Buying a home in Los Angeles requires some homework. Whether you are planning on buying now or months down the road, there’s no time to prepare like the present. Buying a home is much more than just purchasing a new place to live, it’s one of the best investments you will ever make. Let’s face it, the stock market has gone down somewhere in the 40 – 45% range. That depreciation greatly outpaces the, housing market on the Westside of Los Angeles. We are fortunate to have some neighborhoods that managed to deliver some appreciation. It might be single digits, but nonetheless, it’s not depreciation. So, isn’t it fair to suggest that investing in your neighborhood is the smarter choice over the stock market? However, like any major purchase you plan to make, it is the educated buyer who gets the best deals. Many first time homebuyers make colossal mistakes when purchasing their homes. Here are some of the most frequently committed errors and ways to avoid making them.
Buyer Mistake #1: Making an offer on a home without being pre-approved by a mortgage broker
So often I hear that first-time homebuyers spend weeks looking at homes before meeting with their mortgage broker, then learning that they can’t afford the price of the home they want to buy. If you don’t discuss your situation with a lender first and get pre-approved, you will often end up wasting time looking at homes that are too expensive. Once you’ve met with a mortgage broker, you will be knowledgeable about the process of obtaining financing, about what types of loans are available to you, and you’ll know how much home you can afford to buy. In addition, any offer you make will have the credibility of the lender already stating that you are ready, willing, and able to purchase the home. Most important, shop for a broker, not a mortgage. Ask for references from your Realtor® as well as friends. Your focus should shift from shopping the price of the mortgage to shopping for the best broker. The broker will shop the market for you. Brokers shop lenders far better than you can, among other reasons, because they are in constant contact with many lenders, and know the niches where your situation fits. Just like finding a good real estate agent, it’s very important to find a seasoned and knowledgeable mortgage broker that you are comfortable with—who will explain the loan application process and all the options available to you. At The Bremner Group, this all-important meeting takes place before we even get in the car.
Buyer Mistake #2: Not considering long-term needs
Many buyers tend to consider their immediate needs when buying a new home. It’s important to think down the road a bit: will this space be enough if I get married? Have a child? What if I want to take on a roommate or move out and rent the place out? In addition, selling your home before the two-year mark means you pay capital gains on any profit. You also want to benefit from market appreciation and in order to do that you need to stay put for at least 2 – 3 years.
Buyer Mistake #3: Limiting your search to open houses, ads, or the Internet
Often, the syndicated web sites that feed from the Multiple Listing Service (MLS) are delayed by 48 hours (or more). Frequently, we get calls for listings that were previewed on a syndicated web site that are already under contract, and some have even closed already. For the most up-to-the-minute inventory, it’s best to work with a Realtor® who can set you up to receive automatic emails as soon as a property that meets your search criteria hits the market. In addition, we pride ourselves on letting our buyers know about private sales and pocket listings (those homes which are offered for sale, but are not advertised or placed in the MLS) Read my recent blog post about why you must know about pocket listings.
Buyer Mistake #4: Not having a home inspection
While buyers tend to focus on the floor plan, paint colors, and finishes when buying their new home, it’s crucial to make sure you are not buying a home that may be fraught with serious down the road. Once you have come to terms with a seller regarding price, closing date, and other terms, you have a short window of time to have a professional home inspector come out and inspect the major systems of your home. He/she will be looking for any structural, mechanical, electrical, plumbing, or environmental problems. (All things that may not be obvious to the untrained eye.) If the inspection report does not meet your approval, you have the option to negotiate the items in question or terminate the contract and have your earnest money deposit returned.
Buyer Mistake #5: Altering your credit profile during the buying process.
New credit cards, a new job, late payments on existing credit; all of these are things which can affect your credit prfile. Do not take out new credit during the home loan process, even if you are already pre-approved. Remember that lenders reject your loan at any time prior to the time that the funds are disbursed. Buying a new TV on a payment plan, leasing a new car, even test driving new cars at multiple dealerships or charging furniture before closing could jeopardize your loan. Opening up new lines of credit or increasing balances on existing lines of credit is harmful to your credit score. To be on the safe side, do not make changes to your credit profile until after closing. Also, don’t quit your job. A lender is not going to loan thousands of dollars to someone who is unemployed.
Buyer Mistake #6: Buying more than you can afford
Still want to go out to eat a few times a week? Take a vacation? Then don’t spend more than you need to. No one wants to be house poor! Your Realtor® and mortgage broker will counsel you, but the final decision is yours. Only spend what you are comfortable with.
Buyer Mistake #7: Not knowing total costs involved
It’s important to have a solid understanding from the very beginning how much money you will need for your entire home buying process: You will have your earnest money deposit, which counts towards your down payment. You’ll have a home inspection that you will pay for at the time of the inspection. Then there are escrow fees and closing costs. All these fees can be outlined for you when you sit down with your mortgage broker and Realtor®. Do not make a bid on any home until your agent has given you a “good faith estimate” of your closing costs.
Buyer Mistake #8: Purchasing a home with an incurable defect
You may love the space, the floor plan, finishes, and the proximity to all your favorite neighborhood amenities, but it’s important to think about resale value. Being right next to the freeway or alley, or situated on a busy street or intersection, or having power lines running next to your bedroom window or through your backyard, having a commercial or industrial property as your neighbor can make resale extremely difficult. Pay close attention to the Seller’s Disclosure Statement about any neighborhood noise or nuisance, and ask questions. Remember, what they disclose to you today, you will one day disclose to your buyer.
Buyer Mistake #9: Bidding before seeing a property CMA
Before making an offer to purchase a home, you must have an accurate idea of market value to ensure you do not overpay. Your Realtor® will prepare a comparative market analysis (CMA) showing comparable properties, what similar homes in the neighborhood have recently sold for and the recent price trends. Are you buying in an appreciating neighborhood or depreciating neighborhood? Will you be the most expensive home in an area of lesser properties? This is the same type of report the seller receives when deciding on an asking price. Isn’t it important for you to have access to the same information as the seller? Your Realtor® will give you all of this data, and interpret it for you.
Buyer Mistake #10: Not interviewing a Buyer’s Agent, or choosing a real estate agent who is not committed to forming a strong business relationship with you
Realtors® are like any people: some of them are going to innately understand your needs, and some of them aren’t. You want to find an agent you are comfortable with, and with whom you click; one who is experienced and knowledgeable about the type of property you want to purchase, and who is going to fight for you in the negotiations. After all, your agent’s objective is to get you your new home with the best terms possible. A great real estate agent is committed to using their experience gained through hundreds of successful negotiations to help you get the best possible terms. You need a professional Realtor® looking out for your best interests. Considering the importance of your home purchase, doing it by yourself can be an expensive mistake. An astute Realtor® has better information and valuable expertise to help you get the home you want. Use their expertise to your advantage. Read my recent blog post on the top 10 reasons you need a buyer’s agent.