Paying Too Much

How to Avoid Paying Too Much

Whether you are buying your first home, or your fifth, the process of buying a home is a detailed, time-consuming venture. At the same time, it’s an emotional period laden with difficult choices. You want to ensure that the home you purchase meets your family’s needs now, and in the future.

Each of these decisions often involves money. When you consider all that money represents, you’ll want to ensure that you don’t pay too much. This article helps you become a savvy buyer, by pointing out some of the pitfalls inherent in the home-buying process. These include such things as knowing what you want before you begin shopping, taking your time to shop, choosing the right Realtor, and remaining objective while viewing potential homes. With this information, you’ll be closer to finding your ideal home.

1. Before you shop, develop a needs vs. wants list

Everyone has a picture of an ideal home. This would include all the features you not only need, but have long desired. However, when it comes time to buying a home, the desires cost more. While it’s nice to think about having a beautifully landscaped backyard, or a solarium, perhaps even some built-in appliances, these are usually considered luxury items, which can add considerably to the price of your home.

That’s why it’s a good idea to develop a needs and wants lists. With this list, begin with items you really need like adequate space, garage and number of bedrooms. For most people, basic needs should be considered first. After that, you could consider additional desires, if you can manage these benefits financially.

With such a list in your hands, you’re less likely to be caught up in the excitement of the pursuit. You’ll have a good idea of what you want, within you price range, and if you can afford those additional items.

2. Get pre-approved prior to shopping

Get a REAL lender pre-approval!  Do you want to get the best property you can for the least amount of money? Then make sure you are in the strongest negotiating position possible. Price is only one element in the negotiations, and not necessarily the most important one. Often other terms, such as the strength of the buyer or the length of time between contract and closing, seller concessions requested, financing terms, etc. are critical to a seller.  

Lenders offer varying degrees of pre-approvals.  Most are what used to be called "pre-qualification" letters where the lender did virtually no substantiation of the information given him by the prospective borrower.  These are nearly useless in helping you get the home you want, and here are some of the reasons why:

  • Errors or glitches in credit reports can stall or even derail the loan process
  • Recorded judgments, alimony payments due, etc., can create hurdles for the borrower that they may not be able to overcome
  • Down payments that have not been in the borrower's bank account long enough (ie, funds are not "seasoned") can make a lender suspicious of the "source" of funds
  • Borrowers have varying eligibility for loan products, based in large part on the amount of downpayment, work history, type of income (salaried, hourly, part time, commission, alimony, child support, etc.)

So the way to make the strongest offer today is to get "pre-approved". This happens AFTER all information provided to your lender has been checked and verified. You are actually APPROVED for the loan and the only loose ends are things like the title search and appraisal on the property. This process takes anywhere from a few days to a few weeks depending on your situation. It's VERY POWERFUL and a weapon you should certainly have in your home search arsenal!

3. Do your home buying "due diligence" before deciding to move.

What this refers to is, now that you've been "pre-approved" and you know about how much home you qualify for, it's time to determine whether the marketplace can offer you homes that meet your needs at prices you're comfortable paying.  The internet and wide array of home search sites can certainly help you with that decision, but there is absolutely no replacement for actually going out to see homes in person!  You can identify possible houses and locations without falling in love with a specific house. If you feel confident after seeing an assortment of homes that the market can provide you with what you want, then go ahead and put your own house up for sale.  A tactic you might also want to consider is to make your home sale "subject to finding suitable housing". Adding this phrase to the listing means that WHEN YOU DO FIND A BUYER, you will have some time to find the new place. If you don't find anything to your liking, you don't have to sell your present home.

4.  If you have a home that you must sell before you can close on a new purchase, sell it prior to making any offers

Contingent offers aren't nearly as strong as those that comes in with a ready, willing and able buyer. Consider this scenario: You've found the perfect house and want to make an offer to the seller. As a savvy buyer, you want the seller to reduce their price to something more attractive to you, and in addition you want them to wait until you sell your house. The seller figures that this is a risky deal, since he might pass up a buyer who DOESN'T have to sell a house while he's waiting for you.  But, since he does want a contract, he decides to say OK, he'll do the contingency but it has to be a full price offer!  In other words, he'll accept the risk, but at a price.  You have now paid more for the house than you could have because of the contingency, and in addition you have to sell your existing house in a hurry ... otherwise you risk losing the house you want! So to sell quickly you might take an offer that's lower than if you had more time. The bottom line is that buying before selling will no doubt cost you MANY THOUSANDS of dollars.

5.  Decide on a Strategy...and choose a professional partner!

Buying a home and selling a home are not things people do every day.  Most people only do them 4 or 5 times in their lives!  That being the case, and understanding that markets change, rules and procedures change, to expect that you can buyer or sell a home without professional help can be a risky proposition.  Is it possible to be successful going it alone?  Of course it is.  However, with so much riding on making your very best decisions throughout the process, your odds of success are much, much higher if you have professional help, someone on your side looking out for your best interests. Selecting a quality agent who will critique properties you're consider with an eye towards how well they meet your needs and who will point out any drawbacks you should know about can spare you from costly mistakes because of what you didn't realize.  And if you're selling a home, that agent can provide you with valuable guidance and a realistic assessment of current market conditions and how they impact the sale of your property so you can make even more informed decisions.

Those are just some of the things you can do to protect yourself from those costly mistakes.  Feel free to submit a request below for 20 ADDITIONAL ideas and suggestions that can help keep Your money in Your pockets!