Avoid the Pitfalls of Buying a Home

With the plethora of great deals that abound on the market today, buyers need to be cautious about certain areas, as buying a home is certainly not for the faint of heart. Here are some tips to avoid the snags:

1. Financing

In today's environment have solid financing in place and/or the cash you will need to close. And, avoid making an offer contingent on the sale of your home - these offers most likely will be rejected. Sellers, for the most part, are not interested in contingencies, especially if the home is priced below market value, and the next offer may just be around the corner for them.

With foreclosures, many banks ask the buyer to prequalify with one of their financial institutions, and in some cases offer special incentives to use that lender (free appraisal, reduced closing costs, etc). It is not a requirement to use their lender to complete the purchase however.

Earnest money deposits, which is the buyer's good faith gesture to show seriousness in a property, are becoming larger and larger, particularly with properties that are drawing multiple offers, for example $5000-10000 earnest money figures are not uncommon. Beware that if you walk away from the home after the inspection period this money is likely to be kept by the seller.

2. Properties in questionable condition

It is amazing what former owners have been known to do to their home before the bank forecloses on it: seeing the home stripped of a/c units, doors, hinges, light fixtures, appliances, baseboards, entire kitchens, and wiring have all been known to happen.

Buyers may find that it is too difficult and/or expensive to put a property back into livable condition. FHA offers a 203k mortgage-loan program that includes money required to fix-up the property. The loan amount includes the repair costs, and the appraisal must come in for the entire amount of the purchase price plus repairs. The buyer must put 3.5% down and the maximum loan amount is $346,250. When appraising the market value including repairs is the number worked towards. The program generally takes longer to complete, but may be a viable option for a buyer who doesn't have money available to do massive renovations.

3. Be patient - competition is fierce

The home you have been pining for is finally on the market, and the price is just too good to be true. Often times, that can be the case. Homes can be priced at unrealistically low prices and bring with it bidding wars. This also takes time and can become very frustrating. This can be the case with bank-owned homes or short sales. With short sales, some are able to obtain quicker responses, but for the most part it is taking weeks or months longer to hear back than a foreclosed home, as the lender, not the seller, has to agree with the offer.

With a short sale a buyer can think he got a great deal, only to have the offer rejected by the lender, regardless of whether the offer was made at the asking price. This can come as a result of other buyers bidding up the once attractive list price of the home. However, if an agent can support the listing price and is familiar with the area and the financial institution, a short sale can be negotiated within a reasonable period of time.

4. Think location

Is the property in a neighborhood where lots of homes are for sale? Will you have a substantial commute to work each day? Be cautious, there could be the areas that will take the longest to recover in terms of value. What buyers are looking for today is a combination of great pricing and a return to basics, i.e. home close to family, jobs, entertainment venues, etc.