10 Most Common Beginner Mistakes
First-time homebuyers face a steep learning curve. There's much to know, much to learn, and a great potential for "beginner mistakes" —with potentially costly consequences.
Here are 10 basic issues to think about which can help you avoid these mistakes.
- Rushing into the transaction.
- Buyers looking for homes in extremely tight markets may feel pressured to make an immediate offer and, indeed, may have to in order not to lose the home that they've decided to buy. Instead, it makes sense to become familiar with the local market and know exactly what your money will buy before you start offering on homes.
- Not asking enough questions.
- First-time home buyers, by definition, simply don't have home-buying experience. It may be uncomfortable to ask questions, but ask anyway. Your agent can't answer unasked queries.
- Searching in vain for the "ideal" house.
- Many buyers run themselves and their agents ragged as they repeatedly dismiss homes that meet most — but not all — of their specifications. A buyer who turns down a house that meets most criteria — but not all — may lose the best available property, as well as good financing if market conditions change.
We've found that there is no one dream home per person. Rather there are any number of spaces in which you could be happy. So the best thing to do is to evaluate your needs, know what your money can buy you in the market and then offer on homes that meet those needs.
Part of understanding what your money can buy you is working with a good buyer's agent who will help educate you on what the market dynamics are and current pricing strategies are. Often the list price in San Francisco is not the sale price. It is prudent to avoid jumping on the first property you see — but don't drag your feet when the find a house you love, either.
Finding a good agent you can trust is an essential element in this process. They can help you understand what's reasonable to expect for your budget.
- Avoid "Overbuying".
- Homes routinely seduce buyers into becoming "house poor," spending so much for a home that they must forego annual vacations, restaurant meals and other forms of entertainment. Pre-approval through a good mortgage broker can help determine a reasonable target price range and also identify the mortgage programs that can work best for you. Our accountant consultation will help you to know for sure whether you're going to be within your comfort zone or getting in over your head.
- Waiting to have 20 percent down.
- That's an admirable goal, but years in the future for many first-time buyers. Instead, especially in markets with rising values like San Francisco, buy now with far less down. Consider using your 401K money towards a down payment (if your tax adviser says it's sensible to do so), or asking your parents for a loan. After all, by the time you save a big down payment, the home that you want to buy will probably have gone up in price more than the amount that you saved!
- Be realistic.
- It's tough to ignore a home's curb appeal, but what about practical matters? Enough space? Off-street parking? Low maintenance? How far to work? Close to public transportation? Boring stuff — but important.
- What about location?
- Is there a medicinal pot clinic down the street? Fire station two blocks away? Nuclear test site? Ask your agent about what's around the home you're thinking of buying.
- Ignoring representation.
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The odds are overwhelming that the seller has a real estate agent on his or her side. What about professional help for you? A good agent can give you equality at the bargaining table, knowledge of the market and also resale potential.
- Skipping an inspection.
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In almost all cases, a professional home inspection is simply a "must," whether you are buying an existing home or a new one. Most of us are not contractors and you should understand as much as you can about the condition of the home you're purchasing. You don't want to buy a money pit because you didn't want to spend money on inspections!
- Don't under-estimate closing costs.
- There is more to buying a home than a down payment. Your agent and lender can help you to determine probable closing expenses — information you need to avoid unwanted financial surprises. Typically, closing costs are 1%- 1.5% of the purchase price (remember, that's on top of the down payment!)
Is there more you can do? Sure. Understand that buying a home is a complex process, so prepare before you go into the marketplace, find yourself a good agent and keep asking those questions.