Buying a home is a major milestone for many families. For the military family, it can be an even bigger deal if they have chosen to wait out a service member’s career (and multiple PCS moves) until taking the plunge into home ownership. And while it is all very exciting, there are some pitfalls that home buyers (especially first-timers) can fall into. Knowing the mistakes home buyers make can help you avoid many problems in your journey to own a home. Here are some of the biggest ones, and how you can avoid them:
1. Buying a home when you are planning to move soon.
Historically low mortgage interest rates, and the knowledge that they will go up again, make a lot of people feel like the time to buy a house is NOW. This year, COVID has wrecked havoc on the PCS season, and caused many families to revise their moving plans, so you may feel ready to move forward. But buying a home is a major purchase, and it may or may not be your best decision. If you’re not going to stay for at least three years chances are you may end up losing money, rather than realizing any equity. No one enjoys writing a check at closing to cover the deficiency between their net and their payoff. And don’t assume you could just “rent” it if you aren’t in a position to sell. If you aren’t in an area with a strong rental market that would at least cover the amount of your mortgage, then perhaps you should wait to enter the homebuyer market.
2. Failing to get pre-approved for a home loan
Before even starting your search, save as much as possible for a down payment and closing costs, know your credit score, clean up any blemishes on your credit report and get pre-approved for a loan. Don’t confuse being a pre-qualified buyer and being pre-approved for a mortgage. Pre-qualification is basically telling a lender how much you make and how much you owe, and based on what you tell them you “should” be able to buy in a certain price range. Pre-approval is when you actually provide documentation to your lender verifying income, they pull a credit report, look at your income to debt ratios, and let you know how much you can afford and how much they will lend you. Pre-approval also proves to your real estate agent and home sellers that you are serious and know your price range, which can strengthen your position in the event of competing offers when you find the right home. If you use the VA Home Loan, there are several benefits, including no down payment required, so be sure to discuss the benefits of the VA Home Loan with your lender.
3. Using an out-of-town lender
It may be a mistake to put too much faith in online loan services. Do your research, learn about processing fees, points and junk fees- yes they hate that term, but if one lender charges for something and another doesn’t, then it’s a junk fee. Calling a Racehorse a Donkey doesn’t slow it down. For example: I had a young airman who received an estimated monthly payment from the national company where he banked that was over $900 more than the local lender I recommended, and that was on the purchase of a modest $100,000 home. Real estate agents will gladly recommend local reputable mortgage companies, banks and/or credit unions.
To check out trusted reviews by military families of local lenders, visit PCSgrades and register for your free account.
4. Failing to use a real estate agent
Rather than spending your time perusing classified ads in the newspaper, checking out online sites, and driving around neighborhoods hoping to see a “For Sale” sign, contact a real estate agent. Agents live in the community, list and show homes in the areas you are interested in, and have a better idea of home values than online marketing sites and oftentimes even homeowners. Some of the worst pricing I’ve seen, both too high and too low, have been with FSBO’s (For Sale by Owner). Agents can highlight the subtleties of markets, neighborhoods, perceptions of housing styles and trends…plus they can write your offer, coordinate inspections, negotiate repairs, communicate with the lender and title company, and lead you all the way until you walk away from the closing table with a new title: “Homeowner”.
Not sure where to find the right real estate agent? PCSgrades has reviews, submitted by military members or spouses, that help give a clear picture of the right real estate agent for you. Just sign up for your free account to learn more.
5. Skipping the home inspection
Do not pass go, do not collect $200… GET A HOME INSPECTION! This is not the place to try to cut costs. Would you buy a used car without at least checking under the hood? Inspections average between $350-$500 depending upon the size of the home, but could end up saving you thousands. The inspector will check the mechanical and structural components of the home. People sometimes confuse the inspection and the appraisal. The inspection gives you a written report of the condition of the home on the date of the inspection, and an appraisal is a determination of value based upon comparable sales of similar homes in the same or similar neighborhoods. There may be conditions in need of repair, and you may choose to negotiate with the seller to make the repair, or the seller may negotiate a price reduction in lieu of repairs. Or, occasionally, there really isn’t anything of major consequence in need of repair and the inspection report gives you, the buyer, peace of mind that you are making a good purchase.
6. Making unreasonable offers
Your initial offer should be based two things: what you can afford, and what you really believe the property is worth. Your offer should be fair and reasonable; it is not a competitive event, and no, it is nothing like buying a car. I had a young man who slammed his fist on my desk and announced that he refused to “lose” to the Seller who didn’t accept his ridiculously low offer. I informed him that “losing” was driving by the house he and his wife wanted, and seeing someone else living there. Many markets have seen home values drop, but many others have remained strong. If an offer is so low then even if you find a middle ground, the Seller will be less likely to want to negotiate repairs or other terms with someone perceived as “unreasonable” from the get-go.
Buying a home should be fun and exciting. Get your finances in order, then visit PCSgrades to choose a lender and a real estate agent with that you feel comfortable with. When you can trust their guidance and experience, you should be able to avoid many of the pitfalls that negatively impact perceptions of the home buying experience.