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5 Common First-Time Home Buyer Mistakes You Won’t Want to Make Yourself

We all make mistakes the first time we do something, but those mistakes can be doozies for first-time home buyers. For one, these errors are hard to backpedal out of—and worse, they can cost thousands of dollars. And so, in the hopes that you won’t inadvertently step into one of these booby traps, we got some homeowners to spill their guts about what they botched with their first home purchase. Then we got some advice from professionals on how you can avoid the same fate.

Mistake No. 1: Wait, which house did we buy?

“We bought our first home while we were living in San Francisco but moving to Denver. We shopped for homes online, then flew to Colorado for a marathon, three-day house-hunting weekend. After a whirlwind of 18 homes, we chose one. Huge mistake. Once we moved in, it didn’t take us long to realize the layout of the house was impractical, the driveway was buckling, and the carpet looked awful. New issues cropped up constantly.” – Krista Van Lewen, San Francisco, CA

Lesson learned: How much are you going to remember about each house when you look at 18 in a single weekend? Not much.

“One of the biggest mistakes I see first-time buyers make is rushing into buying their home after only a very brief showing,” says Denver-based Realtor® Luke O’Bryan with the O’Bryan Group.

Whether you’re from out of town or based locally, some markets move so quickly that decisions have to be made on the spot. A second showing is always the best option, but in a pinch, O’Bryan recommends videotaping the home so you can review it later and possibly get a different perspective when you’re less rushed.

Mistake No. 2: The price isn’t right

“When I bought my first house, I was so eager to close that I offered the asking price for a newly listed property that didn’t have any other offers—even though my agent advised against it. I also didn’t ask for any repairs, although the inspector pointed out some things that I should have requested, so now I’m dealing with a leaky roof.” – Jeff Neil, York, PA

Lesson learned: Buying a home may have plenty of warm and fuzzy aspects, but it’s also a business transaction where you need to leverage everything possible to get the best deal, says David Feldberg, broker/owner of Coastal Real Estate Group in Newport Beach, CA.

If you are a seller’s single offer, know full well that you have the advantage—from the price and terms all the way to repairs the seller should make. Feldberg recommends not getting too emotionally vested in any home until you are done negotiating with the seller, as that can negate your advantage.

Mistake No. 3: Count your chickens before they hatch

“I was pregnant with our first child when we bought a house that seemed fine at the time. However, we now have three small children, and there just isn’t enough space. There is no peaceful spot to have time alone.” – Dusti Reimer, Grand Junction, CO

Lesson learned: Buy for the future, not just for the now, and that means considering any future family growth.

“To avoid getting caught having to sell a home too quickly, think through what needs you are going to have over the next five to 10 years and make those a requirement,” says Feldberg.

Mistake No. 4: Not up to code

“The house we bought was built in the ’50s, and while it had its charm, we discovered after we purchased it that there were several things that previous owners had done on the cheap. The wiring was a mess; there were unfinished closets and floors; and the kitchen only had one electrical outlet. We wound up installing power strips so we could function—which it turns out, is totally against code! While we fixed what we could, it caused us massive heartburn when we started the selling process eight years later.” – Heidi McDow, Oak Point, TX

Lesson learned: Most home buyers don’t take the home inspection seriously enough, but they really should. Accompany your inspector on his rounds so you can see firsthand any flaws—it’s far easier than eyeballing the paperwork he’ll send you later. And even if you’re fine with certain flaws, future home buyers might not be, so take any issues seriously.

Mistake No. 5: Friends, neighbors, enemies

“When I bought my first home, I chose a duplex, thinking I’d rent out one side for guaranteed income to help offset the mortgage payments. I didn’t count on the hassles of landlordship in general, but I made it worse: I rented it to my best friend. So all the pains were magnified. For example, she was always cold, so her husband would call me constantly and insist I jack up the heat. My oil bills became astronomical. Never again have I bought a two-family residence.” – Cynthia MacGregor, West Palm Beach, FL

Lesson learned: “As someone who has owned and leased out many properties, I can tell you firsthand that being a landlord is really tough, and I would never recommend it for a first-time home buyer who probably is just learning how to do basic repairs and manage utility bills,” says Feldberg. And renting to friends is just asking to be enemies. Still can’t give up the dream of having that juicy rental income? Consider a property manager to take the stress off.

 

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Quiz: How to tell if a real estate agent is right for you

Hiring the wrong real estate agent could significantly impact your experience as a buyer or a seller. The right real estate agent will not only have a great resume and be genuinely committed to helping you meet your needs, but he/she will “click” with you too.

“Real estate is a people business. You have to like and understand people if you want to succeed in real estate,” says Matt Williams, Broker/Owner of Realty Executives Williams Sykes Realty.

How the agent makes you feel, whether you’d be comfortable sharing personal and financial information with him/her, or whether they inspire confidence are some things to consider as you start narrowing down your list and conducting interviews.

7 Things to have on your checklist when choosing a real estate pro

Take our compatibility quiz to determine if your agent is a good match for you:

1. Does the agent have a strong online presence?

A)      Yes, they have a well-designed website with a personal blog, professional social media accounts, and accounts on the major real estate and review (Yelp, Google+ etc.) websites.

B)      They have a website and social media pages

C)      They  just have a website

D)      No, I couldn’t find anything online

2. How much experience does the agent have?

A)      They’re a seasoned professional with 10+ years of experience and several designations and certifications

B)      2-10 years of experience and an impressive portfolio

C)      Less than 2 years of experience, but works with a well-known broker and a team of experienced agents

D)      I couldn’t find any information about their experience

3. Does the agent seem interested in learning about your unique needs?

A)      Yes, they asked me several detailed questions

B)      A little, although they didn’t probe for any details

C)      I couldn’t tell

D)      No, they barely asked me any questions

4. How quickly does the agent take to get back to you when you call her?

A)      Immediately

B)      Within a reasonable time

C)      After a long wait

D)      Never

5. Does the agent have a good working knowledge of the local housing market?

A)      Yes, and was able to back information up with data

B)      They seemed to know the basics

C)      Not that I could tell

D)      No, they didn’t seem to know much about the neighborhoods that I was interested in

6. Does the agent speak in industry jargon and acronyms?

A)      They used language that I understood and explained all industry language and acronyms to me as we came across them

B)      Yes, but they explained what they meant when asked

C)      Yes, but I think I know what they mean

D)      All the time, I don’t understand half of what they say

7. You asked for a listing/buyer presentation and received…

A)      A road map that perfectly illustrated how they would be a top ally for my real estate journey

B)      An informative presentation that demonstrated the value of having an agent

C)      A rushed and poor quality presentation

D)      Nothing

8. What does the agent offer as part of her services?

A)      Everything from finding suitable homes and offering virtual or in-person tours, to access to a network of trusted service providers like lenders, inspectors etc.

B)      Basic services and a few extras

C)      Just basic services

D)      I have no idea

9. Is the agent pushy?

A)      No, their advice seems sound and is backed by data

B)      A little, but not aggressively so

C)      Yes, but it doesn’t bother me

D)      Yes, they seem more interested in closing the deal than meeting my needs

10. After a conversation with the agent, you felt…

A)      At ease and certain that they understood your needs

B)      Undecided, but interested in having a follow-up conversation

C)      Indifferent

D)      Uncomfortable, would not want to share personal information with them

Results

Mostly A’s

This agent will go above and beyond for you, and they’ll happily call on their network of trusted real estate professionals to do the same. Their organization skills, attention to detail and professionalism will immediately stand out and serve you well during your transaction. And their charisma will likely turn you into a fan and a referral.

Mostly B’s

This agent is competent and resourceful. You may have to take the lead and push them to take action sometimes, but they are reliable and will get the job done.

Mostly C’s

This agent does what is necessary and legally required, but don’t expect anything beyond that. If you aren’t pressed for time and are comfortable with an agent with limited resources, this agent should work for you.

Mostly D’s

Use with caution.

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FHA Mortgage Insurance Premium Reduction a Fresh Start, Says NAR President Brown

Lower costs are coming for homebuyers seeking a Federal Housing Administration -insured mortgage.

FHA announced today that they are cutting annual premiums for mortgage insurance from 0.85 percent to 0.60 percent, a move the National Association of Realtors® said breathes new life into the program.

“FHA mortgage products exist to serve an important mission: providing homeownership opportunities to creditworthy borrowers who are overlooked by conventional lenders,” said NAR President William E. Brown, a Realtor® from Alamo, California and founder of Investment Properties. “The high cost of mortgage insurance has unfortunately put those opportunities out of reach for many young, first-time- and lower-income borrowers. Now, we have a real opportunity to get back on track.”

Following the Great Recession, FHA increased its monthly mortgage insurance premium from 55 basis points to 90 basis points, then by April 2013 to a full 1.35 percent. The move reflected post-recession concerns over credit risk and the need to strengthen FHA’s Mutual Mortgage Insurance Fund. NAR research at the time, however, showed that the 80 basis point increase over that period priced between 1.45 million and 1.65 million renters out of the market.

Since then, the MMIF has shown continued good health, including achieving a much-watched capital reserve ratio of over 2 percent for two years in a row. In light of that strength, NAR applauded FHA’s move in January 2015 to reduce premiums to 85 basis points, and since then has advocated for a further reduction (link is external).

FHA mortgages are important for low- and moderate-income buyers in particular because a lower down payment is required than with many conventional mortgage options. Buyers with lower credit scores may find more favorable treatment with an FHA loan than a conventional product as well.

Reducing the MIP from 0.85 percent to 0.60 percent as was announced today, Brown said, means FHA will represent a viable option for more borrowers.

“This is a question of simple math,” Brown said. “Every time we cut the cost of mortgage insurance it means more borrowers meet the debt-to-income ratio required to purchase a home. It follows that dropping mortgage insurance premiums today will mean a whole lot more responsible borrowers are suddenly eligible to purchase a home through FHA. That puts more money in the fund to protect taxpayers, and it puts more families in homes so they can live out the American dream.”

Brown thanked the leadership at FHA and the Department of Housing and Urban Development, but added that additional steps are required to better achieve FHA’s mission of serving creditworthy families. This includes eliminating FHA’s “life of loan” mortgage insurance requirement, which forces borrowers to maintain mortgage insurance on an FHA-insured property regardless of their equity position. Borrowers with traditional mortgage insurance can typically extinguish their mortgage insurance once they reach 20 percent equity in the property.

“HUD and FHA leaders are to be commended for recognizing the need we have before us,” Brown said. “Our work continues, but we’re encouraged by today’s announcement.”

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.2 million members involved in all aspects of the residential and commercial real estate industries.

 

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Dennis McCoy

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