Buying a home in Chicago (or anywhere) requires some homework. Whether you are planning on buying now or months down the road, there?s no time to prepare like the present. Buying a home is much more than just purchasing a new place to live, it?s one of the best investments you will ever make. Let?s face it, the stock market has tanked somewhere in the 40 ? 45% range. That depreciation greatly outpaces the housing market in Chicago, which has not seen anywhere near the dramatic decline like we see other markets: Florida, Arizona, California, Las Vegas, Detroit, etc ? We Chicagoans are fortunate to have many neighborhoods that managed to deliver some appreciation. It might be single digits, but nonetheless, it?s not depreciation. So, isn?t it fair to suggest that investing in your neighborhood is the smarter choice over the stock market? However, like any major purchase you plan to make, it is the educated buyer who gets the best deals. Many first time home buyers make colossal mistakes when purchasing their homes. Here are some of the most frequently committed errors and ways to avoid making them:
Buyer Mistake #1: Making an offer on a home without being pre-qualified
So often I hear that first-time home buyers spend weeks looking at homes before meeting with their mortgage broker and learning that they can?t afford the price range they were looking in. Talk about frustrating! If you don?t discuss your situation with a lender first and get pre-approved, you will often end up wasting time looking at homes that are too expensive. Once meet with a mortgage broker, and you are pre-approved, you will be knowledgeable about the process and know what type of home you can buy. Just like finding a good real estate agent, it?s very important to find a seasoned and knowledgeable loan officer that you are comfortable with?who will explain the loan application process and all the options available to you.
Buyer Mistake #2: Not considering long-term needs / not planning on staying at least two years
Many buyers tend to consider their immediate needs when buying a new home. It?s important to think down the road a bit: will this space be enough if I get married? Have a child? What if I want to take on a roommate or move out and rent the place out? In addition, selling your home before the two-year mark means you pay capital gains on any profit. You also want to benefit from market appreciation and in order to do that you need to stay put for at least 2 ? 3 years.
Buyer Mistake #3: Limiting your search to open houses, ads, or the Internet
Often, the syndicated web sites that feed from the Multiple Listing Service (the monster database for 99% of all active listings in Illinois) are delayed by 48 hours (or more). Frequently, we get calls for listings that were previewed on a syndicated web site that are already under contract and some have even closed already. For the most up-to-the-minute inventory, it?s best to work with a Realtor® who can set you up to receive automatic emails as soon as a property that meets your search criteria hits the market.
Buyer Mistake #4: Not having a home inspection
While buyers tend to focus on the floor plan, paint colors, and finishes when buying their new home, it?s crucial to make sure you are not buying a lemon that may be fraught with serious problems and become your very own version of the movie The Money Pit. Once you have come to terms with a seller regarding price, closing date, and other terms, you have a short window of time to have a professional home inspector come out and go through your home with a fine toothed comb. He/she will be looking for any structural, mechanical, electrical, plumbing, environmental, or pest problems. All things that may not be obvious to the untrained eye. If the inspection report does not meet your approval, you have the option to negotiate the items in question or terminate the contract and have your earnest money deposit returned.
Buyer Mistake #5: Making large purchases, opening up new lines of credit/increasing credit balances or changing jobs during your loan application process
Oh, the stories I have for this one! I could write a book! Do not take out new credit during the home loan process, even if you are already pre-approved. Remember that lenders can pull the plug on a loan any time prior to the time that the funds are disbursed. Buying a new TV on a payment plan, leasing a new car, even test driving new cars at multiple dealerships or charging furniture before closing could jeopardize your loan. Opening up new lines of credit or increasing balances on existing lines of credit is harmful to your credit score. To be on the safe side, do not make changes to your credit profile until after closing. Also, don?t quit your job. A lender is not going to loan thousands of dollars to someone who is unemployed.
Buyer Mistake #6: Buying more than you can afford
Still want to go out to eat a few times a week?? Take a vacation?? Then don?t spend more than you need to. No one wants to be house poor! Enough said.
Buyer Mistake #7: Not knowing total costs involved
It?s important to have a solid understanding from the very beginning how much money you will need for your entire home buying process: You will have your earnest money, which counts towards your down payment. You?ll have a home inspection that you will pay for at the time of the inspection. Then there are attorney fees and closing costs. All these fees can be outlined for you when you sit down with your mortgage broker and your real estate agent.
Buyer Mistake #8: Purchasing a home with an incurable defect
You may love the space, the floor plan, finishes, and the proximity to all your favorite neighborhood amenities, but it?s important to think about resale value. Being right next to the El tracks, or situated on a noisy/busy intersection, or having power lines running next to your bedroom window or through your backyard, having a commercial or industrial property as your neighbor can make resale extremely difficult.
Buyer Mistake #9: Bidding before seeing a property CMA
Before making an offer to purchase a home, you must have an accurate idea of market value to ensure you do not overpay. Your real estate agent will prepare a comparative market analysis (CMA) showing comparable properties, what similar homes in the neighborhood have recently sold for and the recent price trends. Are you buying in an appreciating neighborhood or depreciating neighborhood? This is the same type of report the seller receives when deciding on an asking price. Isn?t it important for you to have access to the same information as the seller?
Buyer Mistake #10: Choosing a real estate agent who is not committed to forming a strong business relationship with you
Real estate agents are like any other salesperson: some of them are going to innately understand your needs, and some of them aren?t. You want to find an agent you are comfortable with and who you click with, who is experienced and knowledgeable about the type of property you want to purchase, and who is going to fight for you and put your best foot forward in the negotiations. After all, your agent?s objective is to get you your new home with the best terms possible for you. A great real estate agent is committed to using their experience gained through hundreds of successful negotiations to help YOU get the best deal possible. Commissions are paid by the sellers. Many times a common buyer mistake is that they avoid using the services of a real estate agent under the mistaken belief that it costs them more money?or that they can negotiate a better deal directly with the listing agent. Wrong! The selling agent is obligated to get the best deal for her client?the seller?not YOU! You need a professional looking out for your best interests. Considering the importance of your home purchase, do-it-yourself can be an expensive mistake. An astute real estate agent has better information and valuable expertise to help you get the best possible deal. Use it to your advantage.
Thank you to lorenzo_stupid_kid AKA rockito for the photo, which he graciously offered via the Creative Commons License.Email This Post To a Friend.