Easy Agent Blogs

Unless you’re Jeff Bezos, Bill Gates or Warren Buffet, your home purchase may be the biggest financial investment you make during your lifetime.

Scary thought, isn’t it? Not if you approach this investment as the three wealthiest Americans would.

Buying a home is a business transaction and, to avoid costly mistakes, it needs to be addressed as one. This means performing careful research, absorbing knowledge and keeping your emotions at bay.

Let’s take a look at the five most common mistakes that homebuyers tend to make.

Buyer Trap #1- Not Getting your Financing in Order

Obtaining loan pre-approval is the most important step to take during the home purchase process. It should be the first step you take as well, and for several reasons.

First, the mortgage pre-approval process lets you know how much you can realistically and comfortably pay for a home.

Just as you wouldn’t go car shopping without a clue as to how much you can spend, don’t look at one house until you know your limit.

Additionally, in a fast-moving seller’s market, most homeowners don’t even want a non-pre-approved homebuyer to look at their homes.

It’s not a stretch, then, to understand that they most likely won’t entertain an offer from one.

Without that preapproval letter, you may just lose the home of your dreams to another, pre-approved buyer.

The process is relatively painless and not overly involved. It’s free, too, so there is no reason not to make your first home buying step one that leads you over the doorstep of a mortgage broker or bank.

Buyer Trap #2- Not Understanding the Loan Process

Ask the lender about any charges and fees that you don’t understand. This way, there will be no surprises at the closing table. If a fee or charge sneaks into the closing documents you’ll notice it and can take action.

Standard fees include document preparation fees, underwriting fees, loan disbursement charges and others.

By law, the lender is required to provide you with a form called the “Loan Estimate” that includes a listing of all fees in advance of closing.

Never hesitate to ask if you don’t understand anything on this form and don’t assume that there won’t be additional fees at closing.

Then, at closing, you’ll receive the “Closing Disclosure” form that you can use to compare to the Loan Estimate.

Buyer Trap #3 – Not Performing Due Diligence

While the seller has a duty to you to answer any questions you have about the home honestly, you have a duty to protect yourself by performing various inspections before you fully commit to purchase the home.

Hire a professional home inspector to go over the home’s major systems. While these inspections are visual (nope, the inspectors don’t open walls), a capable and experienced inspector may notice problems that the untrained eye won’t.

Even if you decide that you want to purchase the house no matter what, it’s much better to know about these problems up front so that we can negotiate a lower price or cash back at closing for repairs.

Buyer Trap #4- Judging the Book by its Cover

It’s easy to fall in love with décor. This is why new home developments feature model homes. These homes are carefully staged to appeal to the consumer’s emotions.

By the same token, it’s easy to dislike a house because it’s messy, dirty or has dated furnishings and features.

It’s so important to remove your pre-conceived notions of what the perfect house will look like. Only then can you truly see a home for what it offers – both the good and the bad.

Don’t allow the dazzling décor to make you forget what it is you want in a home. Don’t let the mess cloud your vision of a home’s possibilities. Carpet can be replaced, walls can be painted.

Focus on the layout of the house, and not the cosmetics.

Buyer Trap #5- Not Considering Additional Expenses

When you’re pre-approved for a home it’s tempting to buy at the top of your limit. Don’t give in to the temptation.

When you purchase a home, you take on expenses you didn’t have when you rented a home.

If the house is in a managed community you will likely have monthly home owner’s association dues. If the home has a pool you will pay for maintaining it.

Many renters don’t pay for water but homeowners typically do. The ongoing maintenance of the home falls on your shoulders, so it’s important to leave enough room in your housing budget to take care of them.

I always counsel my clients to ask the seller for copies of utility bills for the past year to get an idea of how much they can expect to pay if they purchase the home.

While these are the most common mistakes homebuyers make they are in no way indicative of all of them. I’d like to help you develop a home purchase strategy that will avoid all of these mistakes and more.

Call me for a free home buying consultation and I’ll show you:

– How to get pre-approved for a mortgage

– How to buy the right home for your needs

– What to put on your wish list

– The entire home buying process, from start to finish, in plain English.

That letter from the bank: You know the one — it says you’re approved to buy a home for a certain amount of money. It’s burning a hole in your pocket.

Now it comes down to deciding what type of home to buy, within your budget. Condo or townhome? Existing home or a newly constructed house?

The latter is a question we hear frequently from our clients. Let’s take a look at the differences between buying a new home and an existing home.

The Basics

A brand-new house gives you a blank canvas on which to create your dream home. And, while an older home can be remodeled to suit your lifestyle and tastes, it requires time and lots of money.

If you like the idea of being part of the numerous decisions that go into building a home from the ground up, new construction may be right up your alley.

Keep in mind, however, that there are typically delays, so if you’re easily frustrated, consider an existing home.

Cost

When you buy a new home, you’ll pay more for it compared to similar existing homes. This is known as the “new home premium” or “new construction premium.”

While there is no set amount, last summer, new homes sold for 28 percent more (nationwide average) than existing homes, according to Prashant Gopal at Bloomberg.com.

In a 2018 National Association of Homebuilders (NAHB) poll, 31 percent of the homebuyers surveyed said they prefer new homes, while 46 percent said they prefer existing homes.

Yet, when a Harris poll asked those who prefer new homes if they were willing to pay a new construction premium most respondents said they were not.

You’ll need to decide if the new home premium is in your budget and you’re willing to pay it.

Ongoing costs of home ownership, however, are typically lower in a new home, at least for the first four years, according to the American Housing Survey from the U.S. Census Bureau.

For instance, the owner of a newly-constructed home most likely won’t be faced with unexpected repairs and, at least for the first few years, maintenance costs will be negligible.

“In fact, 73 percent of new homeowners spent less than $25 a month on routine maintenance costs,” suggests Peter Bennett at MyBankTracker.com.

New construction homes may have energy efficient features — another money-saving aspect of choosing new over old. Monthly savings on utility bills further decrease the new home premium.

Finally, many new home developers offer incentives when the buyer agrees to use the in-house lender. Incentives may include a significant closing cost credit or points paid on the loan, further bringing down the new home premium.

There is one significant financial drawback: new construction homeowners usually pay higher property taxes. Because new home communities are usually built in less-developed areas, property taxes subsidize development of the area’s infrastructure.

Taxes will be part of your monthly mortgage payment, so pay close attention to this detail when making your decision.

When weighing the pros and cons of buying new construction, crunch all the numbers before making your choice.

Location, Location, Location

Sure, it’s a well-worn mantra, but location usually is the most important consideration when shopping for a home.

The reality is that location determines whether a home will hold its value and appreciate over time. Homes in some school districts, for instance, hold their value better than those located in others.

With existing structures, what you see is what you get when it comes to the neighborhood. You can tour the area and get a feel for the type of neighbors you’ll have if you choose to purchase there, how well they maintain their homes, helping or hindering the area’s home values.

If you have children, you have no way of knowing if other families will be drawn to the community, providing playmates for your kids.

In new home subdivisions, especially in brand new ones where sales are few, the neighborhood is a wildcard. Only when all the homes are sold will you know what type of neighborhood you have on your hands.

In many cases, but not all, new neighborhoods are located on the outskirts, while established ones frequently are located nearer to town.

Choosing between these two locations is a lifestyle decision that requires factoring in your daily commute and determining how important proximity to town is to you.

It’s a matter of taste

If you need a home with lots of space for storage, hobbies or a home office, a customized, new construction home may be the ticket.

If your wish list includes a home with mature landscaping in an established neighborhood, older homes may work better.

The decision between old and new may just come down to whether your lifestyle includes walking to the movies and to dinner at your favorite downtown restaurant or having an extensive hiking trail right outside your door.

Should you decide to go the new construction route in your home purchase, go into the process with representation. Make no mistake – the builder’s real estate agent represents the builder’s best interests.

Although it may seem easier to use the same agent, it isn’t wise. Feel free to reach out – we’re always available to answer questions.

Three digits. They may be all that is standing between you and your own home or continuing to rent. Known as your “credit score,” those digits reflect how risky it will be to lend you money. The score may also impact other aspects of the homebuying process as well.

 How your credit score is calculated

The road to your credit score, also known as a FICO® Score, begins with the credit reporting agencies. Known as “the big three,” they include Equifax, TransUnion® and Experian®.

The information the agencies collect ends up in the hands of the Fair Isaac Corporation (or, the aforementioned FICO®, for short), one of the nation’s top two credit scoring companies.

Ninety percent of what FICO calls “top lenders” rely on your FICO score to determine your credit risk and how much they will charge you for the money you borrow.

FICO’s score calculation is complicated and secret. What they end up producing, however, is a three-digit score from each of the reporting agencies.

“Mortgage lenders usually take the middle score” from this subset, according to Craig Anthony at investopedia.com.

“For example,” he continues, “if your credit scores from the above agencies are 710, 690 and 610, the lender typically makes its decision based on the 690 score.”

Learn more about how FICO determines your score at myfico.com.

What is considered “good” credit for a mortgage?

FICO Scores can range from a low of 300 to a high of 850. According to FICO, about 1.4 percent of Americans with credit scores have a perfect 850.

Last summer, however, the company announced that the average score in the United States reached an all-time high of 704, up four points from 2017’s average.

So, what’s the magic number you’ll need to buy a house?

It depends on the type of loan you’ll be pursuing.

• FHA – 580 and above to qualify for the 3.5 percent down payment and 500 and above with a 10 percent down payment.
• Veterans Administration (VA) – The VA doesn’t loan money so it doesn’t mandate a minimum credit score. Most VA lenders want to see at least a 620 score, although some lenders may approve a borrower with a 580 score.
• Rural Development (USDA) – 640 and above.
• Conventional loans – 620 and above

Since requirements change occasionally, use the above minimum scores as a general guideline and consult with a lender for current requirements.

How does a low score impact the homebuying process?

If you find your credit score on the borderline, just barely acceptable to a lender, you may run into the following problems along the road to homeownership.

You’ll pay more for your house payment every month

First, your credit score will determine the interest rate on your loan.

Use  FICO’s Loan Savings Calculator to determine how much money you can save by raising your credit score before applying for a loan.

Home insurance rates are higher for those with poor credit

If you won’t be paying cash for the home, the lender will demand that the home be insured. And, if you’re credit is poor, you’ll pay more than homeowners with good credit pay.

“People with poor credit pay at least twice as much as people with excellent credit in 37 states and Washington, D.C.,” according to Laura Adams, InsuranceQuotes’ senior analyst.

Live in West Virginia? A poor credit score may doom you to paying more than twice the rate (208 percent).

And, since insurance is one of the four components of your mortgage payment (principal, interest, taxes and insurance), a higher premium will impact how much you pay for the home each month.

How quickly can I raise my credit score?

The first step to take when trying to raise your credit score quickly is to look for errors in your credit reports. You are entitled to a free copy of your reports every 12 months, from all three credit reporting bureaus.

The Federal Trade Commission recommends that you order these reports from annualcreditreport.com, the only agency authorized by the U.S. government.

Items to look for in your credit report include:

• Personal information – Ensure that your name, address and Social Security number are accurate.
• Check all listed account numbers for accuracy.
• Check that there are no accounts listed as closed which are actually open.
• Look for accounts that are incorrectly listed as delinquent.

You will find more tips on what to look for in your credit report online, at consumerfinance.gov. If you find errors, dispute them according to the bureau’s instructions. These are listed on each credit report.

In the meantime, don’t open any new credit accounts. Since the credit bureaus don’t know how you’ll use this credit, they consider you a higher credit risk with new credit and it may result in as much as a 10-point reduction in your score.

Don’t close any credit card accounts, either. The lack of installment credit makes you appear riskier.

Pay your bills on time

Since your payment history accounts for 35 percent of your credit score, late payments are brutal on your credit score. Start meeting those payment deadlines.

Consider putting the accounts that you typically pay late on an automatic payment schedule with your bank.

Don’t be shy about obtaining financial counselling. You’ll find a list of approved credit counseling agencies on the Department of Justice website.

Or, consider meeting with a non-profit housing counselor in your area. You’ll find a list of U.S. Department of Housing and Urban Development-approved counselors online at consumerfinance.gov.

Buying a home isn’t as easy as walking up to a lender and requesting a mortgage. You’ll need cash for a down payment and the loan’s closing costs, unless you’re applying for a VA or USDA loan.

If you’ll be going after a conventional loan, you’ll typically (but not always) need 20 percent of the loan amount as the down payment.

Right now, the median sales price of a home in the U.S. is $240,000. Based on that price, you’ll need to come up with between $8,400 and $48,000 (depending on the loan program) just for the down payment.

Then, there are closing costs to consider. These vary, but they are typically between 2 and 5 percent of the loan amount.

Unless you have a stack of cash sitting around, you’ll need to start saving, and that takes careful planning. A well-though out budget is your road map.

The Budget

It’s important to get your budget in writing, whether that means using a spreadsheet, paper and pencil or personal finance software. Financial guru Dave Ramsey recommends the free budgeting software at everydollar.com or try Microsoft Money Plus Sunset Deluxe

The most basic of budgets includes your income and your outgo. Income should include all money from all sources.

Outgo includes not only your fixed expenses, such as rent or mortgage payments and installment loan payments, but variable expenses (utilities, telephone, etc.) and every single penny you spend on a daily basis.

Some spending that is frequently overlooked by budgeters includes:

• Money given to charity
• Dining out (yes, even that bagel and coffee you stop for each morning)
• Transportation expenses (fuel, insurance, tolls and parking)
• Auto maintenance
• Pets (food, accessories, vet visits)

Keep a small notebook on you while you’re away from home so that you can quickly jot down the small purchases we all make every day. These may include items such as coffee and bus fare.

Give it a Trial Run

Take the new budget for a spin for a month or two and see how it fits and adjust where necessary.

Your budget will show you where you spend your money every week. More important, it will show you areas you can cut ― unnecessary spending that you can add to your house fund instead.

By the way, open an online savings account in which to stash your house fund and forego the debit card. Without a debit card, these accounts are a bit harder to access than a brick and mortar bank so you’ll be less tempted to raid the account.

Choose a fee-free account such as those offered by:

• Ally Bank
• Barclays
• Discover Bank

Today’s homebuyer has options when it comes to buying a home for the least amount of cash out-of-pocket. Go for one of the low-down payment programs and ensure your real estate agent requests that the seller pay a closing cost credit.

These two items alone will slash your cash out-lay tremendously and you’ll be in your new home sooner, rather than later.

Real estate isn’t a game for the faint of heart. To ensure that you walk away from the deal with the maximum amount of money possible requires following a time-tested process.

Unfortunately, not all real estate agents counsel their clients on the do’s and don’ts of selling a home so mistakes happen frequently.

Let’s take a look at three of the most critical mistakes that home sellers make and how to avoid making them.      

1. Overpricing the Home

A home sale isn’t like a yard sale where folks haggle over prices. Sure, there may be price negotiations, but don’t count on them when coming up with a price for the home.

Pricing high to give the buyer “wiggle room” to negotiate isn’t wise.

Your agent will place your home on the Multiple Listing Service (MLS)  database shortly after taking your listing. He or she will enter all the particulars of the home and the price.

Other agents in the area will search the MLS for homes that their buying clients may be interested in viewing. These searches are almost always based on price.

When you overprice your home, it will show up in searches for larger, newer and nicer homes – homes that yours can’t compare with.

So, it will sit on the market with view buyers viewing it in person. When a home sits for too long, buyers’ agents and their clients get the impression that you aren’t a serious seller and, in the end, your home may become stigmatized.

A home’s value is determined by what buyers are willing to pay for it, not what the homeowner wants to get for it.

To determine what buyers are willing to pay requires an analysis of homes similar to yours that have recently sold.

It doesn’t matter what your friend Connie across the street is asking for her house, it only matters what she finally realizes when the deal closes.

The biggest mistake a home seller can make is to lose that most valuable marketing period – the first few weeks after the home hits the market.

Unless the market is red-hot for sellers and multiple offers are the norm, work with your agent to determine the home’s value and price it right.

2. Not preparing the house

“You only have one chance to make a good first impression,” isn’t just excellent advice for a job interview. Houses make impressions as well and if you don’t take the time to ensure yours makes an impact immediately you may end up leaving money on the table.

Preparation starts with cleaning the home until it is immaculate. Paint any walls that need it, make repairs to dripping faucets, sagging screens and loose banisters.

Staging the home – hiring a decorator to rearrange furniture and add decorative items – isn’t a must but it has proven to bring more money at the close of the sale.

Finally, never neglect the exterior of the home. What a buyer sees when he drives up to the curb must be compelling enough to make him want to see what’s on the inside.

3. Putting restrictions on showings

Being flexible is a must when your home is on the market. This means not putting too many restrictions on showing times.

If you require a 24-hour notice or will only allow the home to be shown during certain hours, you restrict the pool of buyers that may be interested in purchasing the home.

Flexibility also means being willing to leave the home at a moment’s notice so that an agent can show it. It means leaving for the entire day if your agent wants to hold an open house.

Yes, it’s a bother and it’s inconvenient. But the homeowner hanging around during showings and open houses is intimidating to buyers and they won’t feel free to truly investigate the house.

Bonus Tip

One of the biggest mistakes a homeowner can make is to be less-than truthful about all aspects of the home.

Disclosure is your duty non-disclosure of a known material fact can land you in court. You must tell a potential buyer both the good and the bad about the house and the neighborhood.

Ask your real estate agent any questions you may have about the disclosure process and your role in it.