Via LearnVest By Michael Corbett for Trulia ~
Here’s another helpful post from Michael Corbett, a real estate professional at Trulia. Check it out:
So many homebuyers have made so many mistakes. Myself included when I bought my first home. But I’m not alone–many homebuyers made critical missteps and decisions because you’re not informed or don’t ask the right questions. They overpaid, overspent, and bought homes they just could not afford. It’s been painful to watch because a huge percentage of the home-buying and home-owning problems could have been avoided had those homeowners known what they have now learned the hard way.
Here are 5 missteps I hope you won’t be trying to “wish away” when you buy your house
1. I wish I hadn’t borrowed the full amount the bank told me I could afford.
This is not the time to buy the most expensive house you can with the money and credit you’ve got. No, in fact whatever the bank will lend you, take 20% less. Let’s say you go to a bank or a mortgage broker to get preapproved for a mortgage. You say, “I want to buy a house; how much of a mortgage will you give me?” In other words, “What price house can I afford?” The bank or mortgage broker will evaluate your finances, income, and savings and say, “Well, Mr. Smith, we think that you can qualify for a $400,000 mortgage. Which means you can buy a house for $500,000! Congratulations.” However, say, “No, thanks!” Subtract 20% from that $400,000 loan amount and plan on a $320,000 loan instead. Thus, the house you should really be shopping for will need to be around $400,000. By taking 20 percent less of a loan than what the bank has to offer, you are safeguarding yourself and your financial security—by automatically buying a house that is more affordable.
2. I wish I hadn’t been suckered in the by the extra low short-term adjustable mortgage rate.
Always go with a traditional 30- or 15-year fixed loan. No adjustable or creative financing, balloon payments or teaser loans. You never know what may happen in your life, and you want to know that you have a consistent mortgage payment every month for the life of the loan. You want the confidence that the mortgage payment you have today will be the mortgage payment you’ll be paying ten or fifteen years from now, no matter what the market, interest rates, or the economy is doing.
3. I wish I’d hadn’t used up all my cash to buy the house.
Let’s put it all on the table, folks—just so there are no surprises! Don’t get caught short. Your home purchasing costs don’t stop with the down payment. You have to factor in the closing costs—all the expenses incurred to buy the house: appraisal fees, buyer’s broker fees, loan application fees, loan broker fees, structural inspection fees, and so on. The down payment plus the closing costs are what I call the ‘Up-front costs.’ And then you’ll have the ‘Ongoing costs,’ which entail five big ones: property taxes, homeowner’s insurance, hazard insurance, condo, co-op, or homeowners association fees, and moving expenses. You don’t want to be left with a zero balance in your checking account by the time they hand you the keys. You don’t want to end up cash poor!
4. I wish I hadn’t wasted my time hunting down those foreclosures and short sales, only to miss some really good deals.
Just because it’s a distressed property doesn’t mean it’s a good deal. Just because a house has been taken back by a lender or the government doesn’t mean it’s a winning deal for you. Don’t assume that every house in foreclosure is automatically a steal. If you are trying to grab a great deal and want to get it purchased in any kind of timely manner, avoid the short sales, and even some foreclosures. Short sales can drag on for months, often leaving you with no deal, and higher interest rates. And even if it’s currently priced well and it seems like a good deal, there are plenty of hoops you have to jump through and roadblocks you will have to overcome.
5. I wish I knew the one essential question to ask before I had bought my condo.
I am going to give you the one single question your Realtor can ask that will save you thousands of dollars, and possibly keep you from jumping on board a condo building that will become a money pit: “Has there been any discussion of possible future improvements, changes, renovations, or maintenance or any financial difficulties that would result in an assessment or charges to be leveraged against all condo owners?” Make sure to get the answer in writing. The reason this question is critical is that the condo association board must answer honestly or it could be held liable. All condo meetings must provide notes that can be subpoenaed, so any discussion of assessments, current or future, could be proven.
6. I really wish I had talked to the neighbors before I bought the house.
I bought a wonderful home in the Hollywood Hills. Unfortunately for me, it was the one time I did not follow my own advice to chat up the neighbors to learn about potential problems. It caused me many sleepless nights—literally. My first night in the house, I woke to the sounds of two barking, yelping dogs that howled and bellowed until morning. I couldn’t believe it. The next night the same thing happened. I later found out that the seller had been fighting with the neighbor over the barking dogs for six months. The surrounding neighbors had also been complaining, but the awful, miserable owners of the dogs just didn’t care. It took me more than a year of working with L.A. Animal Control before the owners agreed to take responsibility for the problem. I was unable to put the house on the market for an entire year, because I would have had to disclose the problem, and I would have had to take a steep discount prior to resolving the issue. Otherwise, I would have been liable for not disclosing, just as the man who sold the house to me without disclosing it was. Had I chatted up neighbors, I would have been much less tired all year long!
We all make misteps when we do something we’ve never done before. It happens, it’s life, but buying your first home is one of those things that’s just too important to flub. Keep in mind the mistakes I made to ensure that you buy safe, sane and secure when it comes time to close on that home.
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