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  • Brett Bonecutter

Mistakes to avoid when buying a home


There are a lot of hurdles to jump when buying a home - scouting out properties, qualifying for a loan, negotiating a good deal, inspections, paperwork galore, etc. I've seen them all as a Hybrid Agent practicing real estate and loans. But you can help yourself along the way by not making some basic mistakes:

  1. Overly rigid budgeting assumptions: The first place this shows up is in the mortgage rate people assume early on in their budgeting process. Until you are approved, find a home, and lock a rate, I would assume the rate could be +/- .375 of your expectation. So for example, if your target is 3.875% on a 30 year fixed - be sure you are prepared for it to be as low as 3.5% and has high as 4.25%. Also, I think it is wise to consider whether a home that is 10-15% more than you ideal budget is really out of range. Sometimes the extra 10-15% premium for the better home is worth it over the long run. Don't be pennywise and pound-foolish if there is some margin in your budget.

  2. Forgetting the tax benefit in your budgeting process: As a homeowner, you will have more deductions than a renter. You may need to consult with your tax preparer about your scenario, but don't forget to factor this in. I routinely see new homeowners save $500+/month in taxes, which could be factored into your purchasing power.

  3. Financing other major purchases during the transaction: I know how tempting it is to buy that boat, motorcycle, or RV, but please wait until the home purchase process is over. If you finance a large purchase (even if it is furniture for the home) during the process, there is a good chance your FICO score will drop and your debt-to-income ratios will change. Just before a home loan funds, the FICO is pulled from bureaus again - and if the FICO has changed or the new liability is significant, the file could need to be re-underwritten, locked at a new rate, or even be declined. Just don't do it.

  4. Fixating on small cosmetic fixes on resale homes: Focus on the major things. Trying to negotiate small cosmetic fixes tends to overwhelm sellers and short-circuits their willingness to tackle the substantive things on your list. Do you really need the sellers to clean the bathroom ran grates? No. No, you don't. You would much rather have the leaking water heater repaired or replaced.

  5. Making large deposits that are hard to source: Your bank statements will be scrutinized and large deposits will need to be sourced. Depositing cash is generally a no-no without solid receipts. Keep those bank statements clean and your records organized.

  6. Quitting your job: It sounds like common sense, but I've seen it before. On the day your loan funds, your credit AND your employment will be re-verified. If you've decided to quit and find another job, you will also have blown up your loan and real estate purchase. If you are transitioning into a self-employed status, keep in mind you will need to show at least a two-year history of being self-employed for that income to qualify.

  7. Going late on any payments: I once saw a client miss a small $25 payment on a credit card - it went 30 days late and their FICO dropped 50 points. Guess what? Now the rate is much higher. God FORBID you go late on a mortgage payment. That could be incurable for 12 months. Don't do it!

  8. Paying discount points on a short-term property: Each consumer can choose from a range of rates - there is not one rate they qualify for. To get a super-low/below-market rate, you will have to pay discount points upfront. Do the math to make sure the savings is worth it. Generally speaking, if you plan to be in the home and/or that loan longterm, points make sense to pay upfront. But if it is a 2-3 year transitional home, it usually doesn't pencil out. Take a slightly higher rate at a lower overall cost.

  9. Ignoring potential resale issues: The chances are pretty high that this will not be your forever home. And even if you think it will be, you want to make sure selling the property won't be insanely difficult if that eventuality comes to pass. So think about the busy street the house is on, the unkempt house next door, and the concrete mixing plan that is within view. It may be the right fit for you in this moment, but think about how others will see it. Make sure you go into it with your eyes wide open to issues that may impact future resale value.

  10. Evaluating the HOA value/expense trade-off: There are major benefits to having an HOA - there are usually neighborhood amenities to enjoy and properties are generally more well-maintained. However, HOA costs can really impact your purchasing power. So for example, a $350/month HOA payment could decrease your purchasing power by almost $70,000 at today's rates. So always ask yourself if there are other properties and neighborhoods at a higher price point WITHOUT HOA's to compare with. If you can find a solid neighborhood, sometimes it is worth paying a higher price and passing on HOA fees.

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