10 rookie home buyer mistakes to avoid

February 21, 2010 · Tagged with Real Estate 

3. Not creating a long-term budget

If the housing crisis proved anything, it’s that mortgages were given to people who clearly did not have the means to pay them back. To avoid making this mistake, home buyers should create a budget before even beginning their home search to determine just how much house they can really afford. A good rule of thumb is to devote no more than a third of your monthly household income to housing costs, which include mortgage principal, interest, taxes, and insurance. “A good number would be 30 percent,” Zandi says. “If you are over 35 percent, you are really pushing the envelope.” There are several work sheets available online to help you figure out how your income, debts, and expenses affect what you can afford each month for the next 15 or 30 years.

4. Forgetting about the hidden costs

You grossly underestimated what you can afford to pay each month. You factored in the purchase price of the home but didn’t consider the cost of taxes, insurance, utilities, and fees. There are several hidden costs that first-time home buyers neglect to prepare for. They can be anything from the closing costs to appraisal fees, escrow fees, homeowner’s insurance fees, property taxes, and even moving costs. Another factor is the cost of repairs and maintenance. “When you’re renting and the furnace goes out, what do you do? You call the landlord,” says Tom Vanderwell, mortgage officer for Fifth Third Bank in Michigan. “When you own a house, what do you do? You have to fix it yourself.” You may find there are numerous “nickel and dime” things to account for that could add up to a significant chunk of money over time.

5. Not using professional help

Sure, it’s possible to go out and buy a home without the aid of a professional real estate agent. But think about how much time and stress a good agent can save you. For starters, Realtors have access to all the homes on the market through the multiple listing service, or MLS, plus all the ones that are under contract and have been sold. A specialist has time to sift through all of these listings, says Boss, and make the appointments to show you the houses, create comparative market analyses to determine proper pricing, and meet with necessary inspectors. Real estate agents also can help buyers traverse a taxing, 70-page legal contract. “I would want someone who is going to look out for my interests first and foremost,” says Boss. “Someone who knows the contracts, who has experience negotiating, and who can walk me through the entire process smoothly–step by step–and make sure I get the house that’s right for me.”

6. Picking your real estate agent and lender blindly

“One of the mistakes a lot of people make is finding a Realtor they aren’t comfortable with,” says Boss. Begin your search at the National Association of Exclusive Buyer Agents, a nonprofit that represents buyers. Or ask relatives, friends, neighbors, and coworkers for referrals.

First-time home buyers, Boss says, are generally more time-consuming than the average buyer and require more attention. A good real estate agent will be friendly and accommodating, show only homes that fit your parameters, and help you with strategies during the bidding process–but never pressure you into something you’re not comfortable with. “It’s important that the Realtor be experienced with first-time buyers, understand their wants and needs, and be able to connect with them well,” says Boss.

Similarly, the buyers should feel at ease with and have complete confidence in their mortgage lender, and they should fully discuss and understand their financing options with that lender. “Don’t apologize for asking questions,” says Vanderwell, who stresses the importance of knowing what you’re getting into. “There’s a pretty substantial chunk of people who are in really rough straits right now and would not have been had they done their homework.”

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