The following is a guest post by Tali Wee of Zillow.com.
Navigating the home buying process as a first-time buyer can be confusing, risky or even defeating. Buying a home is one of the most expensive purchases buyers make in their lifetimes, so it’s vital they make informed decisions. Some common sense negotiating tactics don’t translate to the housing market, confusing even the savviest shoppers. Plus, risky strategies work well for some buyers’ circumstances but disadvantage others.
It’s important for buyers to do their own research before accepting rumors as truths. Here are a few common house-buying misconceptions.
Misconception #1: Buying a home is a quick process, especially in competitive markets.
It is possible to process home purchases rapidly when both the buyer and seller are rushing to close. However, closing on a home generally takes 30-45 days and first-time buyers typically take months to find homes they love.
Everyone can visualize their dream homes, so it’s tough to balance those ideas with the realities of affordable properties. In many cases, first-time buyers have smaller down payments, non-conventional loans and possibly lower credit scores which reduce the chances of their offers being accepted. It’s not uncommon for first-time buyers to be outbid before having their offers accepted.
Once accepted, sellers dictate the move-in date. Some buyers move in immediately after closing the sale, and others wait months depending on the agreement.
Misconception #2: Real estate agents lead the home-buying process.
Although real estate agents guide homebuyers through the steps of viewing and purchasing homes, proactive buyers truly lead the process. Buyers must actively locate homes within their price ranges and visit open houses regularly. In competitive markets, homes may transition from “listed” to “pending” status in just a couple of days. Agents with numerous clients can’t physically visit all of the available listings to capitalize on the opportunities.
The best way for buyers to succeed in competitive markets is to get pre-approved for a loan and obtain a real estate agent beforehand. When buyers find homes they want to make offers on, they contact their agents to draft the paperwork quickly. Buyers should actively search for listings online and sign up for listing alerts to know when properties enter and leave the market. The more homes buyers visit, the greater understanding they build of market value. Such knowledge advises buyers on how much to offer.
Misconception #3: Initial purchase offers should be low and negotiated higher.
Everyday negotiations indicate it’s better for the buyer to start with the lowest offer and negotiate up to a compromised purchase price. But when buyers give low offers on a home, sellers usually reject them. Buyers shouldn’t offer more than they believe properties are worth, but the initial offer should take into account the comparable properties and market value. Remember, buyers can reduce their offers after inspection to cover the costs of any repairs.
Misconception #4: Waiving inspections is a smart way to beat other cash offers.
In competitive markets, buyers sometimes waive property inspections to enhance their offers. Sellers prefer offers without the hurdles of home inspections, especially since buyers assume the risk of property damages. Without prior inspections, buyers might purchase homes with expensive repairs such as major water damage, sewer problems or structural erosion due to termites, rodents or mold. Therefore, it’s always smart to perform an inspection before purchasing a home.
Pre-inspections allow buyers to examine properties before making offers to avoid the risk, but still waive the inspection steps for sellers. After viewing a property, the buyer’s agent schedules a time with the seller’s agent to open the property for an inspector. Each inspection costs the buyer anywhere from $250 to $1,500 depending on location, size and age of homes. In competitive markets, buyers have an extremely limited window to schedule pre-inspections before making offers.
Misconception #5: Buyers should make the largest down payment possible.
Although large down payments reduce the total costs of mortgages for borrowers, it’s wise to reserve funds for additional home-buying expenses. Buying a home is expensive and financially-minded buyers exploit every money-saving opportunity. Larger down payments mean buyers borrow smaller loans, and therefore owe less interest. Plus, borrowers who apply down payments of less than 20 percent of the purchase prices of their homes owe private mortgage insurance (PMI). Lenders require PMI to protect their sizable property investments until borrowers own 20 percent equity. Homebuyers who avoid PMI with larger down payments do save money.
However, buyers should save enough to completely cover their closing costs and moving expenses. First-time buyers coming from small rental apartments or furnished spaces require basic furniture and utilities in their larger spaces. Plus, new homeowners take pride in settling in, which sometimes requires painting, planting a garden or accessorizing the kitchen.
Avoid the influential misconceptions surrounding the home-buying process. Buyers with the greatest success allocate at least three months for their home search, offer fair but sizable purchase prices, put at least 20 percent down and schedule a pre-inspection for their new home.
Editor’s Questions: How long did it take you to buy or sell a home? How effective was your real estate agent? Have you ever been burned by foregoing an inspection? How much money do you think a buyer should use for down payment…Is more better?
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