGN ever going up or an AD EVER BEING PUT IN THE PAPER? These "great deals" go to those people who are committed to working with one agent. When an agent hears of a great buy, who do you think he's going to call? His client, who he has a legal obligation to work hard for you, or someone who just called on the phone and said "keep your eyes open"? So to get the best buy on a property, I always recommend that you hire your own agent and stick with him or her.
You are probably aware the real estate agent that lists the home for sale represents the seller. The seller’s agent can also represent you as a buyer, called a “dual agency,” but that is not a good idea. The reason is the agent then has a conflict of interest, trying to get the seller the highest price while also trying to get you the lowest cost. When the seller gives the listing agent to sell the house, the commission is fixed rate, usually 6%. The seller doesn’t care who bring a buyer because the commission is fixed cost. Seller only cares to sell the home to the highest bid. By working with the seller’s agent, the buyer is not especially well represented and certainly won’t be encouraged by the agent to consider other homes for possible purchase. It won’t help you to negotiate price. It’s the seller who makes decision to sell, not the listing agent.
MISTAKE #6—Before making a purchase offer, neglecting to ask your agent to show you a written fair market value of the home. Before making a purchase offer, ask your agent to prepare a written CMA (Comparative Market Analysis) form showing fair market value of the home. This is like “mini-appraisal”. The CMA form is the same one that was given to the home seller by the listing agent at the time of listing the resident for sale. It shows recent sales prices of comparable nearby home as well as asking prices of other neighborhood homes currently listed for sale. With the help of your agent, you can add or subtract value for the pros and cons of the home you want to buy as compared to the recently sold houses. Your agent should have inspected all the recent nearby home sales so you can be told about their special features.
MISTAKE #7—Before making your offer, failure to request a full written disclosure of all known defects in the home you want to buy.
Michigan now has a law requiring home sellers to disclosure in writing, all known defects in the residence. Before making your offer, asking the agent for a copy of this seller disclosure statement. It is very important to have this defect disclosure information before you make your written offer. For example, if the roof leaks, you will want to subtract the cost of a new roof from the amount you offer for the home. In Michigan, if the seller fails to disclosure a known defect in writing, you have the legal right to cancel the transaction and obtain a full refund of your money.
MISTAK #8—Failure to ask what personal property is included in the sales price. The general rule is the sale of real property includes personal property that has been permanently attached to the structure. Such items are called “fixtures.” To illustrate, drapery rods are included in the sale because they are permanently attached, but not the drapers (since they are not permanently attached and can be removed without damage to the building).
Most printed home purchase contracts specify what personal property will be included in the sales price of the home. For example, you probably want the kitchen appliances, washer, dryer, carpets, window coverings included. Be sure to itemize them in your purchase offer, even if the listing information says they are included.
MISTAKE #9—Failure to ask your agent what contingency clauses you should include in your purchase offer.
Virtually every home purchase offer should contain at least two contingencies: (1) a finance contingency clause and (2) professional inspection and approval contingency clause. Even though you are pre-approved for a home loan, you still need a finance contingency clause just in case the house doesn’t appraise for the amount of your purchase price. You should need a professional inspection contingency clause so you can have the house thoroughly inspected. In addition, include contingencies for customary inspections such as for termites and radon. Your agent can give you full details.
Be sure to accompany the professional inspector. He or She will point out any defects discovered and their approximate cost of repair. Many defects look far more serious than their area. For example, a few years ago I bought a house with a big crack in the basement wall. When I accompanied the inspector, he told me the crack wasn’t as bad as it looked and could be repaired for about $200. It turned out the repair cost was only $180. But the ugly crack, I’m sure, prevented other perspective buyers from buying the house. As a result, I got a bargain price. The professional inspection contingency clause not only protects you from buying a “lemon” house, but it also gives you leverage over the seller to repair any defects that are discovered.
MISTAKE #10—Failure to ask your agent, “How Much Will My Closing Costs Be?” Before your purchase offer is presented to the home seller, ask your real estate agent to prepare a written estimate of your closing costs. These are the expenses you will be expected to pay at the time the sale closes. They normally amount to 3 to 5% of the home cost. For example, they include costs for the mortgage loan fee (already quoted by the mortgage lender at the time your home loan was pre-approved), homeowner’s insurance premium, pro-rated mortgage interest to the end of the current month, pro-rated property taxes, escrow fee, recording fee, title insurance, etc.
Summary. These 10 tips are important considerations for buying your next property correctly, so you don’t make costly mistakes. Never be afraid to ask your agent any questions you have.
We at BlueSky Realty are available to assist you in your home buying endeavor. If I can be of assistance to you or someone you know, please let me know.
BlueSky Realty BlueSky Realty
2569 W. Liberty St 31705 Plymouth Rd
Ann Arbor, MI 48103 Livonia, MI 48150
Phone# 734-327-9911 Phone# 248-444-0303
Fax# 734-527-6048 Fax# 734-421-0901
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