You have been watching the housing market go down, down and down for several years now and you are excited to finally have made up your mind to become a first-time home buyer. You want to take advantage of this Foreclosure market, especially because you have recently found out that a mortgage payment (with taxes and insurance!) is lower than the price you are currently paying for rent. So, there is NO better time than now to snatch up that perfect house. We'd like to make sure that your first journey into the world of home ownership is not without these 10 costly mistakes!
Mistake 1: Not Knowing Your Limit!
The subprime mortgage mess taught us all one important rule, mortgage qualifications are your friend, NOT your enemy. If your mortgage broker is telling you that your debt to income ratio is too high, then you may run into trouble when it comes time to make your payments. Consult a knowledgeable loan officer who is willing to explain to you what you qualify for and follow his advice. Your first mistake would be to find the house you “HAVE” to have and then ask the bank to figure out “HOW” to finance it. To do that is just repeating the mistakes of the past.
Mistake 2: Skipping the Mortgage Pre-Qualification.
Buyers who immediately turn to the internet in search of foreclosed homes to buy BEFORE they have been prequalified by a loan professional are wasting not only their own time, but also could cost themselves money! Once you have found the perfect home to bid on, the first thing you have to send in, besides a purchase contract, is an Earnest Money Deposit. This deposit is always at least $1,000 and sometimes as much as 10% of the purchase price. If you wait until AFTER you have paid this earnest money deposit to speak with a loan officer and find that you do NOT qualify for this home, you may find yourself on the losing end of the transaction.
Mistake 3: Being Too Picky
There was a time when a BUYER’S market meant that the seller would fix up a home and make it ready and beautiful for a potential buyer to move right into. However, now that most foreclosed homes will sit empty for a year or two or THREE(!) before they go back on the market, deal hunters have to be ready to make compromises when it come to getting a DEAL on a foreclosed home. You have to look past simple repairs such as replacing the carpet or painting the walls and realize that the real deal is in the land and the foundation of the home. The rest will come with your pride of ownership.
Mistake 4: Lacking Vision
There has never been a greater real estate sales tool than “staging” a home for sale. Staging is when a real estate agent brings in furniture and decorations to show the potential homeowner how the house will look once it is furnished and decorated. However, currently foreclosed homes almost NEVER have the benefit from this extra attention. And, some REAL GEMS may be overlooked by potential buyers because they fail to see past a home’s current condition and how the home will really look once your personal touch and love have been applied to it.
Mistake 5: Being Swept Away
Staging works both ways! Sometimes an investor has purchased a foreclosed home and put as little as $2,000 into cleaning and staging it. But, of course they ask for up to $40,000 more than the price they paid for it. You may look at many foreclosed homes that seem like they are not “MOVE IN” ready, but the truth is that they are only $2,000 away from being move in ready. The investors know this and are always willing to bet $2,000 of their money that you DO NOT KNOW THIS. Don’t be fooled. Always use a knowledgeable realtor who can help guide you through the home buying process. They have seen thousands of homes and can see through the window dressings and advise you on what is really a sound deal.
Mistake 6: Compromising on the Important Things.
Do not get caught up in trying to buy a house at any cost and forget what your needs truly are. If you already have two children and are expecting a third child do not settle for a three bedroom home. Knowing your true needs is just as important as cashing in on the current foreclosure market. Settling for a less than perfect home because it was cheap will not save you money in the long run.
Mistake 7: Neglecting to Inspect.
It’s a temptation to think that since a home is less than 10 years old, or it looks in good shape to you, that you do not need to have a home inspection performed on the house. Home inspections are on average around $250 to $350 but could end up saving you MUCH, MUCH, more than that if they uncover an underlying defect in the house.
Mistake 8: Failing to consider Additional Expenses.
Someone who rushes into a home without fully considering how they are going to finance the home and how they are going to pay for the closing costs of a home may be in for a rude awakening. Not only does a purchase bid require an earnest money deposit, and loans need to have closing costs paid, but also homeowners and possibly flood insurance need to be pre-paid for the entire first year before a lender will allow a loan to be closed on a home. For that reason it is very important that you speak knowledgably with your loan officer to get a complete accounting of all the possible costs associated with purchasing a home.
Mistake 9: Not choosing to use a Buyer's Real Estate Agent.
The internet makes it far too easy for an individual to search for homes from the comfort of their apartment and then call the listing agent for a home they think looks perfect online. However, it is important to remember that a listing agent already works for the seller and will be far less likely to be truly objective when negotiating on your behalf. It is EXTREMELY important to make sure you are represented by a Realtor who is working exclusively for you. Besides, the real estate commission is already priced into the listing price of the house. It does NOT COST a home buyer A PENNY MORE to use a buyer’s agent. So why not take advantage of their knowledge and experience?
Mistake 10: Bidding too low below the listing price.
Everyone wants a bargain. And, when it comes time to bid on a foreclosure it is easy to think that a bank is happy to sell a foreclosed house for ANY price you wish to bid. However, it is important to realize that there are several reasons why doing this will only waste your time and cost you the chance to purchase your dream home. First of all, the bank has already taken a SIZABLE loss on the house and is not likely to lose any more money than it already has. Even in this market there is still a set market value for homes and the bank is willing to wait (even for years) in order to get a “market value” bid on a home. Secondly, there is currently absolutely NO shortage of private buyers, investment companies, first time home buyers and even foreign citizens who are combing the MLS for foreclosure bargains every single day. While a house that needs repairs or was left in bad shape may sit on the market for weeks, a real gem (homes with granite counters and marble floors in pristine condition) will have 4 or 5 bids thrown on them the very first day they hit the MLS. If you bid too low hoping to add extra savings to an already discounted foreclosed home, the bank will just accept a higher bid and you will not be given a second chance to buy this home.
In Conclusion, buying your first home in this foreclosure market is not only exciting but also very lucrative. However, be sure to seek out the advice of a trusted professional to guide you through the pitfalls of rushing into a purchase without giving the process your full attention. There has never been a better time to buy a house and with thorough research, thoughtful action and a little good luck you can find the home of your dreams.
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re-blogged from http://andrewollick.com/realestateblog/index.php/general/home-buying-tips/
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