It’s finally starting to look like springtime here in New Jersey, and flowers aren’t the only things that bloom at this time of year. Spring is also when the housing market comes to life again as school winds down for the kids and everyone comes out of collective hibernation.
With all of the excitement and stress that often accompanies buying a home, it’s easy to make mistakes during the process. The good news is that not only are they avoidable, but taking the necessary precautions can save your bank account and stress level from taking a serious hit. Here are eleven mistakes most commonly made when buying a home and how you can mitigate them to save time, energy and money in the long run.
1. Not Getting Title Insurance
Title insurance is a form of insurance that protects you as the buyer against any property loss or damages you may incur due to liens, encumbrances or defects in the title to the property.
So why is title insurance important?
If you are planning to get a mortgage, lenders now require you to purchase title insurance in order to obtain a loan.
An inexperienced real estate agent may mistakenly say that it’s optional, but those who specialize in real estate contract law know that a reputable attorney will not close a deal without it.
Ultimately, title insurance exists to protect your interests and well-being as a homeowner. From another person claiming ownership of your new property, to improperly recorded or falsified documents, title insurance allows you as the title holder to deal with problems that arise without having to worry about an unexpected strain on your wallet.
2. Failing to Create a Long-Term Budget
You may have heard the phrase “house poor.” That’s what happens when you’ve invested so much of your income into the walls around you that you find yourself short of budget to do anything else.
Life is full of the unexpected – emergencies, job loss, illness, cost-of-living increases, even happy moments like pregnancy. All of these things cost money. If you’ve sunk every last cent into your home, you won’t be prepared to deal with the unexpected.
Prepare a budget and have a contingency plan so surprises don’t turn into disasters.
3. Overlooking Hidden Costs
The cost of owning a home doesn’t end at its listing price. Hidden costs such as utilities, water, taxes and Homeowner’s Association fees should also be considered in the price of your home.
This is where creating a budget can be beneficial. By factoring in the listing price and subsequent fees as well as planning for increases in real estate taxes, emergencies, potential job loss and even renovations, you get a better picture of how a particular home will affect your long-term financial situation. In short, putting in time to plan now will mean greater financial stability and less stress in the future.
4. Not Hiring An Attorney
Even a PhD in physics can’t prepare you to deal with the complexities of real estate law. The truth is that unless real estate is your specialty, you’re inclined to miss something key to your own protection.
A real estate attorney is educated and trained in the real estate process, mortgage industry, real estate law and title business. When homebuyers attempt to prepare closing statements, adhere to real estate law or file critical documents without any training, mistakes are bound to happen.
Hiring a properly certified attorney limits your liability by making sure everything from transfers, to recording county records, to paying taxes is done properly. Eliminate the expense and stress of managing the transaction and rely instead on the knowledge and experience of someone who understands the legal implications of your real estate choices inside and out.
5. Not Getting Pre-Approved For A Loan Before Shopping
Getting “pre-approved” for a loan isn’t just a hokey junk mail scam. It’s actually a smart idea because it will give you a good handle on how much money you can expect to receive from the bank. That in turn can help you prepare your budget.
Pre-approval requires that a bank run your actual credit report so the information they provide will be based on real financials and not just on what you may tell them verbally.
But be advised – pre-approved is not the same as pre-qualified. It simply means that you will know how much to expect from your loan so you can shop and plan accordingly. Without having that number, you can waste time and money house shopping only to find out you won’t be able to afford it.
6. Failing To Check Your Credit Report
Just like failing to be pre-approved, failing to look at your credit report can set you up for financial hardship later. A decent credit report may qualify you for a loan but “getting the loan” is only half of the equation. The other half is the interest rate, which is affected by your credit score.
The same loan can cost you hundreds of dollars a month more than you may expect depending on how your credit score affects your interest rate. Without knowing the reality, you won’t be able to budget and ultimately you may not be able to afford what you’ll be expected to pay.
7. Choosing A Real Estate Agent Blindly
Do your research when it comes to choosing a real estate agent. Always ask for a referral and then go beyond the surface to ask more probing questions – what specifically makes this person a good choice? How many deals has he or she closed? How effective is the agent’s negotiation skills?
Remember, you’re likely to be working closely with your real estate agent so be sure you’re comfortable with that person and trust his or her experience and skills.
8. Not Researching A Neighborhood
While you’ve got your researcher’s hat on, be sure to look into the neighborhoods where you’re looking for a home. Ethically and legally, a real estate agent can only disclose general information about a neighborhood and is prohibited from discussing certain things. For example, agents cannot discuss the ethnic makeup of a neighborhood, nor advertise proximity to a church or synagogue.
The Fair Housing Act prohibits agents from discussing demographics related to race, color, religion, sex, handicap and more. Agents may not even be willing to discuss crime statistics but will instead refer you to the local police department.
With that in mind, it’s incumbent upon you to do your own research to determine whether you’ll feel comfortable and at home in the neighborhood you’re considering.
9. Sticking To A Wish List
It’s easy to get caught up in the excitement of house shopping and chances are you’ve put together a wish list of what features and amenities you’d like in your new home. But when you’re on a budget, awareness of how much you can spend and afford is vital in securing a comfortable future in your new home.
Dream big but don’t overlook the importance of realism. You may not get everything on your wish list without seriously compromising your ability to afford your home long-term.
10. Failing To Consider Resale Value
You may not be thinking of selling your home before you’ve even moved in, but the reality is that you may eventually do just that.
Unless you consider the house’s resale value before you buy, you could be overpaying for a home and be unable to recover your investment later. This is particularly a problem if the sale value of your home is higher than the average for your neighborhood.
Sometimes the sale value is inflated artificially and other times the house may be technically worth a lot thanks to interior upgrades, but if either of those things is out of proportion to what the neighborhood can bear, you may find yourself with a nicely upgraded albatross that you won’t be able to sell at value later.
11. Waiving a Home Inspection
A home may look wonderful from the outside, but in reality, may contain flaws that could cost you in the long haul. Leaks, water damage, termites… if you discover these problems after move in, you’ll be stuck footing the bill.
Avoiding this headache is easy. Getting a qualified inspector to come look at your potential property not only encourages the seller to fix the house’s flaws in advance, but also provides a sense of security to you as the buyer. It’s not worth saving a few hundred dollars and skimping on a good inspection only to find yourself many thousands in a hole if things go south later.
It’s easy to make mistakes when you’re caught up in the excitement of house hunting. But the good news is that it’s also easy to avoid them. Arm yourself with the right plan and mindset to avoid some of the most common mistakes when buying a home and you’ll be far better off financially and be able to enjoy your new home more.
If you’re thinking of buying a home and need a real estate attorney to guide you through the process and protect you and your interests, contact us for a free consultation.