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Wednesday, January 30, 2008

Four Big Mistakes Home Buyers Should Avoid

Buying a home is likely the biggest decision that most people will make in their lives. Though many will do this more than once, there are four mistakes that are common, no matter how often you might buy. In fact, the more often you buy a new home the more likely you are to make one or more of these mistakes. Mainly because you might believe that your past experience means you can skip over one of these points. Don’t believe it. Making these mistakes on your 10th home can be just as costly as making them on your first. So, take a minute and read through this short list of common mistakes.

Mistake #1: Thinking you can't afford it

Today, buying the home of your dreams is easier than ever before. Many people who thought that buying the home they wanted was simply out of their reach are now enjoying a new lifestyle in their very own new home. With prices depressed to their lowest levels in a decade and lots of foreclosed houses to choose from too, there will likely never be a better time to buy.

Buying a home is the smartest financial decision you will ever make. In fact, most American home owners would be financially broke at retirement if it weren't for one saving grace - the equity in their home. Furthermore, mortgage rates are more flexible today than ever and tax allowances favor home ownership.

Real estate values have historically risen steadily. Of course there are peaks and valleys and we’re definitely in a prolonged valley right now, but over the long term the trend is a consistent increase. This means that, unlike renting an apartment, every month when you make a mortgage payment the amount that you owe on the home goes down and the value typically increases. This owe less-worth more situation is called equity build-up and is the reason you can't afford not to buy. To read more about making the rent vs. buy comparison, go to my Web site – and click on the First Time Buyers choice.

Even if you have little money for a down payment or credit problems, chances are that you can still buy that new home. It just comes down to knowing the right strategies, and working with the right people. The keys are having a good agent (see below) and a good mortgage person (next topic). With recent changes in the law to modernize the Federal Housing Authority (FHA), almost all first time buyers should qualify to use an FHA program and many move-up buyers may, too. The upper limit on FHA mortgages is expected to go up significantly, once he FHA Modernization Act becomes law.

Don’t compound this deadly mistake by trying to time the market to get in at the absolute bottom. We will be bumping along at, or near, the bottom in Michigan for much of 2008 and perhaps some of 2009, but most of our big value declines have already taken place, so now is the time to be looking for the best house that you can find at a depressed (or foreclosure) price and not to be sitting by telling yourself that the market is still going down and you need to wait. The great houses will be gone by that time and having the pick of the litter (used in the garbage sense here) later will be an empty victory, compared to getting the house of your dreams at a great price now.

Mistake #2: Not having a local Mortgage Broker

There is a tendency these days to think that almost everything can be accomplished “on the Web.” While it’s true that much of the research that you may want to do can be done there; when it comes to getting pre-approved for a mortgage, there is no substitute for having a real, live, local mortgage broker to work with. I have seen case-after-case of on-line e-This or e-That mortgage companies bowing out of the picture and reneging on their “pre-approvals” once an offer is in and they finally send the “pre-approved” client through underwriting for the actual approval of his/her loan. Those people are sitting somewhere in California or Texas or Florida and have no idea what’s happening in the Michigan real estate market until they have to make a real commitment of their money. Then, they come back with vague mutterings about Michigan being a “declining market” and how the pre-approval they gave you before is changed by that. Well, duh! You’d think that they would know that if they’re in the mortgage business.

Get a local mortgage broker. Get a live person, with whom you can actually meet and discuss your situation and your options. Don’t wait to be surprised, after you’ve already made and offer on the house that you want, to find out that the great on-line deal that you thought you had lined up is just as ethereal as the Internet itself. Why a broker and not just a direct lender, such as your bank? Mortgage brokers have several funding sources available - banks and private equity funds - so they can shop around for the best deal for you. They often have more programs available through these sources, so they'll find something that best fits your particular circumstances and needs. Call me, I’ll hook you up with Agnes – a real, live, mortgage broker who will take care of you for a mortgage.

Mistake #3: Not hiring a buyer's agent to represent you

Buying property is a complex and stressful task. In fact, it is often the biggest single investment you will make in your lifetime. At the same time, real estate transactions have become increasingly complicated, especially in the world of foreclosure houses and FHA mortgage programs. For many home buyers, the process turns into a terrible, stressful ordeal. In addition, making the wrong decisions can end up costing you thousands of dollars. It does not have to be this way! An experienced buyer’s agent can lift that stress from your shoulders and make sure that you get the best deal and make good real estate decisions.

Buyer's agents have a fiduciary duty to you. That means they are loyal to only you and are obligated to look out for your best interests. Buyer's agents can help you find the best home, the best lender and the best inspector. Best of all, in most cases, the buyer's agent is paid out of the seller's commission, even though he/she works for you. The buyers agent is likely the best “free” thing that you’ll get out of the whole buying process.

Don’t make the common mistake of just calling whoever is on the sign in front of the house. That person works for the seller and CANNOT work for you, too. They may be friendly and, oh, so helpful, but at the end of the day, they have a signed contract to work for the seller and unless they get written permission from the seller and from you, they cannot become agents for both sides. They will always work for the seller. So, just remember that and don’t blurt out anything that might give the seller some negotiating advantage to that agent; because, they are bound by their contract with him to share that information. Get your own buyer agent to represent your best interests and protect your confidential information. For more on agency, go to my Milford Team Web site and read the page on Real Estate Agency and You, under the General Real Estate Topics heading.

Mistake #4: Getting a cheap inspection

Buying a home is probably the most expensive purchase you will ever make. This is no time to shop for a cheap inspection. The cost of a home inspection is very small relative to the home being inspected. The additional cost of hiring a certified inspector is almost insignificant – generally in the $300-400 range, but dependent upon the size of the house. As a home buyer, you have recently been crunching the numbers, negotiating offers, adding up closing costs, shopping for mortgages and trying to get the best deals. Do not stop now. Do not let anyone talk you into skimping here. And please, don’t fall into the “I’ve got a buddy in the building trades” trap. It’s great that you know someone who’s in the trades, maybe a plumber or and electrician or even a carpenter. They can help you later and maybe save you some money then. At this point in your decision process, however, they most likely can only hurt you. As good as they may be at their trade, they are not trained heme inspectors and just do not know enough about all of the things that a good inspector will look for in the house.

There are no state licensing requirements for home inspectors in Michigan, so lots of ill-qualified or under qualified people are running around with business cards that say they are home inspectors. Look instead for a certified home inspector, one who is certified by one of the 4 major home inspection certification organizations – ASHI, NACHI, NAHI, and AII (click on any of those to those if you want to see what they stand for). If the certification symbol from one of those organizations is not on the person’s business card, take a pass; that person is either too lazy or may be too under qualified to take and pass the certification tests.

If you’re buying in the winter, and especially if you’re buying a foreclosed house, the cost for a good inspection might include the extra cost of de-winterizing and re-winterizing the house.(about $200 more), but don’t even think of saving money by not doing that. You cannot tell a thing about the condition of the plumbing or the water heater with the water off, which is mostly what winterizing is all about. You may also have to have the their utilities – electric and gas - turned back on for the day of the inspection; but again, you cannot do an inspection without them, so bit that bullet too. In some places the utility companies will charge your for turning the gas and power on and back off. Just do it! Not doing that would be like buying a used car without ever starting up the engine – just plain dumb.

So, if you’re a buyer or about to become a buyer, take care of those four things and you’ll be ahead of the game. You’ll notice that whether it’s the mortgage person helping you figure out what you can afford or the real estate agent helping with find the right house and negotiating the deal or the inspector making sure that you under stand the condition of the property, it’s about having people to help you. Like they say in that TV ad for tax preparation – relax you’ve got people! Do you have people?

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