Apr. 15, 2009 - Do Homebuyers Make these 10 Mistakes?
There's an article floating around the web: "Top 10 mistakes of First Time Buyers" first seen on Smart Money. I generally don't like to regurgitate popular web articles, but would like to add my $.02 FWIW on this one.
1) The article suggests that the #1 mistake first time homebuyers make is not knowing how much home they can afford. I think that's old news, as lenders are more cautious these days about giving someone a mortgage they can't afford. My particular beef with the response to first time buyers in this article is that they should get the answer from a mortgage professional.
My advice would be to determine the monthly payment, including taxes and condo fees or home owner's insurance of the type of property you might buy. Let's say you are paying rent of $1,000 a month, and the monthly payment if your purchased would be $2,000. I would suggest that you "pretend" you are paying $2,000 a month by religiously, on the first of each month, pay your $1,000 rent and put an extra $1,000 into your savings account. If you can do this for up to a year without struggling, you have proven to yourself that you really can afford to pay the amount the "mortgage professional" told you that you could afford. Don't just take someone else's word for it. Try it before you buy it.
2) Making assumptions that foreclosures are great deals. My thoughts? Rarely, if ever, can a first time buyer purchase a true foreclosure property at the courthouse steps. I'm sure it's very rare. So they are likely really talking about bank-owned properties and short sales. More often than not those are better deals. I think more people make the mistake of thinking a huge price reduction is a great deal and getting burned that way, than who get burned overpaying for a foreclosure property.
3) Showing the seller or seller's agent how much you love the house. Actually, I see the opposite more often. Buyers "kicking tires" and trying to convince the seller he's got a crappy house, to get the price down. Often the seller will just say, "Hey! If you don't like my house, get out!" You want a balance of letting the sellers know that you do like their house, but market conditions scare you and so you are cautious about overpaying for it, even though in a different market it would have been worth more. Sellers appreciate people who like their house, and sometimes will sell it for less to a buyer who loves their house. Sellers appreciate a first time buyer's fear of losing their downpayment to declining home values. Sincere and honest responses are good. I would caution buyers looking at homes when the seller is not home, that often the seller is hanging out next door or across the street. Screaming how much you love it because you think no one is home, especially when you are outside of the house, is not recommended. But pretending you don't really like it, but are making an offer on it anyway? No one's buying that ploy.
4) Find a good buyer's agent. The article goes on to recommend finding an EBA (Exclusive Buyer's Agent). Maybe EBAs will make a comeback in this market, but generally they are too few and far between for that to be good advice. An agent with local experience is often better than an agent from another County who happens to be "an EBA". No matter how good your agent is, stay engaged in the whole process. I would say the bigger mistake buyer's make is delegating everything to the agent, period. You will be the one living there. You will be the one paying that mortgage payment. Stay engaged in the process.
5) Understanding the full costs of homeownership. I agree with this one. I especially recommend that people make sure the $8,000 First Time Homebuyer Credit in 2009 be used as a reserve against unexpected (or expected) repairs.
6) Failing to budget for property taxes. Nope - these are almost always paid by the lender for a first time buyer, and part of the monthly payment.
7) Assuming your first offer will be accepted. Nope - more often the first offer doesn't go through to closing due to inspection issues than failed negotiations.
8) Skipping the inspection. Nope - Even in the hot market, a buyer often does a pre-inspection prior to offer or an informational inspection in multiple offers. I don't think I'd let a buyer buy a house without any inspection prior to closing, unless they were going to tear it down and are buying at lot value.
9) Doing too much too fast. I give my buyer clients my Mom's advice "give it a year". By the time you are living there a year for 4 seasons, you know what you really need to add or change, including landscaping issues. You don't want to pull great flowers, thinking they are weeds, or plant over bulb you don't know are there. Give it a year and only do what you have to during that time.
10) Failing to have a mortgage contingency clause. Nope. I think they were stretching to get to 10 things in these last few. They should have quit at 5 :) I have never seen this happen. Making the contingency too short is more the mistake, vs. not having one at all. Haven't seen one in 20 years where the buyer forgot to have a mortgage contingency.
Rushed through the end there as I have an appointment. If you have any questions or disagree, I'll follow up in the comments as needed.
| 
RSS Blog Feed
