Needless to say – this headline got my attention – so I had to read and share it. Real Estate is a micro environment, and it takes time and guidance to figure out this journey – The Caton Team is here for you each step of the way. I’ve added my two cents in italics.
8 Dumb Reasons People Can’t Buy a Home
By Daniel Bortz |
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! We asked real estate agents 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.
Dumb reason No. 1: Waiting to line up financing
This is so true – we wait thinking we can save. But what we need to ask is – how quick is the market appreciating and can I match or beat that pace? Chances are no.
Your first step in the home-buying process should be to meet with a mortgage lender to discuss your financing options, says Benny Kang, a real estate agent in Irvine, CA.
“You don’t truly know what you can afford until you meet with a lender,” says Kang. 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.
This is so true! I meet so many clients that do not realize the importance of the home loan, the time it takes to get approved and so forth.
Dumb reason 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 can cause a deal to fall through. That explains why “sometimes sellers reject offers because of the buyer’s lender,” says Philadelphia real estate agent Kathy Conway. 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.
Online lending tempting you – stop right there and change the channel. The Caton Team has a list of reputable, local lenders that know what it takes to own a home in the Silicon Valley. You get what you pay for – be smart.
Dumb reason 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.
When you submit an offer on a home, you’ll need to include a pre-approval letter from your lender, says Conway.
“Educated sellers won’t even entertain an offer unless the buyer has a letter of pre-approval” from a reliable lender, Conway says.
Let me take this a step further, if an agent takes you to see homes and you’re not approved – you’re doing this all wrong. The Caton Team strives to make the real estate journey as smooth as possible – meaning – get pre-approved for a home loan first – then look at homes. Curious why? Contact us and we’d be happy to share what it takes to be an owner and not a buyer in this market.
Dumb reason No. 4: Shopping outside your price range
“It sounds obvious, but some home buyers just have trouble sticking to a budget,” says Kang. 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).
By all means, window shop for homes all you want. I do it – it’s fun. But don’t waste your time day dreaming if you truly want to own real estate.
Dumb reason No. 5: Making lowball offers in a seller’s market
You need to rely on your real estate agent to 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, it might make sense to offer full price, says Kang. Moreover, “if you’re in a seller’s market, making a crazy lowball offer can piss off the seller” and kill your offer, says Kang.
Dumb reason No. 6: Writing a bad personal letter to the seller
If you’re competing against other buyers, writing the seller a personal letter can help strengthen your offer. But Julie McDonough, a real estate agent in Southern California, says 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,” says McDonough. “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.
The letter is a great piece of the offer package. Write it. Need I say more?
Dumb reason 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,” says Conway. Translation: Don’t make any big purchases until after you close on the house.
You’re buying a house – that’s all the money you can spend. Hide your wallet till after escrow closes.
Dumb reason 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.
All the more reason to sit down with a lender and a Realtor from the start. We are here to map out your journey and make it as smooth as possible. How can The Caton Team help you?
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Thanks for reading – Sabrina
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