If you've been thinking about buying a home, especially if you're a first-time buyer, folks in the real estate industry want to send you a message: Come on in, the water's fine. This may indeed be a great time for you to buy. But learn about common buying errors before you jump in.
1. Not getting mortgage pre-approval
Real estate pros tend to agree that the "falling in love" part of house hunting can wait. You need to do your financial homework first.
Be clear on the difference between mortgage pre-approval (a loan commitment) and pre-qualification (a non-binding estimate). "People can get online loan quotes or have a short phone conversation with a loan officer and think they're ready to start looking, but I don't recommend that," says David Hanna, managing partner of SourceOne Realty, which has four Chicago-area offices. "The most important thing anyone, especially a first-time buyer, can do is to get pre-approved at the very beginning. That means sitting down with a loan officer and ultimately ending up with a firm loan commitment."
Hanna sees a real financial benefit to taking this approach: "There are so many loan programs out there right now, and the landscape changes daily," he says. "You need a good pro to navigate those waters. A good loan officer will offer sound advice about exactly when to lock in your rate too."
Getting pre-approved also brings other benefits, according to Genie Birch, a Realtor at the Gold Coast office of Koenig & Strey GMAC. "Pre-approval strengthens the buyer's negotiating position because that transaction has a much better chance of going through since the loan commitment is already in place," she says. "And that transaction can close more quickly too."
2. Not working with a real estate agent
By now, it should be apparent that buying a home is complicated, especially in today's atmosphere of tightened credit and increased oversight. "The process is much more complex than people imagine. Buyers think it's just finding something they like on their own and that's the end of it," says Birch, the incoming president of the Chicago Association of Realtors. "But it's really about understanding the market, and why the market bears a certain price point at that time. Once they realize this, buyers usually start working with an agent, which is always a good move."
Well, it's a good move if you're working with the right agent. To be sure you are, interview at least a couple different agents. "You want to feel comfortable with whomever you're working with," says Mabel Guzman, a Realtor at Century21 SGR in Chicago. "If you feel like they don't listen to you, it's time to find someone else. And even if it's a referral from someone you trust, still do an interview."
Guzman learned this the hard way. "When I bought my first home, I had a referral from my mom, so I just accepted this agent was right for me," she says. "But he didn't listen to me and kept nudging me into a two-flat even though I didn't feel equipped to deal with tenants. No buyer should feel pressure, especially during their first transaction."
A good agent will help you separate your needs from your wants, and your emotions from the facts. "I always sit down with folks and do an interview about what's important to them. Sometimes what they thought was really important, isn't," says Guzman. "Buyers can get very emotional, and a good Realtor helps them back off and focus on the real issue."
3. Not investigating the tax credit
Part of doing your financial prep work is to get up to speed on the First-Time Homebuyer Credit, which allows eligible buyers to receive an $8,000 tax credit for homes purchased before Dec. 1, 2009. The credit, which will be claimed on the 2009 federal tax form, reduces the buyer's tax bill dollar for dollar.To be eligible for the credit, a few conditions apply, according to the IRS:
- The transaction must close by Nov. 30, though industry groups are lobbying Congress to extend the tax credit.
- The home is the taxpayer's principal residence; rental or vacation homes are not eligible.
- The buyer must live in the home for 36 months after purchase; otherwise, the credit must be repaid.
- The taxpayer and his or her spouse are not eligible for the credit if either one has owned a home in the three years prior to the eligible purchase.
4. Underestimating the "mundane" aspects of homeownership
When you're buying a home, it's natural to focus on the aesthetics, but don't overlook everyday realities. For example, how far is the home from your job, and how will you get there? "If you tell me you work in Westchester but want to buy in Lakeview, we need to talk about that," says Birch. "That's a very demanding commute and you'll have to have a car, which is expensive and creates a challenge in the city. Driving in one day to look at properties at 1 p.m. is not the same thing as doing that drive at 5 o'clock every day in all kinds of weather."
Also consider issues like proximity to basics like grocery stores, schools, trains, buses, restaurants and gas stations. For condominiums and co-ops, are any special assessments planned? Does the building have onsite management, parking or a fitness center?
If you're moving to the suburbs, do you have realistic expectations about driving? "If you're coming from the city where you can walk to everything, it can be a shock," Hanna says. "And you may have always wanted a big yard, but are you ready to spend your weekends mowing?"
5. Being influenced by other's opinions
The younger the buyer, the more likely he may be to focus on others' expectations and preferences. In some cases, this input is helpful, but in others, it can slow down or even derail a home purchase. "Some of the parents are great, but others want to baby them or even make the decision for them," says Guzman. "Sometimes I have to ask my buyer whether it's more important to make their parents happy or to find a space that feels comfortable and welcoming to them."
Then there are the friends. "Sometimes, the friend has to come on appointments -- in that case, I try to find out why the friend's input is so important," says Birch. "It turns out the buyer is often afraid of making mistakes. They usually get comfortable enough with the process and their agent that they don't bring their friends along anymore."
6. Focusing too much on the deal
Hanna has found that many first-time buyers are so focused on price they might overlook other important factors. "Gen Y-ers are all about the deal," he says. "They don't fall in love with a home quite the same way people used to."
In the current economic environment, getting a good deal may be synonymous in many people's minds with so-called short sales, transactions in which the financial institution that owns a foreclosed home ends up accepting less than is owed simply to get the property off its books.
But Hanna believes that short sales are often not the best move for a novice homebuyer. "Short sales are anything but short -- they're the longest, most involved type of transaction you can get into, with no certainty as to the outcome because you can go all the way to the closing table with no signed contract," he says. "Plus those homes are sold in as-is condition -- and they mean it. Someone who has faced foreclosure probably wasn't able to keep the home in good condition, so the buyer should set aside significant money after the transaction for repairs."
In general, Hanna suggests that first-time buyers take advantage of the large inventory of homes whose sellers are not in default. "I recommend trying to get the best deal on a traditional deal versus a short sale," he says. "If you get a very motivated seller, you can have a smoother, shorter transaction for about what you'd spend on a short sale. Plus, the home will most likely be in better condition, leaving you with more funds after the purchase."Copyright © 2014, Los Angeles Times