Top 10 Mistakes When Buying a Home
If you're like most people, purchasing a home is the biggest investment you'll ever make. If you're
considering buying a home, you're likely aware of the complexity of the endeavor. Because of the
numerous factors to consider when purchasing a home, it's important to prepare as best you can.
Some common home-buying principles and caveats are presented here for your consideration. By
keeping them in mind, you'll help create a successful and more enjoyable experience. These "Top
Ten" lists are by no means exhaustive, and since your home could cost you 25 to 40 percent of
your gross income, it's important to conduct research and study the process carefully. And feel free
to ask questions- Your AmeriStar Loan Officer can help by explaining any items needing further
clarification.
1. Looking for a Home Before You Pre-Apply. As a potential buyer competing for a property, you'll
have a better chance of getting your offer accepted by being as prepared as possible. Consider
this hierarchy of preparedness:
The benefits available at each level can be easily understood when viewed from the seller's
perspective. Imagine you're a seller in receipt of multiple offers to purchase your property. A
complete stranger (buyer) is asking you to take your property off the market for at least the next two
to three weeks while they apply for a loan. As the seller, lets consider the type of buyer you'd prefer
to deal with.
Neither Pre-Qualified nor Pre-Approved
This buyer provides no evidence that they can afford to purchase your property. You may wonder
how serious they are since they're not at least pre-qualified.
Pre-Qualified
This buyer has met with a mortgage broker and discussed their situation. The buyer has informed
the broker regarding their income, expenses, assets and liabilities. The broker may also have
seen their credit report. The buyer provided you with a letter from the broker stating an opinion of
what the buyer can afford.
Pre-Approved
This buyer has met with a mortgage broker and completed a loan application. This buyer has also
provided documentation on his/her income, assets, and liabilities, and has authorized the
mortgage broker to pull and review a credit report. All information has been verified by the broker's
underwriter, and as a result, much of the paperwork for this buyer's loan has been completed. This
buyer will probably be able to close quickly. They provide you with a letter (pre-approval certificate)
from the lender. You're as certain as possible that this buyer can close on the purchase smoothly,
without any unforeseen issues arising prior to settlement.
As a potential buyer you can see that when you Pre-Apply you gt the best chance of getting your
offer accepted. This is critical in a competitive situation.
2. Making Verbal Agreements. If you're asked to sign a document containing instructions contrary
to your verbal agreements--don't! For example, the seller verbally agrees to include the washing
machine in the sale, but the written purchase contract excludes it. The written contract will override
the verbal contract. More importantly, your state may require that contracts for the sale of real
property be in writing. Do not expect oral agreements to be enforceable.
3. Choosing a Broker Just Because They Have the Lowest Rate. While the rate is important,
consider the overall, total cost of your loan including the Annual Percentage Rate (also known as
"APR"), loan fees, and "discount" & "origination" points. When receiving a quote from a broker,
insist that the discount points (charged by the lender to reduce the interest rate) be distinguished
from origination points (charged for services rendered in originating the loan).
The cost of the mortgage, however, shouldn't be your only criterion. Have confidence that the
company you select is reputable and will deliver the loan with the terms and costs they promised. If
in the final hours of the transaction you determine that the lender has suddenly increased their
profit margin at your expense, you won't have time to start again with a different lender.
Ask family and friends for referrals!
4. Not Receiving a Good Faith Estimate. Within three business days after your mortgage broker
receives your loan application, you must receive a written statement of fees associated with the
transaction. This is both the law and the best way to determine what you'll pay for your loan. Bring
the Good Faith Estimate (GFE) with you when you sign final loan documents at settlement. And
while you should not be expected to pay fees which are substantially different from those contained
in your GFE, remember that your mortgage broker is estimating many of the fees that are actually
charged by other service providers necessary to your transaction. In short, your mortgage broker
will try to estimate everyone's fees as closely as possible, but it's impossible for every estimate to
be exact.
5. Not Getting a Rate Lock in Writing. When a mortgage company tells you they have locked your
rate, get a written statement specifying the interest rate, the length of the rate lock, and the type of
loan program.
6. Using a Dual Agent. An agent who represents both the buyer and the seller in the same
transaction is known as a Dual Agent. Buyers and sellers have opposing interests: Sellers want to
receive the highest price, buyers want to pay the lowest price. In the standard real estate
transaction, the seller pays the real estate commission. When an agent represents both buyer and
seller, the agent can tend to negotiate more vigorously on behalf of the seller. As a buyer, you're
better off having an agent representing you exclusively. This type of agent is known as a Buyers
Agent. The only time you should consider a dual agent is when you get a price break. In that case,
proceed cautiously and do your homework.
7. Buying a Home Without a Professional Inspection. Unless you're buying a new home with
warranties on most equipment, it's highly recommended that you get property, roof and termite
inspections. This way you'll know what you are buying. Inspection reports are great negotiating
tools when asking the seller to make needed repairs. When a professional inspector
recommends that certain repairs be done, the seller is more likely to agree to do them.
If the seller agrees to make repairs, make sure what is agreed upon is incorporated into your
contract, and have your inspector verify that the repairs are satisfactorily completed, prior to closing.
Do not assume that everything was done as promised.
8. Not Shopping for Home Insurance Until You are Ready to Close. Start shopping for insurance
as soon as you have an accepted offer. Many buyers wait until the last minute to get insurance and
do not have time to shop around.
9. Signing Documents Without Reading Them. Whenever possible, review in advance the
documents you'll be signing. Even though some specifics of your transaction may not be known
early in the transaction, the documents you'll sign are standard forms and are available for review.
It's unlikely that you'll have sufficient time to read all the documents during the closing
appointment. For example, at AmeriStar, we send you your Loan Application documents to review
in the comfort of your home, at your own pace.
10. Not Allowing for Delays in the Transaction. In a perfect world, all real estate transactions
close on time. In the world we live in, transactions can often be delayed, sometimes just a day,
sometimes a week or more. So give yourself some room- schedule your lease to terminate a
week or so after closing, and if using a moving company, ask about their policy for re-scheduling in
the event your settlement is delayed. Having planned for a possible delay will reduce your stress,
allowing you to focus on more the important aspects of closing your purchase transaction and
getting into your new home.
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If you're like most people, purchasing a home is the biggest investment you'll ever make. If you're
considering buying a home, you're likely aware of the complexity of the endeavor. Because of the
numerous factors to consider when purchasing a home, it's important to prepare as best you can.
Some common home-buying principles and caveats are presented here for your consideration. By
keeping them in mind, you'll help create a successful and more enjoyable experience. These "Top
Ten" lists are by no means exhaustive, and since your home could cost you 25 to 40 percent of
your gross income, it's important to conduct research and study the process carefully. And feel free
to ask questions- Your AmeriStar Loan Officer can help by explaining any items needing further
clarification.
1. Looking for a Home Before You Pre-Apply. As a potential buyer competing for a property, you'll
have a better chance of getting your offer accepted by being as prepared as possible. Consider
this hierarchy of preparedness:
- Neither Pre-Qualified nor Pre-Approved
- Pre-Qualified
- Pre-Approved
The benefits available at each level can be easily understood when viewed from the seller's
perspective. Imagine you're a seller in receipt of multiple offers to purchase your property. A
complete stranger (buyer) is asking you to take your property off the market for at least the next two
to three weeks while they apply for a loan. As the seller, lets consider the type of buyer you'd prefer
to deal with.
Neither Pre-Qualified nor Pre-Approved
This buyer provides no evidence that they can afford to purchase your property. You may wonder
how serious they are since they're not at least pre-qualified.
Pre-Qualified
This buyer has met with a mortgage broker and discussed their situation. The buyer has informed
the broker regarding their income, expenses, assets and liabilities. The broker may also have
seen their credit report. The buyer provided you with a letter from the broker stating an opinion of
what the buyer can afford.
Pre-Approved
This buyer has met with a mortgage broker and completed a loan application. This buyer has also
provided documentation on his/her income, assets, and liabilities, and has authorized the
mortgage broker to pull and review a credit report. All information has been verified by the broker's
underwriter, and as a result, much of the paperwork for this buyer's loan has been completed. This
buyer will probably be able to close quickly. They provide you with a letter (pre-approval certificate)
from the lender. You're as certain as possible that this buyer can close on the purchase smoothly,
without any unforeseen issues arising prior to settlement.
As a potential buyer you can see that when you Pre-Apply you gt the best chance of getting your
offer accepted. This is critical in a competitive situation.
2. Making Verbal Agreements. If you're asked to sign a document containing instructions contrary
to your verbal agreements--don't! For example, the seller verbally agrees to include the washing
machine in the sale, but the written purchase contract excludes it. The written contract will override
the verbal contract. More importantly, your state may require that contracts for the sale of real
property be in writing. Do not expect oral agreements to be enforceable.
3. Choosing a Broker Just Because They Have the Lowest Rate. While the rate is important,
consider the overall, total cost of your loan including the Annual Percentage Rate (also known as
"APR"), loan fees, and "discount" & "origination" points. When receiving a quote from a broker,
insist that the discount points (charged by the lender to reduce the interest rate) be distinguished
from origination points (charged for services rendered in originating the loan).
The cost of the mortgage, however, shouldn't be your only criterion. Have confidence that the
company you select is reputable and will deliver the loan with the terms and costs they promised. If
in the final hours of the transaction you determine that the lender has suddenly increased their
profit margin at your expense, you won't have time to start again with a different lender.
Ask family and friends for referrals!
4. Not Receiving a Good Faith Estimate. Within three business days after your mortgage broker
receives your loan application, you must receive a written statement of fees associated with the
transaction. This is both the law and the best way to determine what you'll pay for your loan. Bring
the Good Faith Estimate (GFE) with you when you sign final loan documents at settlement. And
while you should not be expected to pay fees which are substantially different from those contained
in your GFE, remember that your mortgage broker is estimating many of the fees that are actually
charged by other service providers necessary to your transaction. In short, your mortgage broker
will try to estimate everyone's fees as closely as possible, but it's impossible for every estimate to
be exact.
5. Not Getting a Rate Lock in Writing. When a mortgage company tells you they have locked your
rate, get a written statement specifying the interest rate, the length of the rate lock, and the type of
loan program.
6. Using a Dual Agent. An agent who represents both the buyer and the seller in the same
transaction is known as a Dual Agent. Buyers and sellers have opposing interests: Sellers want to
receive the highest price, buyers want to pay the lowest price. In the standard real estate
transaction, the seller pays the real estate commission. When an agent represents both buyer and
seller, the agent can tend to negotiate more vigorously on behalf of the seller. As a buyer, you're
better off having an agent representing you exclusively. This type of agent is known as a Buyers
Agent. The only time you should consider a dual agent is when you get a price break. In that case,
proceed cautiously and do your homework.
7. Buying a Home Without a Professional Inspection. Unless you're buying a new home with
warranties on most equipment, it's highly recommended that you get property, roof and termite
inspections. This way you'll know what you are buying. Inspection reports are great negotiating
tools when asking the seller to make needed repairs. When a professional inspector
recommends that certain repairs be done, the seller is more likely to agree to do them.
If the seller agrees to make repairs, make sure what is agreed upon is incorporated into your
contract, and have your inspector verify that the repairs are satisfactorily completed, prior to closing.
Do not assume that everything was done as promised.
8. Not Shopping for Home Insurance Until You are Ready to Close. Start shopping for insurance
as soon as you have an accepted offer. Many buyers wait until the last minute to get insurance and
do not have time to shop around.
9. Signing Documents Without Reading Them. Whenever possible, review in advance the
documents you'll be signing. Even though some specifics of your transaction may not be known
early in the transaction, the documents you'll sign are standard forms and are available for review.
It's unlikely that you'll have sufficient time to read all the documents during the closing
appointment. For example, at AmeriStar, we send you your Loan Application documents to review
in the comfort of your home, at your own pace.
10. Not Allowing for Delays in the Transaction. In a perfect world, all real estate transactions
close on time. In the world we live in, transactions can often be delayed, sometimes just a day,
sometimes a week or more. So give yourself some room- schedule your lease to terminate a
week or so after closing, and if using a moving company, ask about their policy for re-scheduling in
the event your settlement is delayed. Having planned for a possible delay will reduce your stress,
allowing you to focus on more the important aspects of closing your purchase transaction and
getting into your new home.
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