24 Common Home Buying Mistakes
(And How to Avoid Them)
By Rich Spaulding
Mistake #1 - NOT getting pre-approved before home shopping.
Shopping for a home without being pre-approved by a lender is one of the biggest mistakes you can make. The primary reason why it's a mistake? Your offer carries little weight. Let's walk through the scenario: You spend weeks finding the right home. You instruct your REALTOR (yes, you have a REALTOR when buying a house because I know you’re smart) to make an offer for $175,000. Your REALTOR makes the offer but doesn’t have a pre-approval letter. Meanwhile, the seller receives another offer for the same amount, but the offer includes a pre-approval letter from a lender. Who do you think will get the deal?
Solution: Contact your preferred lender and get your pre-approval letter BEFORE you start home shopping. This way, when you find the right home, your offer will be taken seriously.
Mistake #2 – Not inspecting the home before closing.
Don’t trust your untrained eyes when purchasing a home. Hire a home inspector immediately after you agree to contract terms on your new home. Let a professional tell you what is wrong with the house.
Solution: Hire a professional inspector (email or call me for my recommended inspectors). Let them tell you what’s wrong with the house. The home inspection report will contain a detailed list of all problems – big and small. Ask your REALTOR what issues are critical and potentially need to be negotiated to ensure a deal gets done.
Mistake #3 – Not thinking about your exit strategy.
You found the perfect home. It’s the right size, price, and even has that cute fenced in yard. But it’s also in a bad school district with higher crime rates than normal. You don’t care. You don’t have children, and you own a gun. Well, you should care. Virtually all parents will NOT want a home in an impoverished school district. The higher crime rate will scare away most other people not as tough as you. That leaves a small and select group of people that will find your house attractive when you want to sell.
Solution: Make sure you think about your exit strategy before purchasing your new home. Chances are very high that you’ll sell that home before you pay off the mortgage.
Mistake #4 – Not shopping mortgage brokers and rates.
Did you know that saving a half of percentage point on a mortgage could save you thousands of dollars? You should shop a mortgage rate ten times harder than you shop for a good car deal. Why? Because you’ll be paying on your mortgage loan for a LONG time. Not every lender will offer the same rate.
Solution: At the bare minimum, I suggest shopping three lenders. The savvy shopper will shop 5-7 lenders and use the lenders against each other. Contact me directly for my list of preferred lenders.
Mistake #5 – Overextending the budget.
When you start shopping for a home, you’ll realize there is a big difference between a $150,000 home and $200,000 home. The same goes for $350,000 and $400,000. It’s very tempting to stretch the budget to purchase the better home. Don’t do it.
Dave Ramsey recommends paying off all debt before buying a home. I disagree, but I do like Dave's article on how to budget for a new home.
Solution: Stay within the budget. The better home isn’t worth sweating the mortgage payment every month.
Mistake #6 – Financing ANYTHING while under contract and before closing.
Don’t buy a car, furniture, big screen television, or anything abnormal while under contract. Your lender gave you a pre-approval letter based on the financial information you provided. If you finance a car while under contract, you’ve just increased your debt. The debt to income ratio will be much different. Watching my client lose out on the home of their dreams because they thought to purchase a new Honda would look good in their new driveway is one of the saddest things to see.
"With all of the excitement of buying a home people sometimes forget that their income, credit, and money are still being evaluated, even after a conditional approval. As tempting as it is to save a little bit of cash on that store charge card, it should be avoided until after the loan is “cleared to close”. Sometimes this advice falls on deaf ears. If your DTI increases, your mortgage approval could be revoked so avoid obtaining new lines of credit until the loan is closed."
Solution: Wait until after closing to buy anything significant.
Mistake #7 – Taking too much time to decide on a house.
It’s perfectly reasonable to shop around a bit before making an offer on a home. However, after your REALTOR shows you a home that meets your needs, don’t spend 3-4 days thinking about making an offer. The chances are high that if you like the house, somebody else will too.
Solution: Take your time touring homes, but when you find a winner – make an offer immediately!
Mistake #8 – Thinking you know more about the neighborhood and home buying than your REALTOR.
We do this for a living. It’s our job to find you the best home, negotiate the deal, walk you through the necessary steps, and close. We don’t get paid until all of that happens. The best REALTORS will know the neighborhoods, local housing markets, and competition better than you. Just because you stumbled upon a Zillow estimate that’s lower than asking price doesn’t make it a good deal.
Solution: Let your REALTOR do their job without fighting with him/her. The process will be smoother, and you’ll end up with better results.
Mistake #9 – Failing to consider additional expenses.
Property taxes. Homeowners insurance. Don’t forget about these two big expenses when calculating your monthly expenses after purchasing your home.
Solution: Don’t forget about ALL home expenses before making a monthly homeowner budget.
Mistake #10 – Using Zillow or Trulia.
I get it. Zillow and Trulia have beautiful websites. But that doesn’t make their sites accurate or credible. I’ve worked with several home buyers that have ignored my advice about shopping on Zillow or Trulia. Of course, I get a call saying “Rich, I found this home on Zillow; I’d like to take a closer look in person.” Wouldn’t you know, the house has been sold for over two weeks?
Why would Zillow advertise a home as “active” when it was sold? It’s because Zillow (and Trulia) does not have access to the MLS (Multiple Listing Service). This means they both rely on “scraping” other websites that DO have access to the MLS. Often times, Zillow and Trulia end up displaying old information because their sites don’t update quick enough. Unfortunately, you could find the house of your dreams on Zillow only to be heart-broken that same house is now off the market.
"The real estate company Redfin was hired recently to assess the accuracy of sites like Trulia and Zillow and their study found that approximately 36% of the listings shown as active on Zillow and Trulia were no longer for sale in the local MLS, compared with almost 0% on local brokerage websites. The study further found that brokerage sourced listings using their local MLS feed displayed 100% of the MLS homes listed for sale on their websites but Trulia only revealed 81% and Zillow 79%. So let me summarize – over 1/3rd of the listings you are seeing are NOT ACTUALLY FOR SALE, and you only get to see 4/5th of the listings that are actually for sale."
Mistake #11 – Expecting your new home to appreciate in value immediately.
If only it were that easy! Buy a home. Watch the house increase in value. Sell the house for a significant profit. Unfortunately, it doesn’t work like that (most of the time). Depending on when you purchase, you may not see a value increase in your home….at all. The real estate market goes up and down. If you buy at the peak of the market, don’t be surprised if your home value drops right away. On the flip side, if you buy while the market is down, don’t expect your home value to rise immediately. It could take years before the market turns back in your favor.
Solution: Buy a home to live in. Don’t purchase a home as a significant investment. Real estate CAN be a terrific long-term investment, but don’t let that be the sole reason you buy a home.
Mistake #12 – Buying a home because of the décor.
If you’ve ever watched an episode of HGTV’s House Hunters, you’ve seen other people make this mistake. When looking at homes, disregard paint color, carpet, paintings, furniture and other décor.
Solution: Pay attention to the layout of the home. Ignore wallpaper, paint colors, ugly carpet, and curb appeal.
Mistake #13 – Letting your emotions get the best of you.
It’s very possible to fall in love with a home, only to lose the home to another buyer or not come to an agreement with the seller. As much fun as home shopping can be, don’t let your emotions get the best of you. Try to look at each home objectively.
On the flip side, don’t get frustrated if you haven’t found the right home after looking at ten homes. Sometimes, it takes 15-20+ homes to find the right one.
Solution: Before shopping for a home, speak with your spouse or a loved one. Talk about the emotion (high and low) of house shopping. Talking about these feelings will help prepare you for the emotional rollercoaster.
Mistake #14 – Not performing a credit check before shopping for a home.
At some point, you’re probably going to need to borrow money to purchase your home. It’s important to know your credit score before house shopping. Reason? You’ll want to improve the score (no matter what it is) to help you either secure the loan, receive a better interest rate or both!
Mistake #15 – Not understanding the current real estate market.
Your real estate agent will tell you all about the current housing market. It’s imperative to understand if the market is a “buyers market” or a “sellers market.” If a buyers market, you’ll typically have plenty of houses to choose from without a big worry that other consumers will beat you to the punch. Also, home prices will be on the lower side (which makes your wallet happier). If a sellers market, there will typically be fewer homes to choose from. Also, the home buying competition will be much tougher. Expect to battle with other buyers. The demand for homes will cause prices to rise.
Everyone would like to buy a home in a “buyers market” but life doesn’t work that way. Sometimes, you need a home when it’s not the ideal time to buy a home. It’s okay. Just make sure you understand what you’re up against.
Solution: Speak to your REALTOR about the market before starting the home buying process.
Mistake #16 – Choosing your real estate agent and lender without vetting properly.
When the time comes to pick a REALTOR and lender, find someone you trust and ask them for a referral/introduction. The best REALTORS and lenders work primarily through referral. After you’ve been introduced, don’t be afraid to ask about their experience and how they’ve helped other people like yourself.
Solution: Ask family members or friends for a REALTOR and lender. Vet each by asking about their experience and how they can help you.
Mistake #17 – Not communicating with your REALTOR.
If you don't communicate with your REALTOR, you risk wasting everyone's time. It's crucial you communicate every thought outloud (real estate agents can't read your mind). We want to hear your thoughts when you visit every home.
Solution: Overcommunicate with your REALTOR. Email, call, text and explain exactly what you're thinking so your REALTOR can plan accordingly.
Mistake #18 – Thinking you’ll get everything on your “wish list”.
Your “wish list” is just a wish list. Just because you want a four bedroom, three bath, basement, on a cul-de-sac, in a community with good schools and a budget of $150,000 doesn’t mean homes will be available that meet your wish list.
What does that mean? It means compromising. A good REALTOR will find MOST items on your wish list. However, unless your home buying budget is unlimited, be prepared to compromise.
Solution: Create list of “needs” and “wants”. Your needs list are things you won’t compromise on. Typically, that’s the number of bedrooms, bathrooms, location, and budget. Your wants list could be items like pool, a home that’s built five years or less, finished basement, laundry room upstairs, fenced yard…etc.
Mistake #19 – Not getting every verbal agreement written into the contract.
A good REALTOR will make sure everything agreed upon within the deal is on the contract. If you hired me, you could be sure everything I verbally negotiate with the listing agent will be in the contract. If not, your deal could be at risk, and you may lose out on an agreed upon issue within the contract.
Solution: Make sure your REALTOR has all agreements included in the contract.
Mistake #20 – Thinking you want to see 20 homes before making a decision.
Admittedly, when I purchased my first home, I thought I was going to view more than 30+ homes before making a decision. My wife and I thought we’d be searching for months. However, it turns out the internet is a terrific house buying tool. We ended up viewing eight homes.
Use automated searches (and help from your REALTOR) to narrow the search down. I ask my clients to pick out five homes (from the list of automated search results) and rank them in order of best to worst (based on pictures and description). If we visit those five homes, and you don’t want to make an offer, we need to have another conversation about your perfect house. Rarely do I have clients that see more than 10+ homes before making an offer.
Karyn Filiatrault, Toronto Real Estate Agent, offers some terrific advice about shopping for a home:
"A word to the wise. House hunting is fun but it is not all glam like TV shows make it out to be. By your fifth showing, it’s going to start to feel like work. It’s also not financially smart to unnecessarily prolong the process and ‘window shop’ for too long since the market is rising so fast that the house sold yesterday will be less than the house that sells even two weeks later."
Solution: Use the internet to narrow down the search. Ask your REALTOR to help you narrow the search down by adjusting saved search results.
Mistake #21 – Buying the most expensive home on the block.
Buying the most expensive home on the block is much riskier than purchasing the least expensive home in the neighborhood. You’re betting on the community rising in value.
Also, if you bought the most expensive home on the block, you’re not leaving room for improving your house and garnering a nice return on your improvement investment. The most expensive home on the block is the most expensive for a reason.
Solution: Think about your exit strategy BEFORE making an offer on a house. Talk to your REALTOR about the neighborhood comps.
Mistake #22 – Buying without viewing the property at least once (preferably twice).
When a competitive real estate market is upon you, it might be tempting to make an offer without viewing the home in person. Don’t do it. In fact, I highly recommend viewing the property TWICE if possible. Granted, if you’re in a multiple offer situation, it might not be possible to view the property again without making an offer right away. However, if possible, view your favorite property twice. You’ll either reassure yourself that it’s the perfect home or talk yourself out of making an offer.
Solution: Tell your REALTOR you’d like to view your top three homes twice before making an offer. Give your REALTOR a heads up early on in the home shopping process.
Mistake #23 – Falling in love with a house.
I’m not saying don’t love your house. I’m saying don’t fall in love with your home until it’s YOUR house! When you fall in love too early, emotions take over, and you could pay too much. Also, just because you agree on contract terms, doesn’t mean the deal is done.
Solution: Until you receive your keys at the closing table, never assume a house under contract is YOUR house.
Mistake #24 – Always looking for a better “deal”.
The grass is always greener on the other side, right? If you’re always looking for the “best” deal, you’ll quickly realize there is no such thing. There is ALWAYS a better deal. That’s the reality. Buy a house because you want a place to live and build a future. Don’t try waiting for the perfect deal or else you’ll never move!
Solution: Understand what the definition of a “good deal” is for you. Does that mean securing a home in the best neighborhood no matter what the cost? In your case, that could be a great deal because it’s difficult to find a home in the best neighborhoods. Define “good deal” and set realistic expectations.
Avoid these mistakes and you’ll be a home buying pro! And always remember, the help of an Exclusive Buyers Agent is the BEST way to purchase a home. Of course, hiring me isn’t a bad idea either.
ABOUT THE AUTHOR:
Rich Spaulding is the owner of Kennesaw Life Real Estate. Rich is expert in Kennesaw, Georgia (and surrounding area) real estate knowledge and expertise. Contact Rich directly at 678-687-3554 or email@example.com.