4 Tips: Overcoming the Challenges of Buying a Home
Once you announce your search for a new home, it seems as though people come out of the woodwork to tell you their home buying horror story. No doubt they have good intentions, but the result can be to create a lot of misplaced anxiety about homeownership.
While it is true that some people do have a terrible buying experience, keeping an eye out for these common problems faced by all home buyers will help you avoid making a costly mistake. If those storytellers had avoided these common errors, they would have been much happier as well!
1. Ensure You Can Afford The Home
Most people rely on a mortgage in order to be able to afford a new home, and with mortgages come rules about qualifying for a loan, having a properly sized down payment, and finding out your FICO score.
Typical down payments range from 0% for a veteran’s loan to 3% - 15% of the sales price of the home. Sometimes home buyers only discover their FICO score when they are in the middle of taking the huge step of financing a home. Improving a FICO score takes time, so ideally you should know this number before you look at homes on the market.
Know your numbers but work with a realtor to ensure you aren’t making yourself house-poor. The National Association of Realtors reports that as many as 8% of homeowners are underwater in their mortgages, meaning they owe more than the home is worth. Homeownership is a keystone to financial wealth, but not if you don’t look before you leap!
2. Make Sure You Understand the Paperwork
Just looking at the mounds of paperwork most new homeowners have to contend with is enough to cause you to delete all of the homes you're following! The average resale contract for a new home negotiation runs 8 – 10 pages, but a builder’s contract for a new home can come in at a whopping 60 pages!
From the lender’s agreements to the sales contract, there is a lot to pay attention to. There are terms, deadlines, and ramifications spelled out in each document associated with buying a home, and it can cost you a pretty penny if you don’t understand what you’re doing.
If you don’t know what something means, ask your real estate agent. This brings us to another costly mistake buyers make…
3. Work with an Experienced Real Estate Agent
New home buyers often think they can save on costs by not hiring a real estate agent. But they don’t realize they are cutting out an important ally in doing so. Real estate agents help you understand the paperwork, figure out how much house you can really afford, find homes with particular features important to your family, spot problems you may not notice, and even negotiate with the seller to get you a good deal.
A good real estate agent helps you negotiate through every phase of the process from qualifying for the mortgage to closing on the house. Good real estate agents usually have a thriving word-of-mouth referral business for these very reasons.
According to the National Association of Realtors, 92% of homes are sold with the help of a realtor. There is a good reason for that!
4. Remember, There are Closing Costs
There is nothing more painful than falling in love with a house, being able to just afford the mortgage, and then getting hit with unexpected closing costs. Arguably, your closing costs should never be “unexpected,” because they are spelled out by your lender and are sometimes a point of negotiation with the seller as well.
There will be a deed to sign, mortgage documents, a down payment to fork over, and then all the final expenses, which typically include your inspection fees, any loan fees and points, title insurance premiums, escrow agent fees, costs for recording the documents, and possibly some portion of insurance and property taxes at closing.
These costs should be spelled out clearly in your documents. Sometimes lenders will allow you to “wrap” those costs into your mortgage and, in some cases, the seller may pay for some of these closing costs.
According to the National Association of Realtors, 34% of sellers do offer some sort of incentive to entice offers. When new homeowners complain about “hidden” fees, this is usually what they are referring to - but most of these fees are never hidden. They’re just overlooked by exuberant first-time homebuyers who are already in love with their home and moving into it in their dreams. Who wants to be bothered by the smaller details, right?
Knowing the problems faced by all home buyers will enable you to concentrate on the fun of finding your perfect home! If you are prepared for the challenges, you can shop for a new home with confidence and avoid any unwanted surprises during the process.