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7 Mistakes Homebuyers Make
This will be a bit of a long post...but it's chock full of good, good information that I believe will assist you in your home buying process.
I just e-mailed a new client this information and these mistakes should be known by everyone getting a home in the Baltimore Metro and the surrounding Maryland Counties.
So, with that said, here is the awesome, magnificent and truly intellectually dizzying report:
7 Mistakes Homebuyers Make
First things first here, I wish to thank you for your interest in this report. It means that you are taking your potential home purchase very seriously, and you’re doing your “home” work (pardon the bad pun). The fact that you’ve requested this puts you in the top 10% of homebuyers. Most folks purchasing a home simply call a number from a home that looks good in a real estate magazine, and then they meet an agent who may or may not be looking out for their interests. You have requested this report, and you will now have the information you will need to take control of your home purchasing decision.
I want you to know that I would like to earn your business, but with that said—I will always be honest with you. Many times it is not best for you to buy in this area. That may be something you won’t hear from many agents, but I am in this for a relationship. I want you to be happy throughout your entire stay in this area, and that includes when you sell the home you are ready to purchase now. That means that you will get the entire picture of the home buying and selling process, warts and all, in the pages to follow. If you have any questions about this report, or if you’d like to discuss any aspect of real estate with me, please pick up the phone and call us at (443) 986-3717. I’ll always be available for you. Now…let’s get into the seven mistakes that homebuyers make.
Mistake #1: Homebuyers aren’t financially prepared for the purchase of a home.
This is a big one with which to begin. Not being financially prepared means exactly what it says, but it needs some elaboration.
I notice several areas where homebuyers aren’t ready. The biggest problem area is some sort of savings account, or lack thereof. In working with many first time homebuyers, I have observed that very few have an adequate amount in savings. I define and adequate as a minimum of 2-3 months’ worth of mortgage payments socked away in an account that won’t be touched for anything other than emergency situations. The reason for this is simple; one of the biggest reasons for home foreclosure is the loss of a job (or more specifically, income). With the rentals, there is usually some recourse, like renting a different place. But when buying a home, you will always be responsible for the mortgage. You have the option of renting your home to others, but this will usually require a few months’ worth making your home and a rental payment. Very few have that ability, and even those with a high income can become depleted rapidly if this happens. A good guideline is to save money in a separate account for a rainy day. Two months should be a bare minimum, with more being desirable.
Another way of not being financially prepared is in insufficient income. If you are presently renting a home, or if you currently have a lower mortgage payment, then you should exercise caution when increasing our monthly payment. We have a saying that one should not become a slave to a house payment. If you are currently renting for $700 and your mortgage will be for $900, you need to know from where that extra money will come. How will you adjust your budget? Often this goes hand in hand with lack of a savings account. If you’re not saving now, with a lower payment how will you save with more obligations? This is a question that needs to be addressed before deciding what type of monthly payment to pursue. Bottom line: make sure you’re comfortable with our payment. Even a nice home can grow to be hated when the first of the month rolls around. Keep that in mind with your new home.
Mistake #2: Homebuyers don’t get “pre-qualified” by mortgage lender before beginning a search for a home.
The home search usually starts with a need. You realize you need more room, or you’re unhappy with the area you’re in now, or you’re coming from another area and need a place to sleep at night! Most buyers begin looking for a home immediately after confronting these needs, with little regard to what the bank may say about a mortgage loan.
Getting pre-qualified is a smart thing for two reasons. First, you won’t waste a lot of time or effort in searching before knowing tat when you find a home you’ll be able to purchase it at that time. I have seen many families set their hopes on a particular home and have those hopes crushed when they realized they needed to payoff off a bill or straighten a few things on their credit before they could purchase it. A good agent and lender should help you get everything squared away before you begin our home search. The other good reason lies in the fact that you’ll be taken more seriously when you are ready to purchase. Many agents I know will go out of their way to make time for a qualified buyer—because they know it will not be a waste of time and the buyers are serious. Also when you make an offer on a home, a letter of pre-qualification shows the seller of the home that our offer should be taken seriously. Many sellers will be more willing to negotiate if they know the buyer is ready, willing, and able to purchase the home.
To get pre-qualified, you can call most any mortgage lender in town, or you an go directly to a competent Realtor that can refer you to a good lender or actually pre-qualify you on their own. Sometimes it can be tough looking at the cold, hard numbers but it will need to be done sooner or later. Sooner, in this case is always better.
Mistake #3: Homebuyers don’t ask for or receive Buyers’ Representation when buying a home.
This is a major mistake that most homebuyers still make. I am determined to get the word out about this! Consider yourself lucky that you now know. This fact can save you a lot of heartache, and potentially thousands of dollars.
When you first meet an agent face to face, they are supposed to present you with a form entitled “Exclusive Buyers Agency Agreement”. This is information on which party the agent works for and is a requirement from the Maryland Real Estate Commission. Traditionally, real estate agents have worked for the sellers of the home—as they put dinner on the table for agents. There were problems with this because many buyers assumed the agent they worked with day I and out represented the buyers. In a case like this, if a buyer were to say, “we like this house, we’re willing to pay $150,000 but let’s just offer $145,000 to see what they say,” then the buyer has just paid though higher price for the home. It was almost akin to have an opposing lawyer listen on your trial preparation. Obviously as a buyer this is not what you want.
As a buyer, you can choose to have an agent work as a buyers’ agent. This means the agent must look out for your interests above those of all others. They work specifically for you and can’t give out any information to sellers that you would not want them to know (like you’re willing opt pay $150,000 when you’ve just offered $145,000). The best part about this arrangement is that the seller still (almost always) pays the sales commissions. You get the services of the Buyers’ Agent for free. You just need to ask for a buyers’ agency, and now you know to do just that.
Mistake #4: Buyers call on house in advertising rather than selecting a competent Realtor.
Real estate advertising is designed to do one thing: to get the phone to ring for the agent. Statistics say that less than 3% of respondents to an advertisement actually buy the property they were calling on. Agents know this. Why, then, do they spend huge amounts of money putting their glamour shots next to a house in a magazine? Because you will call on a home with a question, asking for more information. If the agent is good (at selling), you further about your needs. This can lead to a face-to-face meeting, loan qualification, a home search, and a closing (read: commission check to the agent). Why do I tell you this? Chances are, you will call the agent that picks the best homes for their advertising. This doesn’t necessarily mean that the agent gives the best service or that the agent will guard our interests with zeal—it just means they got lucky in their advertising.
The truth is that all Realtors have access to all the homes in the area sold by Realty companies. If you see a house you like from Remax, then any Realtor can help you with its purchase. In fact, you’d be better off calling another agent on the home, as the listing agent will almost always represent the seller (see Mistake #3). This is not something the listing agent will shout and do cartwheels about, they’ll probably say that they still have to treat you honestly and fairly (they do), but by law they are looking out for the best interests of the seller.
The best way to avoid this mistake is to ask for a references of good agents, question several Realtors about the way they do business, what they can do for you as a buyer, or any other question to determine their competence and integrity. This is not to say that agents that have good ads should not be called (I like to think I write a good ad), but just understand that it won’t mean you’re working with the best agent. A little bit of work in finding the right Realtor can affect your life in a very real sense. For more information on what to look for in a Realtor, call Ana.
Mistake #5: Buyers don’t consider equity when purchasing a home.
This is a HUGE mistake that makes me want to scream when I see it! If you have selected a competent Realtor with integrity (after reading the other mistakes above you’d better!) then the agent will warn you about this. But sometimes, even the best agents are temporarily blinded by greed and won’t go over this with you. MAKE CERTAIN THEY DO! This is probably the single most common mistake of all homebuyers so listen up!
Equity is the difference between the market value of a house and what is owed on it. So, if a home is worth $310,000 and only $160,000 is owed on it then the home is said to have $50,000 worth of equity. Follow me so far? Okay. With this in mind, you should try to maximize the amount of equity when you purchase a home. If you can get a house for $165,000 and the appraisal says it is worth $175,000 then you begin your life in the home with $10,000 of equity. As Martha Stewart says, this is a good thing.
Equity is especially important when it comes time to sell your home. Selling a home can get expensive. You will need to have enough equity to cover all of the sales costs, which can top 12% of the price of the home! Any excess value (another way to think of equity) will be helpful in paying for the sale of the home. Equity can only be created three ways: 1) buying at less than the market value 2) the appreciation of the home through inflation or excess demand for housing or 3) paying down the principal of the loan.
The second of these can usually be accomplished by owning your home a significant length of time (a minimum of 3 to 5 years). The first is usually obtained through the conscientious work of a good Buyers’ Agent. That is another reason that selecting the right Realtor is so important. When working with your realtor, ask them to show statistics of home sales in the area that you are planning to purchase. See if the price you are paying is the same, more, or less than others. The agent should be able to give you all of this information to let you know if you will have some equity in your new hoe. Obviously, use common sense here. Equity should be considered along with all of the other factors in a home purchase: area, schools, quality of life, and the like.
Mistake #6: Buyers don’t plan on how long they will be in the home (plan for selling).
This mistake goes hand in hand with Mistake #5. To be able to sell a home soon (within 2-3 years) after you buy it; you will need to have bought the home significantly under market value. The appreciation in this area has not been high enough to cover a mistake of owning a home for too little a time. We recommend to all of our Clients that they need to plan on owing a home for a minimum of 3 to 5 years before hoping to make money on its sale. Many agents will not tell you about this, as they are paid to help you buy and sell the home. Turnover is great for Realtors, but not so great for homeowners. I’ll say it again: You will need to be in your home for several years.
There are two ways around this; one, buy the house very cheaply, or two, rent the home out when you leave before selling it. One of the best things about this highly transient buyers market is that rentals are always in demand. At the current low interest rates, you can almost always rent for more than your mortgage payment. The tax benefits to keeping your home are great, too. This is how many of the wealthy pay little income tax. There are several good property management companies in the area. Pick a good one that will take care of your property. When it comes time to rent out your home, I’ll have another report for you to help you avoid pitfalls that have caused so many rental horror stories. Again, for more questions you know whom to ask.
Mistake #7: Buyers waste money on origination fees and discount points.
It amazes me that so many people will pay well over a thousand dollars to get a lower interest rate on their loan. It can be a good thing to do if you will be living in the home a long time (which is not too common here) and you can save significantly but that is rarely the case. Many people will pay $1,000-$2,000 to save $15 or $20 in their mortgage payment. Many times it can take four or more years of the lower payment just to recoup the money paid out for the lower interest rate that’s just to recoup what you put into it. This does not take into account the opportunity cost of the money you invested in the buy down. In almost all cases, it would be better to sock away the money in another investment, and use that to offset the higher payments. This way you can keep a fund aside in case of emergencies or the lake (see Mistake #1).
How will you know when it is a good time to buy down the interest Rate? Ask your competent Realtor. They will know the difference in payment amounts how much the lower interest rate will cost, an dhow longer will take to make up for the extra money you well be paying. After knowing how long it will take to recover the money you can make a more informed decision on whether or to pay for origination or discount points.
That’s it for the 7 Mistakes Homebuyers Make. One of the principles that guide my life is the desire to take a positive difference in the lives of others. I sincerely hope that is information will help you in making educated and informed decisions in the purchase of a home. The knowledge I have gained over the years is yours for the asking. I will be happy to help you in any way that I can. Even if you feel that another agent may be more to your liking, I would be happy to give recommendations to that effect. Otherwise, feel free to call me for a no-obligation appointment to buy or sell a home. You have my worked that I will do everything in my power to help you make a successful transition. Thank you.
ANA (A New Approach) it is not only my name it is my way of life. I understand the significance of real estate decisions and its impact on people. Therefore, I help clients make informed real estate d....
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