Make a mistake cutting your kids’ hair and it’s OK – it will grow back, right? Make a mistake during a real estate transaction, on the other hand, and you may leave a big chunk of money on the table. At the very least, some mistakes cause extreme angst and frustration.
Ask your favorite real estate agent which mistakes homebuyers typically make and her list will probably look something like this:
Delusions of Grandeur
You may have seen the reality TV show that follows homebuyers on their journey to purchase the home of their dreams. When they first meet up with their real estate agent, it’s typically in their dream neighborhood, so the agent’s first question to them is, “How much do you think homes in this neighborhood cost?”
The buyers always quote a price that is well below the average sales price for the neighborhood, illustrating a huge mistake that homebuyers make: Shopping out of their price range.
Looking at homes that are priced beyond your budget sets you up for disappointment. When you finally do tour homes within your price range they will simply not measure up – in size or amenities – to the dream homes. To prevent this experience, avoid one of the biggest blunders homebuyers make: failing to get preapproved for a loan.
Money Makes the World Go ‘Round
Anyone who has taken an algebra class knows that the problems must be solved in a certain order to obtain the correct answer. It’s called the “Order of Operations,” but you most likely learned to call it “PEMDAS,” short for “please excuse my dear Aunt Sally.”
Real estate transactions have this same rigid inflexibility – at least in the beginning, and at least if you want the transaction to go as smoothly as possible.
The first step in the home-buying order of operations is to find out how much you can borrow from a lender. Guessing doesn’t work. Ballpark figures don’t work. You need to know exactly how much money you will have to spend on a home.
After the lender crunches the numbers on your future mortgage, ask for a preapproval letter. This document proves to the owner of your dream house that you have the money to purchase it.
This step in the process is vital to ensure that you don’t shop for a home out of your price range.
Buying at the Top
Unless you have a lifetime contract with your employer, you are among the millions of people at risk of financial catastrophe from a layoff or other type of job loss. Businesses fail, economies tank and downsizing happens.
If most of your income goes to pay the mortgage, even the tiniest hit to your income can bring everything down like falling dominoes. Do yourself a favor and allow some wiggle room. “I would take the preapproval number and cut about 20 percent off,” Ellen Derrick, certified financial planner, tells Forbes.
Better yet, decide on how much you could comfortably afford to pay if you were unemployed for a time and using your savings to support yourself. Give that figure to your lender and ask him how much you should borrow to stay within that budget.
Falling in Love
The feeling of falling in love at first sight doesn’t just occur with a good-looking stranger. Houses can bring out another form of lust, beckoning you to climb that curvy staircase and ply your culinary skills in the gourmet kitchen.
Author Louis de Bernieres puts it into perspective: “Love itself is what is left over when being in love has burned away. . .” In other words, when the initial blast of lust fades, will you still love the house? You just might be in a relationship with your house for the long term, so it’s important to not be mesmerized by the flash and glamour and to evaluate whether it fits your needs.
Avoid being blinded by the bling by reminding yourself that, in the hands of a good listing agent and a smart homeowner, homes for sale are staged to encourage you to fall in love with them. From the curb to the back fence line, it may be all a carefully crafted illusion.
Picture your furniture in the home instead of the designer’s; picture your family living in there. Don’t assume rooms are as large as they look – measure them to be sure.
Love at first sight is exciting, but it can also blind you to reality.
What you simply must not do, under any circumstances, is enter into a transaction to purchase a home without the representation of a real estate agent or attorney. Real estate transactions are complex; the papers you are asked to sign are filled with legalese and are legally binding. Protect yourself and your finances by securing representation. As a homebuyer, your real estate agent is paid for by the seller, so his services cost you nothing.
A good real estate agent can let you know if the home is priced appropriately for the current market. He will negotiate on your behalf to ensure you get the best deal, potentially saving you thousands of dollars.
Unless you’re an extreme DIY fanatic – like do-it-yourself dentistry – enlist the help of a real estate agent right after you see a lender.
The most important role you play in avoiding common home-buying mistakes is research. Learn all you can about the process and about the market. “Knowledge is a weapon,” author George R.R. Martin says. “Arm yourself well before you ride forth to battle.”
Read More: realestate.com