When you're ready to buy a home, be it a primary residence, a seasonal home that serves as a vacation property, or even an investment property, you'll encounter many different situations. We all know that it's an exciting and anxious time, but ultimately a worthwhile endeavor, because you lock-in your cost of housing, are able to build equity, and, have a great investment in your future.
All of this, not to mention it helps you to build wealth, provides you with tax benefits, and for so many, an escape from the capital gains tax, which is applicable to sale profits of up to $250,000 for singles, and up to $500,000 for married couples. In addition to these many benefits is the ability to make custom changes to suit your wants, needs, and lifestyle. What some would-be homebuyers don't know, or know the extent, are common pitfalls that can cause big problems to get to the closing table and through settlement day. Minor bumps in the road aren't whatsoever unusual, however, there are setbacks of in-the-moment, monumental proportions. These require a bit of out-of-the-box thinking, and, in a few situations, a total change in approach.
Do This before You Apply for a Mortgage
Of course, the single largest pitfall would-be buyers make is not being prepared for the mortgage approval process. While most are aware new requirements were enacted after the housing market meltdown, few understand that getting a mortgage isn't terribly difficult. It might be a bit frustrating and time consuming, but in general, you'll find a variety of home loan products, more consumer friendly credit modeling, very attractive interest rates, and eager lenders.
“For most people, a home is the largest purchase they’ll ever make, so choosing the wrong property can have disastrous implications for their wallets and well-being. Still, many homeowners feel a strong sense of pride in putting their mark on the property, building equity and having a place to truly call their own.” --U.S. News and World Report
This is because lenders lost so much during the recession, and now, are seizing on the opportunity to attract more consumers with low interest rates, competitive fee pricing, and other enticements. As a consumer, you ought to pull your credit reports from Equifax, Experian, and TransUnion, well in advance of applying for a mortgage because nearly 40 million credit files contain errors, and, of those, about half are significant enough to be turned down for a home loan.
How to Handle Common Home Buying Pitfalls
Mortgage hangups are just one of several home buying pitfalls, and, you ought to know the most common to avoid heartache and heartbreak. Here are the biggest home buying pitfalls that not only first timers make, but also, those who have been through the process before:
- Not shopping around for a suitable mortgage. Though there are many home loan options and interest rates are still near historic lows, don't make the mistake of not shopping around. Lenders are very competitive in this environment because of those low rates and because while home prices are on the rise, still remain quite affordable. Look at several products and compare them carefully.
- Limiting your search to one neighborhood. It's understandable that some homebuyers prefer to find a property in a certain neighborhood or section of town. However, being myopic necessarily excludes other areas, which is to say, you might be missing out on something that's a great fit and/or a good deal. This goes for property type, as well, you could easily skip over what would be just right for you.
- Not thinking like a seller. When you are considering a home, think about it not for you, but for the next buyer. Sure, it could be a great fit for you, your lifestyle and needs, but not be very marketable to others when it comes time to sell in the future. Take into account any deficiencies, such as lack of a garage, or, being on a busy street, and don't discount these for the sake of expedience and/or because you want this or that.
- Expecting a price reduction. Some homes on the market stay listed for much longer than others and this can cause buyers to believe that because of this, they can get a deep discount. However, sellers don't reduce their asking prices for several reasons. Learn why the price has not been lowered and don't expect the seller to capitulate.
- Chasing a deal at all costs. The in excitement of the moment, it's very easy to rationalize and make a mistake you'll later regret. If a seller senses this, he or she will surely take advantage and that makes the entire transaction difficult.