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For most people, buying a home is the biggest investment they'll ever make. These tips will are for home buying. You won't have to learn these lessons the hard way as most people do.
Annual mortgage, property taxes, and insurance costs can range from 25% to 40% of your gross annual income. That's a lot of your money going out every month. By reading the information below, you're better prepared and a well informed consumer because you understand the process upfront. My clients say how much they appreciate me taking the time to educate them.
1. Looking for a home without being a loan pre-approved.
When you're pre-approved, you have much more negotiating clout with the seller. The seller knows you can close the transaction because a lender has carefully reviewed your income, assets, credit and other relevant information. In some cases (multiple offers, for example), being pre-approved can make the difference between buying and not buying a home. Also, you can save thousands of dollars as a result of being in a better negotiating situation.
Pre-approval and pre-qualification are two different things. During the pre-qualification process, a loan officer may only ask you a few questions, then hand you a "pre-qual" PQF form. This Pre-Qual is so weak, sellers may disregard it. But mortgage companies I use will provide a more thorough pre-qualification of a buyer at no cost to validate how much a buyer can afford to purchase based upon truthful answers and buyer authorization to order and evaluate their credit reports.
The pre-approval process is much more thorough. During the pre-approval process, the mortgage company does virtually all the work associated with obtaining full loan approval. Since there is no property yet identified to purchase, an appraisal and title search won't be conducted until a purchase contract is written and accepted and escrow is opened.
Professional REALTORS® will not show homes until the buyer is pre-qualified by a lender. Sellers request only qualified buyers view their homes for security reasons and practicality and agents understand this. They don't want to waste the time of the buyer, the seller or their own time showing buyers homes they do not know the buyer can afford.
2. Making verbal (oral) agreements!
If anyone tries to make you sign a written document that is contrary to their verbal commitments, don't do it! For example, if the seller says the washer will come with the home, but the contract says it will not -- the written contract will override any verbal contract, even if you have witnesses who will testify on your behalf. In fact, written contracts almost always override verbal contracts. When buying or selling real estate, abide by this maxim: Get it in writing!
3. Selecting a lender based upon verbal rate quote without a written good-faith estimate.
Loan rates change all day - every day and your credit score may not qualify you for their "best" quoted rate. Until the loan underwriter reviews and approves your complete loan file, they may discover you can only qualify for a higher risk loan that has higher loan rates and costs.
Pay close attention to the APR, loan fees, discount and origination points. While the loan rate is important, you have to consider the overall cost of your loan. Some lenders include discount and origination points in their quoted points. Other lenders may only quote discount points, when in fact there is an additional loan origination point (or fraction of a point).
The difference in the way loan points are sometimes quoted is important to you. One lender will quote all points, while another lender may disclose an extra point, or fraction thereof, at a later time - an unwelcome surprise.
Within 3 working days after receipt of your completed loan application and executed purchase contract, your mortgage company is required to provide you with a written loan estimate (LE) of closing costs. You may want to consider requesting a LE from a few lenders before submitting your application. With a few LEs to compare, you can get a feel for which lenders are more cost-effective, and you can educate yourself regarding the costs associated with your transaction.
The cost of the mortgage, however, shouldn't be your only criteria.
There is no substitute for asking your REALTOR®, family and friends for referrals and for interviewing prospective mortgage companies. You must also feel confident the loan officer you are dealing with is committed to your best interests and will deliver what has been promised - on time.
4. Not shopping around for a mortgage.
I recommend shopping for a loan with at least three mortgage companies before you make a decision. There are countless stories of consumers who ended up paying higher rates or got a loan that wasn't right for them.
5. Not getting a rate lock in writing.
When a mortgage company tells you they have locked your rate, get a written statement detailing the interest rate, the length of the rate lock, the cost for the lock and other particulars about the program.
6. Using an agent who represents both the buyer and seller in the same transaction.
Buyers and sellers have opposing interests. Sellers want to receive the highest price, while buyers want to pay the lowest price. In many situations, dual agents cannot be fair to both buyer and seller. Since the seller usually pays the commission, the dual agent may negotiate harder for the seller than for the buyer. If you are a buyer, it is usually better to have your own agent to represent you. It costs you nothing more to have an advocate negotiating contract terms and conditions more favorable to you.
Using a dual agent may make sense when you can get a price break (usually resulting from the dual agent lowering their commission) - but it is the seller who benefits in paying a lower commission. In that case, proceed cautiously and do your homework! You are on your own!
7. Buying a home without a professional home inspection.
Unless you're buying a new home with builder warranties on most equipment, it is highly recommended that you get property, roof and termite inspections. These reports will give you a better picture of what you're buying.
Inspection reports are great negotiating tools when it comes to asking the seller to make repairs. If a professional home inspector states that certain repairs need to be made, the seller is more likely to agree to do them.
Have your inspector verify the completed repair work prior to the close of escrow. Do not assume that everything will be done as promised... even when you have paid receipts in hand. The seller can make repairs or they can hire a handyman. Verify that all repairs were done properly!
8. Not shopping for home insurance until you are ready to close.
Start shopping for homeowners' insurance as soon as you have an accepted offer. Many buyers wait until the last minute to get insurance and find they have no time left to shop around.
Some insurance companies access a national claims history database and the insurance rate you are quoted may reflect prior insurance claims made by the current owner.
Or worse yet, the Buyers don't learn until the last moment that the previous insurance claims history against the property disallows it from being insured by the Insurance Company.
9. Signing documents without reading them.
Do not sign documents in a hurry. As soon as possible, review the documents you'll be signing at close of escrow - including a copy of all loan documents. This way, you can review them and get your questions answered in a timely manner. Do not expect to read all the documents during the closing. There is rarely enough time to do that.
10. Making moving plans that don't work out.
You expect to move out of your current residence on Friday and into your new residence over the weekend. Also on Friday, your lease terminates and the movers are scheduled to appear.
So Friday morning arrives with bags packed, boxes stacked, children under your arm or wherever and the dog is on a leash and you are looking forward to a day of anticipations, anxiety, and dread. As you are sitting on your front door stoop waiting for the arrival of the movers, your phone rings. You learn your loan closing is delayed until the following Tuesday. You are dumbfounded and don't know what to do as the new tenants turn into your driveway with a weighted-down U-Haul and the movers pull up across the street.
You are asking yourself, "What do I do now? Where's the nearest Motel 6 and storage facility? How much will the movers charge for an extra trip? Can we afford it?"
How can you avoid such a disaster?
First - never agree to a closing date on a Friday or Monday! Whenever possible, don't commit to vacating and moving the same day as the closing. Enough escrows are late in closing to warrant a little caution. Make arrangements for your lease to be extended 3 days past the scheduled closing date and schedule the movers to show up two to three days after your anticipated closing on the purchase of your new home. Consider the extra expense well spent as an insurance policy. You're buying peace of mind and protecting yourself from expensive delays, bad feelings, and hot tempers.
My Home Buyer Guide has more helpful information, buyer tips and lists additional resources available to assist you with your home purchase.
Hope you found it helpful to know the common home buyer mistakes to avoid making when looking at homes for sale in Chandler, Gilbert, Mesa, Phoenix, Scottsdale, and Tempe AZ.