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First Time Home Buyer Mistakes
Buying a home, especially your first home, is often a more complicated process than you might first expect. If you’re not careful, or if you don’t do your research ahead of time, there’s a lot that can go wrong. Knowing the most common blunders made by first time homeowners can help you to avoid these traps.
1. Not knowing how the buying process works. Read up on what to expect, from the moment you contact a Realtor until you get the keys to your new home. While things may still crop up unexpectedly, at least you’ll have a pretty good idea of what’s happening and why.
2. Not working with a Realtor. You need someone with experience to walk you through the process, work with the seller’s agent, and help you to find and buy the right home. A Realtor can help you to avoid many of the traps first time home owners might experience. He has the advice and experience you need to make the buying process a lot easier.
3. Not knowing your budget. Do the math before you get ready to buy. Talk to a lender and get pre-approved, even. If you can only afford $250,000, don’t even look at homes above that amount, unless your agent thinks that there is a very good chance that you might be able to negotiate a price within your budget.
4. Not looking at enough homes. First time homebuyers sometimes fall in love with the very first home they see. Which is great, as long as you still take the time to look at a few more homes, and really consider them before making your final choice. You need to see more than one home, for comparison purposes if nothing else.
5. Rushing through home viewings. When you go to see a home for the first time, don’t rush. Take your time to really inspect everything. Take pictures. Look for any potential problems, and ask a lot of questions. When you buy a home, you want to know what you’re buying before you close.
6. Not letting your Realtor know what you like or dislike. While you should still be objective, don’t feel like you need to love every home you see. Let your Realtor know what works for you and what doesn’t. That will help him, or her, to find homes that better suit your preferences.
7. Only viewing a home once. Even if the home is perfect (it probably isn’t), you should view it more than once. See it, go home and sleep on it, and then go look again a few days later. Bring an objective friend or two. There might be something that you missed the first time around.
8. Buying a home for its décor. Homes that are for sale usually look really nice. The owners have put careful thought into furniture arrangements and decorations, or maybe the home has been professionally staged. Either way, keep in mind that you are buying the house itself, not the stuff in it. Try to see past the current décor, even if it is stunning, and imagine your own belongings in the space.
9. Not hiring a home inspector. Before buying a home, spend the money to have a professional home inspector come to check it over. While it may look like there are no major problems, it is always better to be safe, and know for sure. It is not uncommon for a serious problem to be hidden just out of view. A home inspector can find those problems for you, before you agree to purchase the home.
10. Not knowing what home ownership costs. It’s more than the mortgage. Don’t forget taxes, water bills, and utilities, which may be substantially more than you were paying in a small apartment. When you are figuring out your budget, don’t forget these additional expenses when determining how much you can afford towards a monthly mortgage payment.
While keeping these common blunders in mind isn’t guaranteed to eliminate all problems that you might run into, being prepared will make it less likely that you’ll fall into these common first time buyer traps.
Afraid to Buy? Don’t Be!
Despite tax incentives, first time home buyer assistance, and low interest rates, it’s easy to understand why you might be afraid to buy a home right now. The market is still fairly unstable, and house values are still falling in some areas.
Buying a home is always risky, but it’s a risk that very commonly pays off. Real estate works in cycles—some years, the prices are up, during others the prices are down. It can be hard, not to mention frustrating, to try guessing what the next year or two will be like. Remember that buying a home is a long term investment. There might be a short term loss, but housing prices will go back up, and the home you buy this year will probably be worth more than you paid for it a few years from now.
Still, there are several fears that many first time, and second and third time, homebuyers face when considering purchasing a home, and they are all very valid. Let’s take a look at some of the most common fears, and see why you don’t really have to worry.
Fear 1: I might lose my job.
This is one of the biggest fears of potential homebuyers, and, in today’s economy, it is certainly valid. One of the best ways to alleviate this worry is to have a rainy-day fund in place before buying a home. Have enough money set aside to cover at least three month’s of mortgage payments while you look for a new position. And, while this is not a guarantee, and certainly no reason to be lax about payments, most lenders will not start foreclosure proceedings until you are two or three months behind. For those who are currently renting, this means that staying in a home after a job loss will be easier than staying in an apartment.
Fear 2: I won’t be able to afford my mortgage payments.
The easiest way to avoid this problem is to not buy a home that you can’t afford. Consider the amount of your payments, after taxes, interest, and any other applicable fees are added in. This amount should not equal more than 1/3 of your total monthly income. If you can get that amount down to ¼ of your take home income, that’s even better.
When you start looking for a mortgage, keep this number in mind. If you bring home $4000 a month, try to keep your mortgage payments around $1000, or less. Don’t take accept a mortgage with monthly payments over this amount. Also, make sure you have that rainy day fund saved, outside of what you used for a down payment. Having a cushion for tough times will make you feel more secure.
Fear 3: I’ll lose money.
This, unfortunately, is a risk common to any type of investment. The home you buy today for $150,000 might have sold for less three months from now, or may now be worth less after you’ve bought it. Unfortunately, it is hard to know when real estate values have hit bottom until after it has passed. If you wait too long to buy a home, you could very easily end up losing even more money, by paying considerably more for the home you by a year or two from now.
Buying a home is a long term investment. Even a short term dip in value doesn’t mean much, unless you are planning on selling. The market has dips and rises, but the overall trend is that home values do, eventually, go up. The average price for a new home in 1980 was $72,400. Today, that same home would cost $274,330. There are not many investments that go up $200,000 in value over 30 years.
There are definitely things to worry about when buying a home, but don’t let those worries automatically stop you from buying. Learn a little bit more about those fears, and see how you can alleviate them. Interest rates just hit a record low, averaging right around 5%. In the central NY area, some lenders are offering even lower rates. There will probably not be a better time to buy within the next 20 years.
So, what are you waiting for?
The First Time Home Buyer Tax Credit
Are you looking to move into your first home? Thanks to an $8,000 tax refund credit being offered to first time home buyers, this is a great time to consider making that move.
If you close on a home between January 1st and November 30th this year, you may be eligible for the tax credit when you file your taxes in 2010. This refund, offered by the federal government, will give qualifying buyers 10% , or up to $8,000 back as a tax refund credit. The requirements to claim this credit make it easy for most people to get qualify. You must be a US citizen or legal alien, the home must be closed on before the deadline, and you must make less than $75,000 ($150,000 for couples) a year.
This credit is only for first time home buyers. This includes those who have not owned their own home for three or more years. This incentive is meant to put more people into homes this year, and start an economic turn-around. And, unlike last years tax credit, offering new home owners $7,500, this amount does not have to be repaid. The only exception to that is if the new home owner moves out of the home within three years of when the home was purchased.
This all sounds great, right? But it would be a lot more helpful to many home buyers if the $8,000 was available now. Well, thanks to HUD (the US Department of Housing and Urban Development) you can take an advance on the $8,000 tax credit, and apply it towards your down payment or closing costs.
Here’s how it works: Your lender will purchase the tax credits from you, and then collect the money in your place during the 2010 tax season. You can then apply that money towards buying your new home. You will still need to provide the 3.5% mandatory down payment on your own, but the extra $8,000 can be used to pay down the amount you still owe, lowering your monthly payments. This is called a bridge loan.
The big downside to using the money right away is that you have to put it towards closing costs or the money you owe on the home. This isn’t a bad thing, as it makes the repayment of your mortgage a little easier, but it doesn’t help you if your home needs renovations. It cannot be put towards fixing up the house you just bought. If you can wait on the money until January, you will have the money to put towards painting, building a new deck, fixing the roof, or any other home improvements you might want. The money is yours to do what you want with.
If you are choosing to wait until tax time to get your refund credit, all you need to do is fill out an extra form. If you would rather apply the money to the amount owed on your home right away, talk to your lender when you are approved for a loan. Your lender can walk you through the paperwork and explain, in detail, how the bridge loan will work for you.
If you are considering entering the market for your first home, is this tax refund credit enough to encourage you to buy now, instead of waiting another year?
Existing-Home Sale Continue to Rise
Sales of existing homes showed another gain in May, benefiting from favorable affordability conditions and a first-time buyer tax credit, according to the NATIONAL ASSOCIATION OF REALTORS ®. May’s increase was the first back-to-back monthly gain since September 2005.
Existing-home sales – including single-family, townhomes, condominiums and co-ops – rose 2.4 percent to a seasonally adjusted annual rate of 4.77 million units in May from a downwardly revised level of 4.66 million units in April. Sales remained 3.6 percent below the 4.95 million-unit pace in May 2008.
Lawrence Yun, NAR chief economist, expected an improvement in sales.
“Historically low mortgage interest rates clearly drew buyers into the market, and housing remains very affordable even with a recent uptick in rates,” Yun says. “First-time buyers also are being drawn off the sidelines by the $8,000 tax credit, which is helping to absorb inventory.
Poor Appraisals Stall Transactions
However, the increase in sales is less than expected because poor appraisals are stalling transactions. Pending home sales indicated much stronger activity, but some contracts are falling through from faulty valuations that keep buyers from getting a loan.”
Total housing inventory at the end of May fell 3.5 percent to 3.80 million existing homes available for sale, which represents a 9.6-month supply at the current sales pace, down from a 10.1-month supply in April.
Yun says the appraisal problem is serious.
“Lenders are using appraisers who may not be familiar with a neighborhood, or who compare traditional homes with distressed and discounted sales,” he says. “In the past month, stories of appraisal problems have been snowballing from across the country with many contracts falling through at the last moment. There is danger of a delayed housing market recovery and a further rise in foreclosures if the appraisal problems are not quickly corrected.”
NAR President Charles McMillan says appraisals and the tax credit are key issues.
“To maximize the potential for a housing recovery and subsequent economic recovery, we need realistic appraisals that are based on proper comparisons and done by a local specialist,” he said. “In addition, the first-time buyer tax credit should be expanded to all buyers of primary homes regardless of income. Extending the credit into 2010 would allow more time for the market to catch up with underlying demand, in part because many families with children, who normally time their purchase based on school year considerations, do not have enough time to move before the start of school in late August.
“Freeing a pent-up demand in housing will absorb inventory at a faster pace, strengthen communities and stabilize home prices earlier,” McMillan said.
A Closer Look at May Housing Data
An NAR practitioner survey in May showed first-time buyers accounted for 29 percent of transactions, and that the number of buyers looking at homes is nearly 10 percentage points higher than a year ago.
“This is the time of year when we see large increases in the number of repeat buyers, who are benefiting from sales to entry-level buyers,” Yun says. “Investors appear less active, but are more prevalent in areas with large price corrections.”
National median existing-home price: for all housing types was $173,000 in May, down 16.8 percent from a year earlier. Distressed properties, which declined to 33 percent of all sales in May from 45 percent in April, continue to downwardly distort the median price because they generally sell at a discount relative to traditional homes.
“The decline in the distressed sales share likely results from an increase of repeat buyers in May,” Yun says. “First-time buyers are concentrated in the lower price ranges, which include most of the distressed sales.”
Single-family home sales: rose 1.9 percent to a seasonally adjusted annual rate of 4.25 million in May from a pace of 4.17 million in April, but are 3 percent below the 4.38 million-unit level in May 2008. The median existing single-family home price was $172,900 in May, down 16.1 percent from a year ago.
Existing condominium and co-op sales: increased 6.1 percent to a seasonally adjusted annual rate of 520,000 units in May from 490,000 in April, but are 8.9 percent below the 571,000-unit level in May 2008. The median existing condo price was $173,800 in May, down 21.9 percent from a year earlier.
By the Region
Here’s how housing fared across the country for existing-home sales:
- Northeast: rose 3.9 percent to an annual level of 800,000 in May, but are 10.1 percent below a year ago. Median price: $243,600, which is 12.5 percent below May 2008.
- Midwest: jumped 9 percent in May to a pace of 1.09 million but are 4.4 percent below May 2008. Median price: $145,800, which is 10.4 percent lower than a year ago.
- South: unchanged at an annual pace of 1.74 million in May but are 8.9 percent below a year ago. Median price: $157,400, down 9.9 percent from May 2008.
- West: slipped 0.9 percent to an annual rate of 1.14 million in May, but are 11.8 percent higher than May 2008. Median price: $197,700, down 30.6 percent from a year ago.
Source: National Association of Realtors
Tips for First Time Buyers
So, maybe you’ve been living in an apartment for a while and you have thought about your options and you really want to buy a home. Buying your first home can be an exciting and fun experience, but it can also be pretty challenging if you are not sure exactly what you want, how the process works, or what to look for in a new home. Here are some tips to help get you started on your way to a great new place for you and your family.
Use the Internet and also family and friends as first resources
The Internet can be a great resource especially if you are not quite sure what to look for. This can help you look at the market and get a feel for what is out there. Then when you might have an idea of what you want, it may be a good idea to ask family and friends for advice, especially if they have bought one or even several homes.
Family and friends can be great resources and can recommend agencies to use when looking for a home and also things to watch out for when it comes to loans and other financial situations, so it may be a good idea to ask them and to take notes while you do.
Find a good real estate agent
A good real estate agent not only wants to sell you a home, but will listen to your concerns, thoughts and needs and will do their best to find you the best home possible for you. It is able that you work with someone you trust and feel comfortable doing business with.
Shop around
It is important when buying your first home that you try not to just jump into things and buy the first home you like. Look everything over, the repairs needed if any, the neighborhood, traffic noise, the general location, the layout of the house, and anything else you may think is important to include. It may be helpful to make a check list or bring a camera with you.
Develop a rating scale for each home you see
After seeing each home that you like, rate the home based on your needs and wants and narrow down your list to a few great choices for you and your family.
Make sure to discuss and talk with your agent and Ask Questions
When doing anything for the first time, it is important to ask questions if you do not understand something. Make sure to discuss your thoughts with your agent along the way.
Take a second look at homes on your list
It is important that once you have narrowed down your list, you go back and see the home again to look things over to make sure nothing has changed.
Discuss the buying process with your agent
When you think you are ready to buy that first home discuss all your options with your agent. This includes loan options, mortgage rates, payments, and more. Make sure you understand everything before signing any papers.
Buying that first home can make you feel accomplished and excited; these tips are a good place to start. Hopefully you will find the home for you and enjoy it long into the future.