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Buying a home? Don’t make these costly mistakes

The housing market is gaining steam, fueled by an improving job market and near record-low mortgage rates.

Pending home sales rose in April to the highest level in nine years and the median price jumped as well. And millennials represent the largest share of homebuyers, according to an analysis by the National Association of Realtors. Nearly one-third of all homebuyers, and 68 percent of first-time buyers, were 34 or younger last year. And those numbers are expected to grow.

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Buying your first home or know someone who is? Here are three common, and potentially costly, mistakes to avoid.

Mistake #1: Overestimating what you can afford.

Real estate brokers say first-time buyers often focus on the down payment and monthly mortgage amount when calculating how much they can afford and forget to factor in closing and other costs.

“They get to the closing and they’re shocked by the amount of money they have to pay,” said Vicki Fillet, certified financial planner and president at Blueprint Financial Planning in Hoboken, New Jersey.

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It’s important to remember too that monthly payments include not just the mortgage, but interest, taxes and insurance—something that buyers can often forget when figuring out their budgets.

It’s a good idea to get pre-approved for a mortgage loan so you know how much a bank is willing to lend you before you make an offer on a home. But keep in mind that the amount you’re pre-approved to borrow from a mortgage lender may be more than you can actually afford once you factor in taxes, insurance and other costs like condo or homeowners’ association fees and maintenance.

As a general guideline, your total monthly payment (including mortgage principal, interest, real estate taxes and homeowners insurance) shouldn’t exceed 28 percent of your gross, or pretax, income.

While some sellers are still asking for 20 percent down payments, it’s possible to pay much less. Mortgage giants Fannie Mae and Freddie Mac announced guidelines late last year for loans with down payments as low as 3 percent under a new program largely aimed at first-time homebuyers. Just remember that the lower your down payment, the bigger your mortgage loan (and the more you’ll pay in interest).

Read More 7 major housing markets now ‘overvalued’

Mistake #2: Letting your emotions get the best of you.

Don’t get so attached that you buy with your heart and not your head. “It’s difficult not to get emotionally attached. Homeownership is an investment in your future,” said Chris Polychron, president of the National Association of Realtors.

But be careful. Get too emotionally attached and it can set you up to spend more than you can afford.

Cathy Moyano of Coccia Realty in Kearny, New Jersey, recommends prioritizing what you want in your home. Make a list of the most important qualities, whether you want a certain school district, updated bathrooms, a backyard, etc. Then figure out what you aren’t willing to give up. You won’t find the perfect home that meets your entire list so narrowing it down to what matters most can help you through your search process.

A real estate agent can help facilitate the searching and buying process. Using apps and sites like Zillow, Trulia, StreetEasy and Redfin can also help speed up your search.

Mistake #3: Not planning ahead.

Once you’ve narrowed the search and you are ready to make on offer, check with your agent about the demand. Is the home getting multiple offers? Has it sat on the market a long time? Will it require a lot of upgrades?

Make sure you get a thorough inspection. Fillet said buyers often don’t get an inspector with expertise to check the pipes, the plumbing, or air conditioning. You want someone who knows what they are doing, not just an inspector from the real estate broker, she said.

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Remember the resale opportunities. Consider the school district, Fillet said, because even if you don’t have children or plan on having any, the next buyer might.

Don’t overly improve the property either or “over customize to your personal taste,” Moyano said. “Let’s say you’ve painted your dining room purple, before you sell it, paint it back to a neutral color. This sounds like a little thing, but it does leave an impact on when you’re showing homes.”

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Rental rates grow faster than home values locally, nationwide

Low mortgage rates have made homebuying more affordable than renting, according to Zillow research.
Rental rates in St. Louis continue to grow at a faster pace than home values. Home values in St. Louis averaged $133,700 in April, up 3.3 percent from the same month last year. Rental rates, meanwhile, have risen 4.5 percent year-over-year to $1,137 per month. It’s the eighth consecutive month rental rates have outgrown home values.

That trend holds true nationwide, too. Rents grew faster than home values in 20 of the 35 largest U.S. housing markets. U.S. rents — up 4 percent year-over-year in April at $1,364 per month — grew at their fastest pace in two years.

According to the research, U.S. homebuyers can expect to spend on average about 15.3 percent of their income each month on a typical house payment. By comparison, renters can expect to spend about 30 percent on a monthly rent payment.

“There are tremendous incentives to get into homeownership these days: Mortgage access is improving, interest rates are low, and home values remain below prior peaks,” Zillow Chief Economist Stan Humphriessaid. “But it will be increasingly difficult for many renters to realize these benefits as this country’s growing rental affordability crisis continues to worsen. More income going to rent means less going to savings for a down payment and other costs, keeping renters renting longer and feeding into the high demand that is contributing to rising rents in the first place.”

Nationwide, Seattle-based Zillow (Nasdaq: Z) projects home values to increase 2 percent. In St. Louis, home values are projected to increase 2.9 percent in April 2016.

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4 Things You Shouldn’t Overlook When Buying a Home

There are countless things to consider when looking to buy a home in St. Louis.  Perhaps the most important is choosing the right Realtor to represent you.  Contact The Agency today to get your home search started!  Below are 4 things that most people don’t take into account when they start the process.

From A.J. Smith at credit.com

The process of homebuying can be overwhelming — from figuring out how much house you can afford to determining what you truly need in that home. Between all the numbers and logistics, it is easy to leave a few things off the checklist. Check out the below list of common things buyers overlook so you don’t.

Environmental Factors

Noise, odor and bright lights can get in the way of enjoying a home. Since not all of these will make themselves known in the daytime, consider driving through your potential neighborhood at varying times in the day and week so you get a true feel. Even if you think you have found a great neighborhood, you will want to see what it is like both on weekdays and weekends, mornings and evenings. It’s a good idea to try talking to neighbors and asking around in the community to find out if you and your family would be compatible. When it comes to safety, you can try doing an online search for nearby sex offenders or look into crime rates.

Distance from Work, Shopping

They say “location, location, location” — and yet buyers still don’t always look at the full scope when it comes to where their house is located. You cannot change the proximity to schools, commutes to and from work or how close the nearest supermarket and mall are. It’s important to look into these factors as well as traffic and transportation options so you can determine if this is the right home for your family.

Connectivity

When it comes to modern living, there’s a new factor to consider — connectivity. This means cellphone coverage, ability to get a strong Internet signal and charging potential. Older homes have fewer outlets so if you need a spot for your television, iPad, iPod, laptop, e-reader and electric toothbrush, be sure you find a house that can sustain all that.

Extra Costs

Before you make a home purchase, it’s a good idea to do your research and find out how much closing costs will be, how far property taxes will set you back and how much homeowner’s insurance is. Another important factor is the potential resale value of the home. Although it seems weird to think of selling a home you haven’t even bought yet, you want to look into the median home-price growth in the area to help determine if this is a good investment.

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