3 Common Mistakes of a first time buyer.
I am currently working with a young, first time home buyer. One of the things I LOVE about being an agent, is the education part of the process. There are so many questions that come up during the process, and I am convinced that knowledge of the process and what to expect is ALWAYS a benefit to any buyer, but especially a first time buyer. In the conversation with the buyers, I am inevitably asked about things to avoid. We all know mistakes are costly, but when you are dealing with what is potentially the largest piece of your financial puzzle (and the single biggest investment a first time home buyer has ever considered) the stakes are high. In this post, let’s talk about a few mistakes that a typical first time buyer may make.
MISTAKE 1-Not Getting Prequalified
I don’t think I can overestimate the importance of this one action item. If you don’t know what you can afford, chances are you aren’t even ready to be shopping. Imagine going into your local Target with no idea how much money you could afford to spend. If you begin to look at homes and then discover you are over your price point, NOTHING is going to compare….plain and simple. There are some definite price break points and its never a good feeling to realize the features you fell in love with aren’t really possible at the price the bank is willing to lend you. You are going to be disappointed or start stretching your budget to convince yourself you can afford it and very quickly become a proud house poor homeowner. Thats a long term recipe for unhappiness and this new home should be a blessing and not a curse!
MISTAKE 2-Not knowing the timeline
There are lots of moving parts in a transaction, but one of the most important things to know is your timeline. I am working the seller side of a deal right now, and the buyers had to extend their closing period once we got under contract because they didn’t realize how it was going to impact their current rental situation. Everything is negotiable, but as a good rule of thumb from the day we get an accepted offer, to the day we close is typically 45 days. It just takes some time for the lenders, agents, insurance brokers, appraisers, attorneys, inspectors, etc to do their jobs. Within that 45 day period there is a “Due Diligence” period where the buyers should be doing their inspections and determining if this is the right house for them. This period is typically 21 days (although it seems like an eternity) and should always be on top of the buyers mind to make sure they are risking their Earnest Money Deposits. There’s a lot terms and information here. To help you out, I’ve got an entire series of videos called “Terms Tips and Tricks” that I release each week, and recently I did a video on the timeline. You may want to go back and watch some of these videos, because they may answer a lot of questions.
MISTAKE 3-Not expecting the additional expenses
I was speaking with another real estate professional recently and he told me of a young buyer that after they negotiated a great deal on their next home, the buyers didn’t realize they needed some cash in hand to pay for a few items out of pocket during the process. These buyers struggled to be able to pay the earnest money deposit for the offer and had no cash to pay for their inspections. I guess they were under the impression they could roll all of these fees into their loan and sadly they were either uninformed or (even worse) misinformed. By not having the cash to pay for their inspections they likely bought a home that could have been wrought with issues. I know personally of a deal I worked a few years ago, where the entire septic system had to be replaced. Had we not of gotten that inspection done, the buyers would have been stuck with the cost and without the ability to repair, the situation would have gotten much worse. Moral to the story, be financially prepared with enough money in your savings that you can afford to pay for inspections to make sure the home is a good investment. Check with your agent for what is standard in your market, and you probably need to check with your lender to make sure you have the money for the required appraisals, credit reports, etc and we haven’t even mentioned utility deposits and other start up cost.
SIDE NOTE-If you hang around me for long you will quickly learn that I am a HUGE fan of Dave Ramsey and Financial Peace University. My wife and I have been fortunate enough to lead this class a few times and each time we do it, we are reminded how important it is to be financially prepared for situations. Buying a home is not something to take lightly and you need to be in a position to do it the right way. Feel free to reach out to me if you have questions. This is another area I am highly passionate about and I’d love to assist you on your own journey to financial freedom!
BONUS MISTAKE-Asking for closing cost assistance
As of the writing of this post, we are experiencing a sellers market on steroids. So many buyers, and so little inventory is causing many homes to bring multiple offers and many homes are going over asking price. The market is competitive and if you are a buyer you need to do things to make you offer stand out. One way is to not ask for closing cost assistance. A full price offer with $7500 in closing cost assistance is NOT a full price offer to the sellers. The sellers are looking at the bottom line for them, and its pretty common in the offers that I am seeing right now, for the winning offer to be the one with the least amount of closing assistance requested. Its hard but buyers with cash in hand to pay for their own closing cost, are seeing better results. I don’t know when it became an expectation, but I caution my buyers repeatedly to try to be financially ready to do you own closing cost. This may be an unpopular opinion, but it makes for a better offer, and I think being financially in a position to buy a house has as more to do with the cash you have in hand than it does your FICO score.
Wrap Up
3 (+1) mistakes…my list is surely not exhaustive or in any particular order. I am sure if you ask any agent, their list would be different and they would likely offer advice in other areas. No matter what, you need an agent that matches your goals and that will work on your behalf. There’s a lot that is involved in the process, but with the right guidance you avoid some of the most common mistakes.