Avoiding Home Purchase Pitfalls: Five Important Steps

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It’s a life milestone: purchasing a home. We’ve consulted the experts and distilled their advice to five ways to avoid common mistakes that the first-time homebuyer might make. Read on and save yourself time and money!

Before you do anything, hire a real estate agent.
For most people, buying a home is the biggest financial investment they will ever make. The process of finding a home and negotiating a purchase agreement can be complicated and confusing. A Realtor (a member of the National Association of Realtors) has a legal duty to represent your best interests when helping you find your way through the maze of changing housing markets and real estate rules and regulations. In most cases, buyers’ agents are paid by receiving a fixed percentage of the selling agent’s commission, which means home buyers can get the services of a real estate agent without having to pay out of pocket. Ask friends to recommend someone or meet an agent at an open house.

Step two: Find a mortgage broker.
Most people–especially first-time buyers–need to borrow to buy. Ask your agent to recommend at least two mortgage lenders for a free buyer consultation. Lenders can help navigate the complex world of mortgage loans and can help you find the best loan and rate for your circumstances. Your lender will run your credit and pre-qualify you, letting you know just how much you can afford to spend on a home. They will calculate your total monthly payment and explain additional expenses, such as mortgage insurance fees. When you’re ready to write a purchase agreement, they will write a pre-approval letter letting the seller know that you are qualified for the amount you are offering. Without this, most sellers will not even consider an offer. You can also check your own credit at no cost, once a year, at the website, annualcreditreport.com.

Get a buyer’s inspection.
The house might look perfect at first glance, but every home–even a new home–may have flaws. An inspector can find problems and save you heartache and money. A good inspection should take two or three hours including the walk-through. At the end, you should be given a step-by-step guide to current and future problems and you’ll know if there are any deal breakers. After the inspection, you can choose to withdraw the purchase agreement, negotiate fixes or a price change or, if the problems are minor, simply plan to do post-closing repairs yourself.

Budget for closing costs and more.
Don’t be surprised at a closing when you’re faced with a number of additional fees and expenses. Smart buyers remember they’ll have to budget for insurance and the cost of moving. But a buyer’s biggest expense after the down payment is often closing costs. These are calculated by a formula that includes the down payment, purchase price, your new home’s ZIP code and the loan type. They can include property taxes and mortgage insurance payments. They also include a number of fees such as loan origination, filing and application costs as well as lender settlement, closing and title examination fees. These can add up quickly to several thousand dollars, sometimes five percent of the purchase price, paid at closing.

Lenders can agree to charge a higher interest rate to wrap these costs into the mortgage or buyers can ask the seller to assume them. Your mortgage lender or your closer can provide an estimate of how much you will need to bring to the closing table.

Keep in mind true lifestyle costs.
Knowing your true lifestyle costs is the newest tool for purchasing a home. Do your research. Two homes with the same price may not cost the same in the long run. If you’re moving into a new area, there may be additional expenses for commuting, parking, insurance, kid’s schools and daycare–even utilities. The local cost of living may be higher or lower. Don’t forget to include property tax or condo fees in your calculations or forget to budget the potential outlays for yearly home maintenance and repairs, typically about three to five percent of the cost of the home.

Keep your head on your shoulders.
When you’re searching for a new home, it’s easy to let emotions take over, but this is the time to let your head lead your heart. Don’t make decisions because of something you read on the Internet. Don’t fall in love with one minor element or let one ugly chandelier influence your decision not to buy a certain home. Don’t panic when making an offer. If your offer is rejected, don’t despair. Just get ready to see more houses. If you bring friends or family to see a home you love, don’t let offhand negative comments change your mind. That said, when you start thinking about how your favorite possessions are going to look in a house you’re considering buying, you’ve probably found your dream home. HLM

Sources: annualcreditreport.com, fcloans.com, realestate.aol.com, zillow.com and the experience of the author.