Streets Ahead in a Moving Process

PROPERTY SPECIAL

homefront Streets Ahead in a Moving Process

If you allow your emotions to take over, you may fall prey to some common home buyer mistakes, which can have far reaching implications. In this guide, we take a look at what to consider before you make that exciting and monumental decision ...

Know What You Can Afford

You’ve fallen in love with a home. You start dreaming about how wonderful life would be if only you could live there. However, if you can’t afford that particular house, you’ll end up over your head in hotter water than it’s beckoning, luxurious bathtub. Stay away from properties in the one-way-street to what you really cannot afford, because more money will not grow on those particularly pretty trees, and those pavements are not lined with gold. Start your search at the low end of your price range. If what you find there satisfies you, there’s no need to go higher. If not, you can seek higher-priced properties, but staying within your budget. Making a low opening offer can be a good way to open up a conversation and understand from the agent’s reaction what the seller’s price aspirations are. If a property has been on the market for a while, a low offer that gets a dialogue started can result in a good deal for all parties. Remember, it’s the biggest purchase of your life, and small mistakes can cost large.

Skipping Mortgage Pre-Approval

Make sure to be pre-approved for a loan before placing an offer on a home—or even before you go house-hunting in earnest. If you don’t, you’ll be wasting the seller’s time, the seller’s agent’s time, and your agent’s time. The pre-approval process can also help you locate the aforementioned financial neighborhood for your house-hunting expeditions. Be aware that even if you have been pre-approved for a mortgage, your loan can fall through at the last minute if you do something to alter your credit score.

Consider Your Lifestyle Needs

While money is obviously an important consideration, there are a host of other factors that could play a role in your timing. Is your need for extra space imminent—a new baby on the way, an elderly relative who can’t live alone? Does the move involve your kids changing schools? If you’ll be selling a house in which you’ve lived for less than two years, would you incur capital gains tax— and if so, is it worth waiting to avoid the bite? Before you practice making mortgage payments, give yourself a little financial elbowroom by subtracting the cost of your most expensive hobby or activity from the payment you calculated. If the balance isn’t enough to buy the home you want, you may have to cut back on your fun and games—or start thinking of a less expensive house as your dream home. If you are selling a home and plan to buy another, save the proceeds from your current home in a savings account and determine whether or not—after factoring in other necessary expenses like car payments or health insurance—you will be able to afford the mortgage. It is also important to remember that additional funds will have to be allocated for maintenance and utilities. These costs will undoubtedly be higher for larger homes. When you calculate, use your current income, and don’t assume you’ll be making more money down the road. Raises don’t always happen, and careers change. If you base the amount of home you buy on future income, you might as well set up a romantic dinner with your credit cards as you’ll end up in a long-lasting relationship with them.

Use an Estate Agent

Once you’re seriously shopping for a home, don’t walk into an open house without having an estate agent. Agents are held to the ethical rule that they must act in both the seller’s and the buyer’s best interests. But you can see how it might not put you in the best bargaining position if you start dealing with a seller’s agent before contacting one of your own.

Compromise with Caution

While you should be realistic in your search, and willing to compromise to some degree, don’t cave on important things. For example, don’t get a two-bedroom home when you know you’re planning to have kids and will want three bedrooms. It’s true that you’ll probably have to make some compromises to be able to afford your first home, but don’t make any major compromises. Unless you are a high-end buyer looking at custom homes, chances are that for any home you find that you like, there are quite a few others that are close to it. Even if you can’t find an identical model for sale, you can probably find a house with many of the same features.

Consider the Surrounding Area

It’s impossible to perfectly predict the future of your chosen neighborhood, of course, but inquiring about or researching its prospect now can help you avoid unpleasant surprises down the road.

Find out about potential development plans in the neighbourhood and also whether home values in the area have been declining or rising.

A Tough Balancing Act

It’s a tough balancing act to make sure you make a careful decision, when there is always the chance that if you take too long you could lose out on a property that you were almost ready to make an offer on. Don’t underestimate how time-consuming and routine-disrupting house shopping can be. When you’ve been looking for a while, and you do not see anything you like—or worse, you’re getting outbid on the houses you do want—it’s easy to get desperate to find your new house now. However, if you move into a residence you’ll end up hating, the transaction costs to get rid of it will be costly. You’ll have to pay an agent’s commission and you’ll have to pay closing costs for the mortgage on your new house.You’ll also deal with the hassle and expense of moving yet again. As long as your demands are realistic for your budget, you are bound to find something you can live with. New houses come on the market every day.

Offering Too Much

If there’s a lot of competition in your market and you find a place you really like, it’s all too easy to get sucked into a bidding war—or to try to preempt a bidding war by offering a high price in the first place. But there are a couple of potential problems with this. First, if the house doesn’t appraise at or above the amount of your offer, the bank won’t give you the loan unless the seller reduces the price or you pay cash for the difference. If this happens, the shortfall on your bid as opposed to your mortgage will have to be paid out of pocket. Second, when you go to sell the house, if market conditions are similar to or worse than they were when you purchased, you may find yourself upside down on the mortgage and unable to sell

Neglecting to Inspect

You found the perfect place, your offer was accepted, and you’re in contract. It’s tempting to think that you’re a homeowner the moment you go into escrow, but hold on. Before you close on the sale, you need to know what kind of shape the house is in. Make sure you get a thorough inspection of the property. You don’t want to get stuck with a money pit or with the headache of performing a lot of unexpected (and potentially expensive) repairs.

Know when and if you can pull out

You can pull out from the purchase at any time before contracts are exchanged. After this, you can’t change your mind without massive costs. If the seller pulls out before you exchange contracts, you have no legal right to recover any costs from them.

One option is indemnity insurance for wasted costs - consider asking your solicitor about this.

The Bottom Line

When it comes to buying a new home, be realistic, take your time, don’t act on impulse, and, ultimately, make a home-purchase decision that’s good for both your feelings and your finances.