Aug 2, 2011
Top 10 Mistakes Made by First-Time Home Buyers
Real Estate Broker Jaye Simpson helps first-time buyers make wise decisions
I love working with first-time buyers because they are always so excited about becoming homeowners. Many of them spend oodles of hours shopping for homes online or searching the classified section of the newspaper. All of these methods are appropriate ways to begin your search.
Unfortunately, many first-time home buyers also make the mistakes listed below. Here are 10 common pitfalls to avoid.
1. Loose lips sink ships.
The most common mistake is talking to a seller’s agent. Michigan’s Real Estate Agency Disclosure Law clearly states that the buyer should assume that all licensed agents work for the seller until the buyer retains a buyer’s agent. This means when you call the phone number on the sign in the yard, that real estate agent is looking out for the best interests of the seller. If you visit an open house, the agent at the home works for the seller. If you email the agent listed online, you’re contacting the person who represents the seller.
The seller’s agent has a fiduciary responsibility to the seller only. He or she must work to obtain the highest price and best terms for the seller. Therefore, you don’t want to say, “We absolutely love this house. We’re approved for the full asking price and we need to move before our lease expires at the end of the month.” A seller’s agent will use this information to get a higher price for the seller.
Obtain a referral to a licensed and accredited real estate agent or broker to be your buyer’s agent before you begin your search.
2. Shopping without money.
Many first-time buyers start looking at homes without a mortgage preapproval. If I had a nickel for each buyer who stated, “We just want to see what’s available before we obtain a mortgage preapproval,” I would be rich!
Imagine walking into a home you absolutely love and trying to rush to get a mortgage preapproval. This is a mistake because the house you want could be sold to a preapproved buyer before you complete your mortgage application.
3. Buying without an inspection.
Cutting corners can cost you in the long run. For people who have fixed budgets, or who have barely saved enough for a down payment, it may be tempting to “save” $350 and skip the home inspection. However, I strongly urge you to proceed with great caution. What you don’t know about a home that looks just fine to the untrained eye could cost you thousands of dollars after your name is on the deed.
4. Buying big.
Banks will approve you for a mortgage based on your income, among other factors. They don’t consider that you like to eat out for lunch every day. They don’t calculate your entertainment budget into your mortgage approval. YOU must be realistic about how much you can spend each month. If you’re currently living in an apartment and don’t pay for heat or water, remember to calculate these costs when determining how much you can afford to spend on housing. Also, check with your insurance agent to confirm whether or not the cost of your auto insurance—which is based on ZIP code—will increase.
5. Going with a hook-up.
Everybody knows somebody who buys and sells real estate. Don’t work with unlicensed people because you have no recourse should anything go wrong during the process of buying your home. Buying a home will likely be the most expensive purchase you make. You need a skilled person representing you.
Michigan requires that anyone selling more than five homes per year be licensed. Confirm that the agent you are working with is licensed and insured by visiting Michigan.gov/RealEstate and click on the “verify a license” button. You can also check to see if a licensed agent has consumer complaints against him or her.
6. Not checking the numbers.
Mortgage costs vary. Ask your mortgage consultant for a signed good faith estimate, which is a detailed and itemized statement of all costs and fees associated with the purchase of a property. You don’t want to show up at the closing short the total amount due and have the deal fall through.
7. Using lockbox codes without an agent.
Simply put, legally this is considered burglary. If your agent is too busy or lazy to escort you to a property, find another agent!
8. Believing promises.
The Statute of Frauds states that anything related to a real estate deal must be in writing. Did the seller promise to leave the television, a couch or lawn mower? Well, if it’s not in writing, legally it’s as if it was never said. Put everything in writing.
9. Signing contracts blind.
READ everything before you sign it. Once a nice couple wanted me to help them find a home. Unfortunately, they had signed a two-year exclusive buyer agent contract with someone else without realizing it. They had to pay their first agent even though they were unhappy with that person’s services.
10. Increasing your debt.
Do not purchase new furniture for every room in your new home before closing on it. Mortgage companies will check your credit just before you close. If you have opened new lines of credit, it may affect your preapproval. Once you have begun the home buying process, do not open any new credit until after your purchase is completed.
Feel free to contact me for help finding a great buyer’s agent or to answer any questions: info@BLACdetroit.com. Or feel free to leave a comment below.