The 2017 real estate market has been an interesting year to say the least. In the majority of markets all over the country, its been the same story: extremely low inventory of homes for sale, leading to higher home prices and affordability issues. So many traditional buyers are holding off. But there is one group that has arose to put a bright side into this 2016 market: New Home Buyers. With help from interest rates still being low and manageable.
New home buyers are coming out in big numbers many of which are millennials and have accounted for many of sales this year. In the month of September newbie home buyers have accounted for over 30% of the total sales. Which, according to the "National Association of Realtors", has been one of the strongest months yet.
As a real estate professional myself, I can attest that much of my business recently has come from new home buyers. And I can tell you from personal experience that this group of buyers are prone to making critical mistakes and can take a good amount of coaching to get them through to a successful closing. So here are some of the most common mistakes new buyers make:
Not Speaking to a Lender
One of the biggest mistakes first time home buyers make is not speaking to a lender first and foremost. Many home buyers also get tripped up because they do not have the financial wherewithal and experience in the mortgage process. There are a lot of variables when applying and receiving a loan to buy a home. I have seen it personally many times; a new home buyer sees a home on the web that they like and immediately schedules a time to go see it. And that's OK... Just I wouldn't get your hopes up to high yet, before you speak with a lender. I have seen folks fall in love with a home and then get pretty disappointed when they go through the pre-qualification process and find out that they do not qualify. Its always good to avoid that situation, if possible.
I have also even seen buyers with pre-qualifications from lenders in hand get turned down during the stringent "Underwriting" process. Lenders during this stage discover some detail that was not in order and the buyer ends up not qualifying. That is extra hard pill to swallow because by that point buyers and agents are pretty invested.
Even though they are often used interchangeably there is a difference between a "Pre-Qualification" and a "Pre-Approval". A pre-qualification is a pretty quick 15-20 minute process, often online or over the phone with a loan officer, in which you give some simple details such as: income, debts, employment, assets, credit score, etc... A pre-approval goes a step further and is where the loan officer actually fully collects all the documents required and is able to verify most factors. So you and your lender should discuss which is the best option. But at the end of the day, you should always get your finances in order and speak to a lender FIRST, before you invest yourself to far into the home buying process.
Going Crazy on Credit
There is something about buying a new home that makes people just want to go on a "Shopping Spree". And its understandable, who doesn't want to start shopping for furniture and goodies for their new home as soon as they put that offer in. But it would be smart to pump the brakes there a little bit. Buying expensive furniture and goods before the transactions actually closes, can potentially be a drastic mistake and its common. First of all, if something goes south and you fail to close, you're stuck with a ton of furniture and NO HOME. One of the biggest mistakes people make is either making a big purchase or opening up NEW CREDIT during this process. What that does is interrupt your dept-to-income ration and potentially drop your credit score. So your lender sees that you have new credit or new debts, dropping your score and adjusting your debt ratios. This can cause your monthly mortgage payment to go up or even completely disqualify you from getting the loan completely. So during the loan processing phase or as some call "escrow" in some markets DO NOT make any large purchases, leases, or open any new credit without speaking to your lender first. Also, don't run up credit on any of your current cards either. Refrain from putting anything substantial on new or old credit card including but not limited to a:NEW CAR or NEW FURNITURE.
Change or Quit Job
This is another instance that trips up many home buyers, but especially new home buyers because they haven't been through the process before and dont realize the importance of holding a job for a certain amount of time to appease lenders. Lenders all have different standards, but its pretty universal that a lender wants to see you have steady income from the same employer for a certain amount of time, at least a couple pay periods. Making a drastic change like quitting or changing jobs during the loan processing period or "escrow period" could potentially disqualify you. An important rule of thumb to abide by is just putting your life on hold during that time. Even something as simple as going on "maternity leave" can damage your chances. So always speak to both your agent and especially your lender before making any career moves, simple or life changing.
Making a Low-Ball Offer
So many home buyers are fairly educated these days with the home buying process, or at least they think they are. But that can also be a little dangerous.With all the info available now online, combined with the countless HGTV shows out there now. Many home buyers, especially tech-savvy millennials dont believe they need an offer strategy and can get a steal of a deal. But as we're seeing with this 2016 market, all over the U.S. its a lower inventory, sellers market. Its really important to be realistic and almost put yourself in the sellers shoes. I have seen many new home buyers lose a potentially great home for them because they were not realistic with their offer. A low-ball offer certainly has the potential to backfire and offend a seller. I'm not saying it's impossible to get a good deal, but its important to be REALISTIC, work with a buyers agent looking out for your best interests and knows the market and existing "comps", as well as working together to build an offer strategy that works for your budget and goals.
Not doing the Homework
Its important when buying a new home, especially in a new area that you do you due-diligence and homework in the neighborhood and immediate area for yourself. Many home buyers, especially new home buyers figure their agent can tell them everything that they
need to know. Well that's a bit of a misconception, its true that agents can give you invaluable info about the house and area, but they are really limited by state-license-law to really only give facts and not personal opinions. For instance, many home buyers want to know if the neighborhood is within a good school district. Well the agent can tell you what school district the home resides in, perhaps can give you the state rankings. But they are not allowed to share their personal opinions on it. Which does make sense, what works for them, may not work for you.
I had a client with a special needs child, they fortunately did all their homework and found a the right school with the perfect program for their child. So they ended up moving from an area with a school district, which was thought to be one of the best, to an area with a more up and coming district. But it worked perfectly for them because it had the right programs that they needed and of course because they did their homework. If they just went with "what was thought to be the best", they would have missed out on those right programs. So I encourage school visits, interviews with teachers and administrators, do all the research you can.
Its the same story about the area, neighbors, and home values. Agents can help you with some of those tasks, but some of them are up to you the buyer. Agents can certainly help you look at current home values and current trends, but they cant foresee the future and guarantee appreciation. Agents can also give you lots of good resources to look up "Crime Rates", "sex offenders", etc... But I always tell my clients to do whatever they feel is necessary. It doesn't hurt to knock on a few neighbors doors either. It may be a little awkward at first, but people love to talk about their house and neighborhood, so I'm sure once you explain your situation, you'll get a warm response. Usually a few neighbors can fill in any of the details that you're looking for, that your agent can't really comment on.
Falling in Love with the First House
Like with any large purchase and a home will most likely be your biggest, its pretty important to shop around and explore all your options. Its easy, especially for brand new home buyers to get caught up in all the excitement and "fall in love with the first home you see". And it may be the dream home, but you need something to compare it to, even if its just to get a better grasp of the market. I know in many markets, you may not have the luxury of taking a lot of time to decide, homes can sell as soon as or even before they hit the market. So decisions sometimes do need to be made quick. But that doesn't mean you cant preview a few homes in the same day. So see as many homes as it takes for you to feel comfortable in your decision. The more you see, the more you will learn the local market first hand.
Getting caught up in the Emotions
I know first hand the emotions that are involved with the home buying process. Its a period that you will probably have to make some quick and difficult decisions. Its a process in which you will be most likely be spending more money on an item than you ever have before and prepare to purchase your largest asset. A home is already an emotional place on both sides of the transaction to begin with. Its a place where you feel safe at night, a place where you raise your family, and a place you make lots of memories. So emotions can certainly run high. So its important as a buyer to keep your emotions in check. In many markets around the country, we are seeing a steady level of buyers, but a decreasing inventory. So basically a large amount of buyers competing against each other for a small inventory of homes. So that is leading to a lot of "Multiple-Offer-Situations". In these situations its easy to let emotions take over and leading to overpaying or going over your designated budget. Its crucial that in any offer, whether your competing or not, that you set a designated limit and stick to it.
Not Working With a Buyers Agent
There are many buyers that feel that they are equipped enough to orchestrate their own transaction, that all agents do is just find properties online, in which they can easily do themselves. Or many feel that the best and most qualified person to deal with is the listing agent of the property you are interested in. The truth is an agent's role is to be guide and educator, a local market expert that can walk you through the entire process. They have extensive networks with homeowners, investors, and other agents and can find you deals that otherwise you couldnt. They are also able to prepare and present an offer that will actually get accepted and streamline the "pending" process as well as communication and get you from contract-to-close. Its crucial that you have a designated agent protecting your best interests, also called a "Buyers Agent". The listing agent has an exclusive contract in place with the seller to protect their interests. So that may not be the best person to divulge sensitive info, like your budget. The best part is that its the sellers that pay the commission. So your agent doesn't get paid unless he or she gets you to the closing table and when that day comes, commission fees are minimal on the buyers side because sellers pay the majority of the agent fees.
So this is not an exclusive list of mis-steps that buyers can make. But these are many of the most common pitfalls that home buyers can face. Its always a great idea to begin the home buying process by meeting with your buyers agent and lender for a "Buyers Consultation". This is a meeting, that many agents offer in which you can go over the process and common mistakes made before you get to far. If you have any questions about the home buying process, locally in the Greater Cincinnati area or Nationwide,feel free to call or text my team and I directly at 513-488-3372.