Don't undervalue your emotions or overvalue your finances
Purchasing a home is a highly emotional endeavor. If you allow your emotions to control you, you may fall victim to a number of common homebuyer mistakes. Since homeownership has far-reaching implications, it is essential to keep your emotions in check and make the most logical choice possible.
Unfortunately, many individuals take actions that prevent them from achieving their goal of purchasing a home they adore at an affordable price. Let's examine the most common house-hunting mistakes people make, as well as the proper way to find a home.
• Before you begin house hunting, be realistic about your budget and tailor your search accordingly.
• Playing down flaws could be a costly error, as could overestimating your own handyman skills.
• Putting in an offer too quickly or waiting too long are both risky in terms of price and the type of property you may acquire.
• Do not overbid out of fear of losing the house, as this can cause issues with the appraisal, mortgage, and resale.
If you cannot afford the home, remove it from your list.
1. Not Knowing What You Can Afford
After falling in love with a particular location, it is difficult to return. You begin to fantasise about how wonderful your life would be if you had all the wonderful things it offered, such as the tree-lined streets, jetted tub, and large kitchen with professional-grade appliances. However, if you cannot or will not be able to afford that house, imagining yourself in it is harmful. To avoid temptation, it is advisable to limit your home search to properties in your financial neighbourhood.
If you look at places that are out of your price range, you will end up coveting something you cannot afford. This can put you in the perilous position of trying to spend beyond your means or leave you dissatisfied with what you can actually afford.
Begin your search at the bottom of your budget range. If what you discover there is sufficient, there is no need to go higher. Remember that when you spend an additional $10,000 to purchase a home, you're not just paying an additional $10,000; you're paying an additional $10,000 plus interest, which could amount to double or more over the life of the loan. You might be better off investing that money elsewhere.
2. Skipping Mortgage Pre-Approval
The subprime mortgage crisis should have taught us all that what the bank says you can afford and what you know you can afford (or are comfortable paying) are not necessarily the same. In contrast, there may be a mismatch between what you believe you can afford and what the bank is willing to lend you, especially if you have poor credit or an unstable income.
Obtain pre-approval for a mortgage before making an offer on a home, or even before you begin serious house-hunting. If you fail to do so, you will waste the seller's time, the seller's agent's time, and your agent's time if you sign a contract and then discover that the bank won't lend you what you need or will only do so on terms that you find unacceptable. The pre-approval procedure can also assist you in locating the previously mentioned financial neighborhood for your house-hunting excursions.
Even if you have been pre-approved for a mortgage, your loan could fall through at the last minute if you do something to alter your credit score, such as finance a vehicle purchase. If your actions cause the deal to collapse, you may be required to forfeit any deposit or earnest money you provided at the time of contract signing.
3. Not Shopping Around
While you should be realistic in your search and willing to make some concessions, you should not compromise on essentials. For instance, do not purchase a two-bedroom home if you intend to have children and require three bedrooms. Don't purchase a condo simply because it's less expensive than a house if one of the main reasons you're over apartment living is because you hate sharing walls with neighbours. Indeed, you'll likely have to make some sacrifices in order to afford your first home, but don't make a sacrifice that will put you under undue stress.
Unless you are a high-end buyer looking at custom homes, there are likely to be a large number of homes that are comparable to the one that you like. Each home in a neighbourhood may have been constructed by the same builder if it is of a similar style or model. Even if you cannot find an identical model for sale, it is likely that you will be able to find a home with many of the same characteristics. The odds are in your favor if you're considering a condominium or townhouse.
Being willing to continue your search will prevent you from making hasty decisions that you may later regret. There are numerous real estate websites and apps that can help you streamline the house-hunting process, allowing you to view hundreds of homes from the comfort of your couch in a matter of hours.
4. Not Using an Agent
Don't enter an open house without a real estate agent or broker if you're in the process of serious house hunting. Agents are obligated by the code of ethics to act in both the sellers and buyers best interests. Nevertheless, you can see how dealing with a seller's agent before contacting your own agent might not put you in the best negotiating position.
According to a survey conducted by the National Association of Realtors in 2020, roughly 88% of homebuyers utilized the services of a real estate agent or broker.
5. Lacking Vision
A homebuyer can sometimes feel like Goldilocks in the house of the three bears: This is too big, and this is too small. Identifying what is fixable and what is not is a crucial aspect of house hunting.
Even if you cannot afford to replace the hideous wallpaper in the bathroom right now, it may be worthwhile to endure the ugliness in exchange for a more affordable home. Don't let physical flaws dissuade you from purchasing a home if it otherwise meets your needs in terms of location and size, which are immutable factors.
However, do not become distracted by minor upgrades and cosmetic fixes. These are low-cost techniques used by sellers to manipulate your emotions and elicit a much higher price. Sellers can pay $2,000 for minor improvements or several thousand dollars for staging. In addition, performing home improvements yourself, even if you must hire a contractor, is frequently less expensive than paying the increased home value to a seller who has already completed the work. And you can do them to your own liking, not someone else's.
6. Overlooking Important Flaws
Look for homes whose full potential has not yet been realized, especially if your budget is limited. The increase in equity resulting from your renovations will help you ascend the property ladder.
However, if you're going to purchase a house that needs work, don't purchase one that is beyond your means in terms of time, money, or skill. For instance, if you think you can do the work yourself but realise you can't once you begin, any repairs or upgrades you had planned will likely cost twice as much once you factor in labour, which may not be within your budget.
In addition, you must consider the cost of repairing any damage you may have caused, as well as the cost of replacing any wasted materials. Before purchasing a property that is not move-in ready, consider your abilities, your budget, and when you need to move.
7. Ignoring the Neighborhood
Don't focus solely on the residence; observe the surrounding area. Obviously, it is impossible to precisely predict the future of your desired neighbourhood, but inquiring about or researching its outlook now can help you avoid unpleasant surprises in the future.
Among the questions you should ask are:
• What development plans are going in the neighbourhood?
• Will this street become a major thoroughfare or a popular rush-hour shortcut?
• Is there talk of constructing a nearby bridge or highway within the next five years?
• What are the local zoning regulations?
• Is there an abundance of undeveloped land nearby? What is likely to be constructed there?
• Have home values decreased or increased in the neighbourhood?
If you are satisfied with the answers to these questions, then the location of your potential home can retain its rosy hue.
8. Rushing to Put in an Offer
In a competitive housing market, it may be necessary to make an offer quickly if you find a home you like. However, you must strike a balance between the need to make a swift decision and the need to ensure that the home is suitable for you.
Investigate potential noise problems, such as a nearby train, and make sure the neighbourhood is safe during the day and night (visit at different times).
Ideally, you will be able to sleep on the decision for at least one night. How well you sleep that night and how you feel about the home in the morning will indicate whether the decision you are about to make is the correct one. Considering the decision also enables you to investigate the property's value and offer a fair price.
9. Dragging Your Feet
It is a difficult balancing act to ensure you make a thoughtful decision without taking too long. It can be heartbreaking to lose a property on which you were almost prepared to make an offer because someone else beat you to it. It may also have economic repercussions.
Consider that you are self-employed. Perhaps for you, time is money more than for others. The more time and effort you must devote to house hunting, the less time and energy you have available for work. It may be best for your business not to prolong the home-buying process unnecessarily, as the continued success of your business will be crucial to paying the mortgage.
If you do not quickly pull the trigger, someone else will, and you will have to continue looking. Do not underestimate the time-consuming and disruptive nature of house hunting.
According to the most recent Federal Reserve Survey of Consumer Finances, nearly two-thirds of American families own their primary residence.
10. Offering Too Much
If there's a lot of competition in your market and you find a place you like, it's all too easy to get sucked into a bidding war or try to avoid one by offering a high price from the start. However, there are several potential issues concerned with this.
First, if the appraised value of the home is less than or equal to your offer price, the bank will not approve the loan unless the seller reduces the price or you pay the difference in cash. If this occurs, the shortfall on your bid will have to be paid out of pocket rather than your mortgage. Second, if market conditions are the same or worse when you sell the home than when you bought it, you may be upside down on the mortgage and unable to sell.
Examine comparable sales and seek the advice of your real estate agent prior to submitting an offer to ensure that the purchase price of the home you wish to purchase is reasonable for both the home and the neighborhood.
11. Neglecting to Inspect
You discovered the ideal residence, your offer was accepted, and you are now under contract. It is tempting to believe that you are a homeowner as soon as you enter escrow, but refrain. Before finalizing the sale, you must determine the condition of the home. You don't want to be saddled with a money pit or a multitude of unanticipated (potentially costly) repairs.
This is why a thorough inspection of the property is necessary; your mortgage lender may even require it. Keeping your emotions in check until you have a thorough understanding of the house's physical condition and the viability of your potential investment will help you avoid making a costly financial error.
12. Getting Desperate
When you've been looking for a while and haven't found anything you like, or worse, when you're outbid on the houses you do want, it's easy to become desperate to find your new home immediately.
However, if you move into a home that you end up disliking, it will be expensive to get rid of it. You will be required to pay an agent's commission (percentage of the sale price) and closing costs for your new mortgage. You will also incur the hassle and expense of relocating.
If you have the luxury of time, it is acceptable to wait for the right opportunity to present itself. As long as your expectations are reasonable in relation to your budget, you will find something you can live with. In some areas, new homes are added to the market every single day.
Is It Difficult to Buy a Home?
Purchasing a home requires time, effort, and, of course, money. However, it need not be challenging. Using a real estate agent and having a plan for finances and the type of home you want to purchase can be a rewarding and exciting experience.
Should I Buy a Fixer-Upper Home?
As a first-time buyer, it may be easier to purchase a home that requires some repairs. Fixer-uppers are typically less expensive to purchase but costly to restore. If you have the skills and resources to transform a run-down house into your dream home, it can be worthwhile. If you cannot afford a brand-new home in a desirable area, it may be worthwhile to invest in a smaller fixer-upper.
What Should I Look for in a House?
When house-hunting, you should consider a number of home characteristics, including size, roof, heating and cooling systems, plumbing, and electricity. Obviously, cosmetic features, such as a new kitchen, deck, patio, or upscale bathroom fixtures, are desirable but unnecessary.
The Bottom Line
Purchasing a home is a significant choice, but it need not be complicated. Proper plan has to be made for the home buying budget before looking for the home. However, since it's natural for emotions to play a role, you need to make sure you're making rational decisions and not getting caught up in the idea of a dream home or of yourself as a master builder/renovator. If you are informed of the issues beforehand, you can avoid costly mistakes and shop with confidence.
In conclusion, when it comes to purchasing a new home, be realistic, take your time, avoid acting on impulse, and ultimately make a decision that is financially and emotionally sound.