Many of our home buyers are investing in their second home -- a vacation place for the winter months. We also have a number of owners here whose Naples or Bonita Springs address is one of three or four or even five homes they own around the world. As such, a very large percentage of purchases here are cash buys.
Still, we have our share of finance home purchases. Which is why I'm writing this particular blog post. You see, home buying blunders -- when they occur -- almost always revolve around the financial side of the transaction.
Having worked with many buyers, I thought I would put together a list of "Home Buying Blunders" that's a must read for anyone considering buying a home -- particularly for the first time.
First off I can tell you that half the battle and a lot of the blunders are all found in preparation, or lack thereof:
Home Buying Failures
1. Credit - Putting off making sure your credit in good order is no doubt one item that for many takes the longest. This means paying bills on time, knowing how to manipulate your credit card history, taking care of erroneous information etc.
2. Debt - Getting a handle
on debt naturally follows good credit practices. Many new or first time
buyers neglect their debt-to-income ratio, not knowing what an
important factor in getting pre-approved (which is different than
qualified). Generally your debt-to-income ratio should be 28% or lower,
to be well qualified. FHA is currently 43% though sometimes can be
higher with justification from the lender. VA loan limits are calculated
with a debt ratio of 41%. These rules and limits do change, but less
debt is obviously a no-brainer.
FHA loans have long been a loan of
choice, as they have low down payments, and some FHA loans like a 203k
allow funds for repairs or renovations to be structured into the loan
(you cannot do the repairs yourself if you're financing, sorry). If
money is tight, there are many types of no-down payment and low down payment home loans -- though we don't see that much in this market. A lot of which type of home loan you roll with has to do with the property(s) you're interested in and what type of home is right for you.
The best thing to do after getting your
credit up to the mid 600's is to talk with an experienced Realtor to
help determine the loan types that are going to be best suited to your
needs; new construction, foreclosure or rehab, VA, conventional, etc. An
experienced Realtor will have a number of good lenders to refer to you
to begin mortgage shopping and comparison.
Part of handling debt with regard to home buying is preparing for extra expenses likc earnest money.
3. Not getting pre-approved before asking for showings is a huge mistake. Pre-Approval is pracmatic. First
of all, no real estate agent wants to work with someone who has not obtained
a pre-approval letter from a lender. Put the shoe on the other foot.
Don't be surprised if one of the first questions a real estate agent
asks you is "have you talked with a lender yet" and don't be insulted or
put-off by that question. As Realtors, it's an integral part of our job
to help you connect with lenders that have the loan products best
suited for your unique situation.
Further, if you make an offer on a property, you'd better have your paperwork include your pre-approval letter. In Southwest Florida, if you don't show a pre-approval letter or proof of funds (if you are paying cash), the sellers will assume you aren't serious.
4. Not Speaking with more than one lender.
Did you know that some lenders participate in varying forms of mortgage
loan programs that others may not? Did you know that you might be
eligible to get a conventional loan with less down payment than an FHA
loan? Did you know that you might be eligible for a mortgage with only
5% down payment and not have to pay the nasty PMI every month or even at
all? Did you know there are "no money down" programs that might be your
best bet?
While I am personally not a huge fan of these programs, they do exist. Don't pin your hopes on obtaining this type of program for your purchase, but its worth looking into.
5. Abusing your credit after getting pre-approved. Don't
make the mistake of thinking that you are "good to go" once you have
your pre-approval letter in hand. MANY home buyers have actually lost
out on completing their home purchase due to abusing or using their
credit unwisely. It is in your best interest to wait until after you
have closed on your home before using any credit at all. Something as
simple as a push mower purchase on credit after getting into contract on a property has killed more home purchase
transactions than you can imagine.
6. Not having the home inspected by a professional.
It doesn't matter if the home is brand new or older. A home purchase is
the single most expensive purchase you will ever make. Why take the
chance of buying a lemon? Have the house professionally inspected before
you close the transaction.
7. Buying a home without a professional buyer's agent.
Did you know that the seller is responsible for paying your Realtor's
real estate commissions? If you enter into a purchase agreement without
having the professional representation and protection of having your own
Realtor, you could be costing yourself thousands of dollars without
just cause. Would you go into a courtroom as a defendant without having
your own professional representation? The listing agent promised to net
the seller as much as possible. Buyers' agents represent you.
Just a few tips to think about. If you want to know more, contact me for a no obligation consultation.
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