10 Common First-Time Buyer Mistakes
The real estate industry loves a first time buyer and will cut them a lot of slack to get them on the path to homeownership. Agents who work with first time buyers on a regular basis (like me) are accustomed to the errors that can crop up when you've never done this kind of thing before. However, there's a few mistakes that are easily avoided.
1. Looking at only price. A recent buyer client found a sweet deal on a 3 bedroom in Skokie for $79.9k. She also looked at a 2 bedroom in Morton Grove for $100k. However, the monthly payment for the 3 bed was $1253 while the monthly payment on the 2 bed was $1021. This is with the same down payment, same mortgage rates. When looking at a condo you need to consider not just the purchase price but the property taxes and the assessments. When looking at a single family home, it's property taxes and insurance. When you're browsing online for homes, make sure you take the monthly expenses into account.
2. Looking only in neighborhoods you know by name. We've talked about name brand neighborhoods quite a bit here. When you're making the switch from renting to buying, chances are you're going to want to start with the neighborhoods you've already rented in, the trendy neighborhoods with lots of folks just like yourself. However, this kind of homogeneity (similarity of population) does not necessarily make for good property values. The Chicago neighborhoods popular among renters experience higher turnover, more wear on the buildings, less "adoption" of the area by the residents - none of this makes for a pleasant living experience.
3. Contacting a Realtor before you contact a Lender. Unless you know you're buying without a loan, you're going to need to know how much you can afford. Many agents won't even set up showings for clients if they don't have at least a pre-approval. You'll need to submit the pre-approval with any offer you make. There's nothing like finding the place you want and then losing it while you wait for a lender to come up with your loan data. Finding the right lender takes time. Over the course of your purchase they'll be just as important as your Realtor. While it's OK to browse property listings online to get a sense of the home values in assorted areas, it's important that you take the time to find the right Lender before you start searching in earnest.
4. Over-filtering your search. Agents are lazy. With the threshold for entry into the real estate business set pretty low (high school diploma, 90 hours of training), there's no guarantee that the agents plugging in the MLS information have any more of an idea of how to work the system than you do. Your standard MLS listing has over 200 fields, with some of those fields offering upwards of 40 sub-options. Unless the listing agent has made an in-depth study of the database, chances are very good that they will forget or simply not know how to indicate the full details of a specific property. Clients who search online by ticking every checkbox on a search form will rule out listings where the details of a property are only included in the text-based remarks, or omitted altogether in hopes that you'll spot the in-unit laundry or the invisible dog fence in the photos.
5. Expecting move-in ready listings. There's a lot of distressed property out there. Even as the market starts to recover, there's a lot of occupied properties on the market too. These days you don't go looking for your next home to buy until you've sold the one you've got. New buildings are pretty scarce on the ground. Remember that this will be your property - you can do with it what you want to. This is not a rental where you have to take what's given, ask permission before hanging pictures, and live with that awkward low-hanging chandelier. Remember that once you buy it, you can knock down walls, rearrange living spaces, and generally customize to suit your needs. (Just remember to leave room and time for this kind of adaptation in your budget!) Some of the spaces that look the ugliest can require the least amount of work. New carpet, paint and window treatments can go a long way to transforming an empty foreclosure into a home.
6. Making a big purchase after you've applied for a loan. I know how it goes. You've just gone under contract on your first home. You're new to town, you need a car. Or you suddenly realize that you're going to need to furnish a much bigger place. Or mom offers to transfer $5000 into your account for housewares. You apply for your loan, and then go take care of the rest of your purchase. You get a car loan, or maybe you open up a couple of merchant credit accounts. Or that $5000 shows up in your bank balance. Don't do it. Your lender is expecting your income, bank balances and credit score to remain the same from the day you apply for the loan until the day you close. Many lenders will pull your credit one last time right before closing. I've seen far too many buyers lose their loan commitment at the last minute because they got frisky with their spending during the long wait between offer and closing.
7. Ruling out distressed property. 59% of the properties sold in my North Side neighborhood over the past two years have been either short sales or foreclosures. West Town, containing Wicker Park & Bucktown, saw 25% of its sales in some sort of distressed state during the same timespan. Yes, short sales do take longer to close although it's no longer the 2-year wait that it used to be before the turn of the decade. Yes, foreclosures can sometimes be gutted but with Fannie & Freddie's foreclosure rehabilitation programs some of them have been refurbished to within shouting distance of move-in ready. A good agent will be able to guide you through the purchase of any property regardless of who owns it and how much they owe to the bank. Unless you're under a very tight time constraint - 3 months or less for a purchase - don't rule out such a huge section of the market.
8. Crime stats without a frame of reference. FOIA, the internet and Chicago's open records policies have made it easy to check on the criminal activity in various neighborhoods. Sites like CLEARmap and Everyblock allow you to do fine-grain searches to find out the scoop on your new potential 'hood. However, many home buyers make the mistake of searching these databases without any point of comparison. I recommend that before you start parsing stats on a new area that you take a good hard look at the crime stats on your own block first. You may be surprised as to what's occurred on the downlow. Also bear in mind that property-based crimes like tagging and other annoyances and safety hazards like feral cat colonies, alley-parking trucks and river flooding won't necessarily appear on any statistics site.
9. Choosing a fellow renter for moral support. First time buyers often feel a little unsure about whether or not they're making the right choice. It's a big purchase. You want the support of your crew behind you. However, friends who have only ever rented before haven't gotten into the same mindset as a home buyer. They haven't thought about home values, longevity of appliances, condo associations or HVAC maintenance. As a buyer, you absolutely must consider these things and cannot allow yourself to be swayed by someone who doesn't have the right experience level to guide you.
10. Ruling out the first property you see. A well-known piece of conventional wisdom among Realtors is that you want your listing to be either the first or last property that the buyer sees. The first property becomes the comparison point, while the last one obviously means that it's "the one," with no need to look any further. However, many buyers will feel awkward about putting an offer on a property they see within the first week of looking. Remember: you've probably been looking online for several weeks already before you contacted a Realtor. You've probably received a large number of listings from your Realtor that you've ruled out. You have rejected many properties before you even walk into your first one. You've been in the market long before your first showing. A really good Realtor who listens to you will nail the right property for you within just a few tries. Trust that they know the market and are doing their job. Don't spend 3 months comparing everything to that first place you saw only to find out that you lost out on actually bidding for it.
There's a lot of other gaffes that can occur while purchasing your first home, but these are the ones that can cause a lot of wasted time and heartbreak. Can you think of any others? Share them in the comments. Maybe there's room for another list in the near future!