Buying a home—especially if it’s your first—can be a lot like losing weight in the sense that people end up doing, well, some pretty dumb stuff in the process. But while desperate dieters might waste money on “magical” weight-loss pills or silly exercise equipment (remember the shake weight?), misguided home buyers could be doing far more serious damage—like undermining their ability to purchase a house at all. Don't be one of them! The Cascade Team is here to shed light on some of the dumbest reasons people can't buy a home. The good news? These flubs are easily avoidable. Read on and beware.
1: Waiting to line up financing
Your first step in the home-buying process should be to meet with a mortgage lender to discuss your financing options. “You don’t truly know what you can afford until you meet with a lender,”! In other words, just because you think you can buy a $1 million house doesn’t mean you can actually get a loan to purchase a home that nice.
No. 2: Using a fly-by-night mortgage lender
The mortgage industry is rife with scams—including a slew of fake or unreliable lenders. Placing your trust in a bad lender, or a lender with a history in the market for not being able to close on time can cause a deal to fall through. That explains why “sometimes sellers reject offers because of the buyer’s lender,”. If an agent listing a home has had repeated bad experiences with a particular lender, they will likely pass that information on to the seller. To make sure your financing is rock-solid, ask your real estate agent for lender recommendations instead of, say, just Googling it. And read up to know your mortgage basics.
No. 3: Getting pre-qualified rather than pre-approved
Pre-qualification and pre-approval might sound similar, but they’re not. Essentially, anyone can get pre-qualified for a loan, because it only involves having a conversation with a lender about the state of your finances (no documents are exchanged). Getting pre-approved, meanwhile, involves the lender gathering all necessary documentation—your tax returns, bank statements, pay stubs, and more—packaging the loan, and submitting the file to an underwriter for review. If everything checks out, the lender will issue you a written commitment for financing up to a certain loan amount that’s good for up to 90 or 120 days.
A properly educated seller won’t even entertain an offer unless the buyer has a letter of pre-approval.
No. 4: Shopping outside your price range
It sounds obvious, but some home buyers just have trouble sticking to a budget. Therefore, resist the temptation to shop online for homes that are simply outside your price range (i.e., how much you’ve been pre-approved for).
No. 5: Making lowball offers in a seller’s market
You need to rely on your real estate agent to help determine whether a house that you’re interested in has a fair listing price. (Your agent will do this by performing a comparative market analysis, which entails looking at recently sold properties that are comparable to the house that’s up for sale.) If a home is priced well, especially in competative markets like the Seattle Metro area, San Diego and Denver not only may it be wise to offer full price, but in many cases to include escalation clauses or even start your offer over asking price. A good agent will know the market you are buying in and help you through the decision on how to make the best possible offer to win the home.
6: Writing a bad personal letter to the seller (This is covered in the link above)
If you’re competing against other buyers, writing the seller a personal letter can help strengthen your offer. But some home buyers are inclined to overshare, in which case a letter can actually hurt your offer.
“Stick to the fact that you love the house and the neighborhood,”. “Don’t get into personal details” such as the fact that you’ve lost out on other homes or want to remodel the dated kitchen. Making yourself seem to desperate can set you up for a counter that can cost you $thousands extra.
No. 7: Making a big purchase while in escrow
Some home buyers make the mistake of opening new credit accounts while they’re in the process of buying a house. But purchasing a big-ticket item like a car or a boat while you’re buying a house can jeopardize your financing. Why? Because your mortgage lender’s underwriter is going to re-evaluate your finances and recheck your credit report shortly before closing in order to determine that you’re still able to qualify for the loan.
“Even buying a fridge can throw off your credit or debt-to-income ratio,”... So as a rule of thumb: Don’t make any big purchases until after you close on the house.
No. 8: Not budgeting for closing costs
If you don’t have enough cash to cover closing costs, you won’t make it to settlement; and if that’s the case, you could lose your earnest money deposit. Thus, make sure to get an estimate from your mortgage lender of what your closing costs will be before making an offer on a property (currently, this is legally required—just make sure to read it).
Closing costs vary widely by location, but they typically total 2% to 7% of the home’s purchase price. So on a $250,000 home, your closing costs could come to $5,000 to $17,500. Both buyers and sellers usually pitch in on closing costs, but buyers shoulder the lion’s share of the load (3% to 4% of the home’s price) compared with sellers (1% to 3%), so you need to make sure you have enough cash on hand to pay your portion.
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