by Stacey Bradford, Aol Real Estate
Buying a home is a thrilling experience. But it can also be a complex one. The good news is that if you can avoid a few common mistakes, you should be able to prevent some headaches and find yourself enjoying your new home a lot sooner.
Here are some common pitfalls and some expert advice on how to steer clear of them, whether you’re a first-time home buyer or someone more experienced at the real estate game.
1. Not Having a Contract on Your Existing House Before Buying a New One
A big mistake homeowners make is not having a signed sales contract on their existing property before they agree to buy a new house. The only way you can truly know how much house you can afford is if you know what your existing home fetches.
More important, in today’s market you never know how long it will take to sell your property. The days of receiving multiple bids at your first open house are over. So don’t be surprised if the process takes several months or even a year. Wait to list your house until after you’ve agreed to buy a new one, and you could get stuck carrying two mortgages.One way to cover yourself would be to have a contingency, or legal “out”, in the contract for the home you’re buying that lets you out of the contract if the sale of your existing home somehow falls through. This would spare you from carrying two mortgages, but not from the disappointment of a lot of time and effort spent on a fruitless house hunt. More on contingencies later.
Here’s a fact: credit reports often contain errors. And those mistakes could drag down your credit score
and cost you more in interest and fees on a loan. So you’ll want to get a free copy of your credit reports
so you can fix any problems before you contact a lender
.You should also consider checking your credit score
. A higher score increases a lender’s confidence in the likelihood you will make payments on time, so this number can make a big difference in whether you qualify for a mortgage, and if so, the type of mortgage you can obtain. A higher credit score may help you qualify for better interest rates. And some lenders may lower their down payment requirement if you have a high credit score. On the other hand, a credit score under 620 could make it harder to obtain a mortgage. Lenders differ, but a good score is usually considered to be 700 or above.If yours is lower, work on raising it by paying off your revolving debt
, including credit cards, and sending in your bills on time.3. Failing to Secure Financing Before Making an Offer
It’s true that lending standards have tightened – but there loans are being approved. Just make sure you have that loan in place before you make an offer on a new home. Without financing lined up, you could start the negotiating process only to find that your deal falls through if you can’t secure a loan in a timely fashion. (And smart sellers wouldn’t accept an offer without financing preapproval anyway.)Getting preapproved before you make an offer can also give you an edge with sellers and strengthen your negotiating position. A preapproval lets everyone know you’re serious and able to close the deal..Most importantly, by going through the mortgage preapproval process you will find out how much you can comfortably
afford, and by knowing your limits, it’s less likely that you’ll be tempted to over-spend on a home.During this process, be sure to factor in all the other costs
that come with homeownership, like homeowners insurance
, property taxes
, maintenance and utilities into your monthly mortgage payment.
4. Not Including Some Contingencies in the Contract
As mentioned earlier, contingencies are your legal “out” if something goes wrong during the buying process. Without them you could lose the money you put down to secure the deal, typically 1% to 3% of the purchase price.
For example, you’ll want a contingency that allows you to renegotiate if the appraisal comes in below the agreed upon price. And don’t forget to add an out if the home doesn’t inspect well.
One more thing to think about is the contingencies the seller asks for. You’ll want to carefully consider a request to stay in the home until the homeowner closes on a new property. Again, in this market it’s tough to know how long that could take.