Most real estate markets are very hot and the Seattle real estate market is at the top of the list. Many homes go under contract within days of going on the market and often times for more than their asking price.
For first time home buyers, this can be a very frustrating situation and often times not being 100% prepared can mean missing out on their dream home.
I’ve compiled my list of 7 first time home buyer mistakes that I counsel all my first time home buyers on before we start shopping.
1. Don’t assume that you can’t get approved for a mortgage
Of course before you start shopping for a new home, you will want to have your credit score in as good of shape as possible and have 20% down saved up. There are programs out there for less money down, but be prepared to pay mortgage insurance and have a higher payment if that is the road you take. However, just because you have a few dings on your credit doesn’t mean that you can’t get a loan. There are far more loan programs available than just a few years ago and many are designed to assist lower income and first time home buyers.
2. Not Checking Multiple Lender’s Rates
Rates and fees between different lenders and mortgage brokers can vary widely. Just checking rates with one source can mean you are over paying for your loan and may not qualify for as much home as you might otherwise. Be sure to shop carefully and look at not just the overall rate, but the fees as well. Also, don’t let everyone pull your credit. This can cause you to drop by a few points and sometimes the difference between a middle score of 740 and one of 735 can lead to a significant difference in what rate you can achieve.
3. Not Getting Pre-Approved Prior To Home Shopping
A huge mistake that home buyers make is not getting pre-approved prior to going home shopping. When home shopping in a hot market, especially one as hot as the Seattle real estate market, the delay that having to get approved for a loan after finding a home, will often times mean missing out on it.
Since many times homes will have multiple offers, ones that have not just pre-qualification, but pre-approval letters attached have a better chance of being accepted.
4. Buying Homes At The Max Of Your Mortgage Limit
For several reasons, making offers on homes that are at the max of your mortgage limit is a mistake for first time home buyers.
In competitive real estate markets like what we are seeing in Seattle right now, many homes are selling for more than list price, and many home buyers are using what are called escalation clauses, to give them the competitive edge. If you are making offers at the maximum of what you are qualified to borrow, you don’t have that extra room that may be needed to be the winning offer.
Additionally, purchasing at the maximum that you can borrow will likely be a stretch of your financial resources. This means that bumps in the financial road can be extra bumpy. Think hard about what you are really comfortable with as a home payment, not just what the maximum is that you can get approved for. Just because the calculator says you can afford it, doesn’t mean your bank account agrees.
5. Emotional Home Buying
People fall in love with homes and sometimes emotionally make them theirs, well before an offer is ever accepted. In hot real estate markets, this can lead to a lot of heart ache since often it takes several attempts at purchasing different homes before first time home buyers are successful in getting an offer signed around.
An additional risk is paying too much for a home just because you are emotionally attached to a home. I’ve seen it happen and it doesn’t generally work out too well.
It is OK to get excited about the process, and even with the prospect of getting your first home, but falling in love with one particular home before your offer is accepted can often lead to a lot of sadness. So remember, take your time and go into the situation with your eyes wide open to the risks involved and the potential outcomes.
6. Not Thinking Through The Risks Of Waiving Contingencies
Contingencies are in place to help protect you as the buyer from things that might come up between the time the offer is signed around and the property closes.
The two most common are the financing and the inspection clauses. Often times buyers will waive the financing contingency to compete with all-cash offers. The risk is of course that if there is an issue with your financing after your offer is accepted, your earnest money may be at risk.
The inspection clause is also problematic to waive as there are many surprises that can be very expensive to discover after closing. Think hard about waiving your inspection contingency. Having an inspection that costs $400 can save you tens of thousands in the long run.
7. Using Your Credit Before Closing
Home buyers get very excited about their new homes and start planning on furnishing it well before the final closing paperwork is signed. The problem arises when they start purchasing on credit, new furniture, drapes and so on. When they do that, it impacts their credit and can actually make them no longer qualify for their loan.
It may seem crazy, but I’ve personally had it happen with my clients, despite my warnings.
Other things to not do once you start home shopping is buying new vehicles, or changing your work status. Again, I’ve had home buyers change jobs in the middle of trying to close on a home. So stay put with your job and keep the cards in the freezer until I call you and give you the all clear 😉
Choose An Experienced Agent To Avoid Home Buying Mistakes
Home buying in hot markets can be very tricky and not working with an experienced real estate agent can make the difference between getting the home you want and missing out.
If you are shopping for a home in the Seattle market and need advice or assistance in purchasing a home, you can contact me, Jacquie Cliff at 425-773-3149. I can help you navigate both finding the best loan as well help you locate and negotiate the purchase of your first home.