Buying a house is supposed to be the American dream, but it can turn into a nightmare for buyers who go into the process with unrealistic expectations and insufficient information.
“The process of buying a home [can be] excruciating,” says Craig Evans, an Ally Bank mortgage executive with more than 30 years of experience in the industry. There are some things that seem to trip up home buyers again and again. Here are the mistakes real estate experts say people make when buying a home:
Failing to get pre-approved. Before they even start looking at homes, buyers should get pr-eapproved for a mortgage. Not only does this ensure they are visiting houses they can afford, it also avoids the heartbreak that can come from missing out on a hot property when multiple people are placing offers. “There’s nothing worse than having a buyer find the home of their dreams, and they are not pre-approved and need to place an offer in 12 hours,” says Tim Savoy, a sales associate with Coldwell Banker Residential Brokerage in the District of Columbia.
Neglecting to factor in all the costs. One reason for the housing market collapse a decade ago was the number of home buyers who purchased properties with costs beyond their means. “Lenders own a lot of the problems that happened in the past,” Evans says. “We put [people] in homes they really couldn’t afford.” Regulatory changes were enacted to help avoid a repeat of that situation, but buyers still bear responsibility for ensuring they can afford all the costs of home ownership. Those include property taxes, insurance, closing costs and association dues.
Not shopping for the best mortgage product. Evans says there are more than 6,000 places to get a mortgage in the United States, and some companies may offer only a limited number of products. For the best deal, home buyers should check with at least two or three lenders for their rates and terms.
What’s more, buyers should be sure to read the fine print and take into consideration all their closing costs. For example, points are fees paid by consumers in exchange for a lower interest rate. “Some lenders might promise a buyer a great rate, but don’t disclose how many points need to be bought at the table,” Savoy says.
Opting out of the digital mortgage process. While not every lender offers a digital option for income and asset verification, consumers should consider opting in when it’s available. “It’s startling if you have to go through the manual process,” says Laura Williamson, senior vice president of client services for mortgage solutions firm Digital Risk. Lenders who can electronically verify information may be able to close in as little as 10 days, compared to 45 days for those going through manual verification. It also eliminates a headache for borrowers who otherwise have to dig out months of bank statements and pay stubs to prove they can afford the mortgage.
Thinking your mortgage company will remain the same. The mortgage company that approves the loan might not be the one receiving subsequent payments. “Consumers should know it is very customary for loans to be sold after closing,” Williamson says. Home buyers should watch for a notice of a mortgage sale to ensure their payments are routed correctly and late fees are avoided.
Seeing paperwork for the first time at closing. Sitting down to a closing with a stack of papers to sign can feel like a high-stakes experience. Home buyers have brought their money to the table and are planning to walk away with the keys to a new property. “All these things create pressure to just sign,” says Lionel Urban, vice president of product management for mortgage provider PCLender. However, that paperwork could include provisions, such as releases of liability, that aren’t favorable to buyers. “The right thing to do is get copies of the documents days in advance,” Urban says. That way buyers have plenty of time to review the paperwork or have someone they trust look it over prior to signing.
Not understanding property restrictions. Not every mistake home buyers make is financial in nature. Some people fail to realize the property they’ve selected comes with a laundry list of restrictions. “If it’s a co-op, as are most apartments in New York, there are a lot of rules,” says Phillip Salem, a professional real estate salesperson for Triplemint in New York City. Those rules may restrict everything from what improvements an owner can make to when trash can be taken out. Homeowners associations can also make similar restrictions, and both associations and co-ops can charge residents substantial monthly or annual fees.
Using the wrong agent. A lot of mistakes can be avoided by having the right agent or broker helping with the buying process. “A first-time home buyer needs someone who’s going to spend a whole lot of time with them,” Evans says. Meanwhile, a repeat buyer who is investing in real estate might not need much assistance with the selection process, but could use someone who is savvy about financing options.
Visiting the property only once. A single showing will only tell you so much about a property. At 12 p.m. on a weekday, the neighbors might all be gone and the traffic minimal. “I always make sure my clients see an apartment a few times at different times of the day,” Salem says. That avoids situations in which someone moves in only to realize that the walls are paper thin or the street gridlocks during rush hour.
Forgetting to consider uses of nearby properties. When viewing a home, people should consider how nearby properties can affect their quality of life. Living near a school, for instance, may be convenient, but will traffic and noise from Friday night football games be a nuisance?
While no one can predict the future, homebuyers should also remember that neighboring properties can change over time. “You might have this amazing view, but come to find out there is a 70-story high-rise going up in front of [you],” Salem says. Likewise, fields can become subdivisions and vacant lots can turn into businesses. Check with local zoning administrators to find out what’s allowed in your area and whether any potential projects are already in the works.
Skipping a home inspection. In a seller’s market, waiving a home inspection may be one way to make an offer more attractive. However, that tactic could backfire if a buyer later discovers serious problems with the property. Along with getting the inspection, be realistic about how its findings affect the affordability of a home. “If you’re really tight on your finances and getting into a home that needs repairs, can you afford those repairs?” Urban asks.
Buying when you should be renting. The biggest mistake can be simply buying a house in the first place. “It’s not cheap to buy a house,” Evans says. He estimates there could be as much as $10,000 in transaction costs associated with the purchase of a $300,000 house. That’s in addition to moving expenses and other incidental costs. While buying a house can be a wise investment for those ready to settle down long term, the cost may not make sense for those planning to move in two or three years. In those instances, renting may be more cost-effective.