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8 Dumb Reasons People Can Not Buy A Home
Dumb reason No. 1: Waiting to line up financing
Your first step in the home-buying process should be to meet with a mortgage lender to discuss your financing options, says Benny Kang, a real estate agent in Irvine, CA.
“You don’t truly know what you can afford until you meet with a lender,” says Kang. In other words, just because you think you can buy a $1 million house doesn’t mean you can actually get a loan to purchase a home that nice.
Dumb reason No. 2: Using a fly-by-night mortgage lender
The mortgage industry is rife with scams—including a slew of fake or unreliable lenders. Placing your trust in a bad lender can cause a deal to fall through. That explains why “sometimes sellers reject offers because of the buyer’s lender,” says Philadelphia real estate agent Kathy Conway. To make sure your financing is rock-solid, ask your real estate agent for lender recommendations instead of, say, just Googling it. And read up to know your mortgage basics.
Dumb reason No. 3: Getting pre-qualified rather than pre-approved
Pre-qualification and pre-approval might sound similar, but they’re not. Essentially, anyone can get pre-qualified for a loan, because it only involves having a conversation with a lender about the state of your finances (no documents are exchanged). Getting pre-approved, meanwhile, involves the lender gathering all necessary documentation—your tax returns, bank statements, pay stubs, and more—packaging the loan, and submitting the file to an underwriter for review. If everything checks out, the lender will issue you a written commitment for financing up to a certain loan amount that’s good for up to 90 or 120 days.
When you submit an offer on a home, you’ll need to include a pre-approval letter from your lender, says Conway.
“Educated sellers won’t even entertain an offer unless the buyer has a letter of pre-approval” from a reliable lender, Conway says.
Dumb reason No. 4: Shopping outside your price range
“It sounds obvious, but some home buyers just have trouble sticking to a budget,” says Kang. Therefore, resist the temptation to shop online for homes that are simply outside your price range (i.e., how much you’ve been pre-approved for).
Dumb reason No. 5: Making lowball offers in a seller’s market
You need to rely on your real estate agent to determine whether a house that you’re interested in has a fair listing price. (Your agent will do this by performing a comparative market analysis, which entails looking at recently sold properties that are comparable to the house that’s up for sale.) If a home is priced well, it might make sense to offer full price, says Kang. Moreover, “if you’re in a seller’s market, making a crazy lowball offer can piss off the seller” and kill your offer, says Kang.
Dumb reason No. 6: Writing a bad personal letter to the seller
If you’re competing against other buyers, writing the seller a personal letter can help strengthen your offer. But Julie McDonough, a real estate agent in Southern California, says some home buyers are inclined to overshare, in which case a letter can actually hurt your offer.
“Stick to the fact that you love the house and the neighborhood,” says McDonough. “Don’t get into personal details” such as the fact that you’ve lost out on other homes or want to remodel the dated kitchen.
Dumb reason No. 7: Making a big purchase while in escrow
Some home buyers make the mistake of opening new credit accountswhile they’re in the process of buying a house. But purchasing a big-ticket item like a car or a boat while you’re buying a house can jeopardize your financing. Why? Because your mortgage lender’s underwriter is going to re-evaluate your finances and recheck your credit report shortly before closing in order to determine that you’re still able to qualify for the loan.
“Even buying a fridge can throw off your credit or debt-to-income ratio,” says Conway. Translation: Don’t make any big purchases until after you close on the house.
Dumb reason No. 8: Not budgeting for closing costs
If you don’t have enough cash to cover closing costs, you won’t make it to settlement; and if that’s the case, you could lose your earnest money deposit. Thus, make sure to get an estimate from your mortgage lender of what your closing costs will be before making an offer on a property (currently, this is legally required—just make sure to read it).
Closing costs vary widely by location, but they typically total 2% to 7% of the home’s purchase price. So on a $250,000 home, your closing costs could come to $5,000 to $17,500. Both buyers and sellers usually pitch in on closing costs, but buyers shoulder the lion’s share of the load (3% to 4% of the home’s price) compared with sellers (1% to 3%), so you need to make sure you have enough cash on hand to pay your portion.