As Nashville continues to be one of the nation’s hottest places to live, more and more buyers are considering buying their first property. Unfortunately, many things can go wrong during the home search and buying process. These pitfalls are not only frustrating, but they can cost you time and money. Here we will discuss some of the most common roadblocks and offer advice to help you avoid them and make the process as smooth as possible.
Roadblock #1: Waiting to find how much you can afford
Once you find the right real estate agent, your very first step in the homebuying process should be to find and speak with a reliable and trustworthy lender. Instead of searching online, ask your REALTOR® for their lender recommendations. Most likely, he or she has worked with this person many times before and they have a history of successful transactions.
After you have selected your lender, you will discuss your financing options and find out what amount you can afford so you don’t waste your time shopping for something out of budget.
*Tip # 1: We always recommend that our buyers ask their loan officer for the very maximum for which they can get approved. We do this so we have a benchmark to use when searching for their home. Many people find a house first, ask a loan officer if they can afford it, and then if the answer is yes, proceed with an offer. The downfall to this is that you have no idea where you are on the scale of your budget and many buyers will make themselves “house poor”.
Roadblock #2: Getting pre-qualified instead of pre-approved
Pre-qualification and pre-approval might sound the same, but they are very different. Essentially most anyone can get pre-qualified for a loan because it involves speaking with a lender about your finances. Though this is better than nothing when beginning your home search, getting pre-approved is the better route. A pre-approval can be obtained when the lender runs your credit report and determines it is sufficient and after income is verified. Once those have been satisfied, the lender will provide a written approval for financing up to a certain loan amount.
Getting pre-approved prior to searching for a home is crucial because that letter will be needed once you submit an offer on a home. Most educated sellers won’t even entertain an offer until they see a pre-approval letter from a reputable lender. Getting pre-approved ahead of time will help the offer process go faster and will help you to make a quick offer if needed. This is especially important in a seller’s market like Nashville!
*Tip #2: We recommend going one step further and getting a loan commitment from your lender which will allow you to close in as little as seven days. This means you’ve turned all documentation into the lender and they have committed to providing you with a loan with only a few conditions – one being assigning a property and another being the appraisal. This is one way to really strengthen your offer!
Roadblock #3: Making the wrong offers
Speaking of a seller’s market, you need to consult your REALTOR® to find out if the home or homes you are interested in have a fair listing price. Your agent will run comparables (otherwise known as comps) of properties with similar characteristics to find out if the home is priced correctly. If so, it might make sense to offer full listing price. Making a lowball offer in a competitive market may end up angering the seller and causing them to pass instead of countering. At this stage in the process, it is very important to listen to your agent’s advice and have them use their negotiating skills when needed.
*Tip #3: Depending on the situation (the number of days the home has been on the market, the number of competing offers, where it falls on your budget scale, etc…), offering above asking price may be the best option. Remember, there are many terms that make an offer “strong” – it’s not just the offer price.
Roadblock #4: Not saving for down payment and closing costs
A study by the Center for California Real Estate says that among those who plan to buy a home, the biggest challenge homebuyers face is saving for a down payment (29%). A Google survey found that most Americans have less than $1,000 in savings. Lender Garrett Locklear with Movement Mortgage recommends avoiding unnecessary financial stress when buying a home by staying in your financial comfort level for a purchase price and saving for necessary expenses after you close. He also recommends having a minimum cash reserve of six times your monthly mortgage payment. Before you sign up for a home loan, you should consider getting rid of other debt such as student loans and credit card debt, if possible. If you don’t have enough money to cover closing costs, you are at risk of losing your earnest money deposit. Closing costs vary by location, but they are typically 2-7% of the home’s purchase price. In Nashville, we estimate between 2-3% of the purchase price.
*Tip #4: Some first-time homebuyers use gift funds from family members to help cover a down payment or the closing costs. Lenders will require a letter from the person giving the gift fund stating that it is not a loan and does not need to be repaid. Getting this letter ahead of time can really help speed up the process.
Roadblock #5: Making a big purchase during the homebuying process
If you are in the process of buying a house, avoid making any big-ticket purchases, such as a car, boat or even a home appliance on credit. Also, don’t open any new credit card accounts. Each time you apply for a credit card, a credit inquiry is added to your credit report. Although credit inquiries don’t usually significantly hurt your credit score, they can lower it – especially if you have many credit inquiries within a year. Generally, a minimum credit score of 580 is required for low down payment FHA loans. Anything above 780 will get you the best rates.
Remember, a mortgage lender’s underwriter is going to re-evaluate your finances prior to closing to make sure you’re still available to qualify for the loan, so be smart!
*Tip #5: If you need to make a large purchase, wait until the day after closing (or pay cash!) when the loan is finalized. There is nothing more disappointing than finding out you are not buying a new home two days prior to closing because you charged a sofa for your “new home” on your credit card!
Roadblock #6: Making expensive mistakes with paperwork
A big part of the homebuying process is the paperwork that goes along with it. This paperwork is full of legal terminology that can sound like a foreign language to most people. An important role of your agent is to help make sure that the paperwork is correct and that any amendments are included as part of the contract. Even the tiniest mistake or missed signature can delay the process.
*Tip #6: Although it is tempting to use your friend who just got their real estate license to show your support, this could be a costly mistake for you! Real estate documents are tricky and extensive. Make sure you have an experienced REALTOR® on your side representing you and your best interest.
A knowledgeable real estate agent or team will help you avoid these common roadblocks to buying a home. By knowing the potential obstacles ahead of time, you will hopefully be able to solve problems in advance instead of putting out fires later! We hope that you have a smooth home-buying process and please let us know if The Southbound Group can help you with any of your real estate needs! Contact us!