10 common errors made by first-time homebuyers

STARTING OUT

April 17, 1994|By Dian Hymer

It's natural to feel ambivalent about buying your first house. It's not only a big financial investment, but also complicated and, at times, confusing.

But you can take comfort in knowing that these 10 mistakes are ones you don't have to make:

* Looking at houses before you are lender-prequalified and know what you can afford.

Unless your idea of fun is test-driving a Cadillac before you buy a Chevy, find out what your budget will support first.

* Assuming that because you don't have a 20 percent cash down payment, it will be impossible to buy a home.

It's easy to fall into the trap of thinking you will never be able to save enough money to buy a house, especially since the all-American-dream way to finance a home purchase is with a loan for 80 percent of the purchase price. But most first-time buyers purchase with less than a 20 percent down payment. Ask about financing options for low-cash-down buyers.

* Working with an agent who doesn't know the local market.

Let's say you've been looking at houses in Our Town with Jane. In fact, you've been taking up her Saturday afternoons for months. Then you hear from a friend that housing is much more affordable in Their Town. But what about poor Jane who has wasted so much of her time with you? Maybe Jane can help you find a house in Their Town. "Sure," Jane says, reluctantly, "Why not?"

I'll tell you why not: She doesn't know the first thing about that market. She will be doing you a disservice and probably waste more of her time in vain. If you find yourself in this situation, do yourself and your agent a favor and ask to be referred to a good agent who specializes in that other area.

* Failing to read and understand the entire purchase agreement before you sign it.

Ask your attorney or real estate agent to give you a copy of a sample contract like the one you will be using when you find a house you want to buy. Read it, and if something is confusing, ask your agent or attorney for an explanation. This way you'll be better prepared when you do sit down to actually write an offer. Also, be sure to get copies of everything you sign.

* Making an offer on a house without first reading any existing reports on the property.

You have to be a little bit crazy to be a conscientious homebuyer. First, you have to be able to cast caution to the wind and let yourself fall in love with a house. Then you need to detach yourself emotionally from the house and find out if there's any reason why you shouldn't make an offer on it.

Is the house priced low because it has a serious settling problem? A purchase contract should include an inspection contingency to protect you, but inspecting a property can cost several hundred dollars. These are dollars saved if you discover in advance of making an offer that the house is one you'll never buy.

* Assuming your real estate agent is a mind reader.

One of the most common complaints heard from buyers about their agent is that the agent doesn't show them the right kind of houses. If you're looking at a lot of houses and you're seeing nothing that appeals to you, there's a good chance you haven't communicated clearly to your agent about what you're looking for in a house. It helps to put your needs and desires in writing, then give a copy to your agent.

* Estimating low on the cash you will need to close the transaction.

This mistake should never happen. Yet it does, which is another reason why you need to monitor your real estate transaction carefully. Your real estate agent should provide you with an estimate of your closing costs at the time you make an offer to buy a house. Then your loan agent should provide you with another closing cost estimate within three days after you submit a loan application. This is required by law.

* Removing the financing contingency before you have an unconditional loan commitment from the lender.

When the lender, or your real estate agent, calls to tell you your loan is approved, be sure to ask if there are any conditions. If there are conditions over which you have no control, remove your financing contingency subject to those conditions being satisfied.

* Applying for a loan with a lender who offers the lowest rates in town even though your real estate agent tells you the lender is flaky.

* Refusing to make an offer because there are multiple offers on the property from other buyers and you don't want to be in competition.

If you can offer the seller a good clean deal that's not contingent on the sale of another house, your offer just might be accepted. But you'll never know unless you try.

Send questions and comments on Dian Hymer's column care of Inman News Features, 5335 College Ave., No. 25, Oakland, Calif., 94618.

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