Here are the most common pitfalls that prevent people from buying a home EVEN when they have ability.
1. Buying into the Narrative
The real estate market always has opportunities in it. Over the past several years the main opportunities were to buy a home if you had the cash with a historically low interest rate and to receive a lower monthly payment or stretch yourself into a more expensive home/neighborhood. No matter what happens in the market over the next few years those homeowners will be safe with a low rate to ride out any short term market fluctuations.
a great market for some
which resulted in higher prices for all. What about today's market? Today's market is great for the average buyer who needs to use all of the alternative loan products/tools
that would have been scoffed at by sellers for most of the last decade in competitive offer situations. These loan products are necessary tools for first-time home buyers in less than perfect financial circumstances to actually buy a home
Everyone knows someone who chose to wait over the last 5 years because the market had to come down or it wasn't a great time to buy a home. What happened to home prices, costs, and rates since then? Was it actually a bad time?
2. Lack of Preparation
It takes a few hours to fill out a mortgage application
, upload a few financial documents
that almost everyone has access to online and obtain a pre-approval letter
for a home loan.
You can take the amount
you qualify for and speak with your agent
who can provide several options
for a condo/single family home/duplex. Then you, your agent, and your lender can take that information to create a plan which will give you the information needed for you to make the best decisions moving forward. In Southern California the buyer's agent works for free until they are paid through the seller's proceeds, wouldn't you want a representative to guide you through the process and fight for your best interest, especially when it's at no cost to you?
Even if you don't like the lender's response and your lifestyle will need to change before you can buy a home or you need to spend 12 months fixing your credit there is No Reason to avoid this step. It may not be what you wanted to hear, however it is best to find out as soon as possible so that you can make the necessary corrections while you still have time. I often help clients prepare for 1-3 years before they can buy a home because they didn't know they needed to change how they were filing their taxes / fix their credit / apply for down payment assistance and didn't learn about it early enough to prepare in advance. Now they have to wait even if they have the cash for a down payment and closing costs until they fix the other issues that they could only learn about by speaking with professionals.
The pre-approval letter will last several months and will not negatively affect your credit score as long as you only renew it quarterly. If you apply to too many lenders too far apart in time, do other credit checks unrelated to home buying, finance vehicles purchases, or otherwise do any generally bad things for your credit across several weeks you may end up hurting your credit score. This is why you need to connect with a qualified and professional real estate agent to discuss best practices beforehand. Despite the many benefits of this information most people will not get pre-approved before WASTING days looking at homes in person or on Zillow with no clue of their qualifications or comfortable monthly payment amount.
In Southern California real estate it is very common to have to buy a starter home or investment property and to have it become the vehicle which will help you grow enough wealth/equity to buy your forever home and/or invest in more properties in 5-10 years depending on the market. This may seem like a long time but nothing creates more Millionares than real estate over time and it's also the main reason why the sooner you buy, the better. Inflation affects homes just as any other product and it will help raise the future value of your home while your monthly payment remains the same and/or you lower it by refinancing as almost all homeowners have, especially the ones that bought prior to 2010 when interest rates were always 5% and higher.
3. Paralysis by Analysis
Home Buyers love to wait. Especially First-Time Home Buyers. There is a myth that someone is always whispering about "waiting" and how it's going to help you get a lower price, lower rates, save more money, (insert wish here).
In reality when you buy a home in Southern California it is also going to be one of the most expensive INVESTMENTS of your life. When asking a financial advisor, wealthy individual, CEO of a successful company, they may not agree on the best way to build wealth but they will all agree that time is the single BIGGEST factor to wealth building that there is. I'll share a secret...It doesn't matter how you try to time the market. You may have to invest your extra income in your home for the first few years and not take on other investments or go on lavish vacations. This will pay off in the future as long as you didn't overextend yourself financially to buy the home in the first place.
Hire a great real estate agent and mortgage broker to help you plan to purchase a home or investment property. and wait 5-10 years. You don't even have to like the area or live there for the property to become a great investment and your best hedge against INFLATION
. This will happen automatically if you hold the property for long enough.
Ask yourself these questions?
If you like the answers it could be a great time to buy, for you...
Q: Don't HAVE enough money to buy?
Use a down payment assistance loan like a CalHFA loan
or a low down payment loan like FHA loan
Q: Have 20% down payment but WANT a lower interest rate?
A: Most sellers will consider this right now
Q: Can't see the property and write an offer in less than 48 hours of it hitting the market?
A: Right now you have a few days to breathe on most new properties
You could buy a home with all of these advantages and wait a few years for interest rates to fall to refinance your home which is very common. Some homeowners have refinanced multiple times in the last 5 years alone. All of this is to say that it is a normal part of buying real estate. Doesn't your future home and largest investment deserve a few hours of your time to plan properly with professionals?
So What Will You Do?
Will you see the opportunities to buy a home or see an excuse to wait.
It happens all too often that I am talking with people I met 2-4 years ago that didn't buy and now they can not buy. The most affordable homes are always the first to sell and recover in a down market because of the highest demand and lowest supply. If that is the budget you have to work with then you should be taking advantage of this slower market. The minimum needed to buy a home in each city rarely goes down and there are less foreclosures now than in 2018. Relying on the market to "crash" or home supply to spike suddenly and violently is not a good plan.
Give me a call, whether you work with me or not... I would love to connect.