3 Mistakes First Time Bay Area Homebuyers Make and How to Avoid Them
If you were around the Silicon Valley back in the year 2000 you might remember the dot com era when people were swapping jobs frequently. Jumping from one job to the next higher paying offer almost as frequently as they changed their underwear. Okay, maybe not that fast but it was a vastly different scene from the previous norm of staying dedicated to one company for a 30 year long career.
Early in 2000 I was one of those fast swapping job hoppers. As i was driving one Saturday to meet my friend for lunch an open house sign in front of a condo building caught my eye. I was working in tech as a systems network administrator and just a few days earlier I accepted a 60% salary increase from my current empolyer to keep me from leaving to a different company… for a better offer of course, after being there not even a full year. I found myself in a position that I could, maybe, buy a home. Not a single family home, but something..and in Mountain View, my hometown, now more popularly known as Googleland.
My friend and I walked into the open house and it was perfect for me. One bedroom, large ground floor fenced yard for my dog (a medium sized chocolate Shar-pei), wood laminate floors, and MIckey Mouse decor…my friend said.. I think you already live here! Except I didn’t have a preapproved loan, had not even considered a down payment, and basically had no idea what I was doing, but in 2000 lenders were handing out loans, of nearly any amount, like Halloween candy on every day of the year….and to anyone. It was the wild west of home buying, only I didn’t know. I just wanted to buy a place and this 668 sqft 1 bed 1 bath was perfect. Considering I’d been living in 350sqft in-law with miniture everything for the last 8 years this place felt huge!
I quickly made conversation with the listing agent and went to my credit union for a loan. As I recall there were 8 offers and I ended up paying way, WAY, over asking. Then about 30 days later…I moved in.
There were years I had some regret as the market value of my place plummeted below what I owed, but I stuck it out. I got to live in my home town, just a few miles from work and family. It was great. Even after I was laid off and had a complete career change I still managed to hang on to that place. Even when I didn’t want to and was ready to just walk away from it my parents, mostly my mom, insisted. And now, 18 years later…I’m so glad she did.
Looking back I made a lot of mistakes! It all worked out in the end, but it could have gone better. First… I never had my own agent. I think the listing agent did a good job, I think… I actually think it might be fun to sit down and talk to him about it now being on the “other side” as an agent myself. He was pretty new at the time and it might have been his first time being on both sides of the deal…(might be a good topic for another blog post if it’s willing…let me know if you’re reading this… you know who you are. 😉 ) Second… I didn’t have a loan ahead of time thus had no idea what closing costs were or even what my monthly payment was going to be until I was really far, and emotionally invested, into the process of buying. Perhaps if I had preapproved ahead of time I may have chickened out so… maybe it wasn’t such a mistake afterall. The last one… which is not a mistake I made, but one I see a lot of people do… I didn’t wait for my dream home and was perfectly happy with a small condo, but over the years I’ve seen friends continue to rent far beyond the years they were able to buy because they only wanted to buy the perfect house. Thier forever home. It would be nice if we could all just jump into perfect house, like many of our parents and grandparents did back in the day, but in the Bay Area you’re going to wait a really really long time unless you hit the lottery, received a large inheritance, or are ready to communte 60-100 miles each way to work. Taking the plung on my first place and not holding out for my ideal home helped me get to the next one.
Anyway that’s a bit about my start in homeownership… back to the reason I started this post, 3 Mistakes First Time Bay Area Homebuyers Make and How to Avoid Them.
Actually there are a lot more than 3 mistakes first time Bay Area Homebuyers make when starting the home buying process, but these are the common ones and easy to avoid if you are aware ahead of time. Afterall, you don’t know until you know…right?
1. Not Working With a Buyers Agent
We do everything online these days. Pay bills, keep up to date with friends and relatives, work, and shop for almost everything online. So naturally when we start thinking about moving or buying a house we start looking online. We might find that list of open houses in the area and head out to browse homes for sale on the weekend. It’s great to do this a few times, maybe even fun, but can be a big waste of time too if you haven’t got your home buying team in place. Especially in the San Francisco Bay Area where homes are on the market and pending sale with multiple offers in a matter of days.
Working with a buyers agent come at no cost to you. None. Zero. Nada. You get the idea.
You might be wondering how can that be? Why would this agent work for me for free?!
Buyer’s agents get paid by the seller of a home. To put it in simple terms when a seller lists a home for sale their agent makes arrangements for them to pay the buyer’s agent when a purchase is complete.
There are a lot of benefits to working with a buyer’s agent, such as lender recommendations and previewing homes for you.
Your buyer’s agent can recommend a mortgage broker to get you pre-approved for the loan you will need. This is a very important piece of the buying puzzle. You really want to work with a lender who has a good reputation for getting loans closed ..and closed on-time. Your buyer’s agent can give you recommendations on lenders to work with and probably have at least one they prefer to do business with. Plus, you don’t want to house hunt and fall in love with a home you can’t afford. Start off on the right foot so you know what you can comfortably buy.
Home shopping can be fun and exciting at first, but if you’re in a competitive market it can start to feel like a job. Having a buyers agent do the leg work for you can save you tons of time and aggravation. A buyer’s agent will get to know you and your help you prioritize you future home’s must-have list. They will also know your budget and be able to narrow down available homes in ways you might not realize. For instance, home listing prices are not always what they seem. It’s not uncommon for homes to be listed far below market value to generate interest and multiple offers. Let’s say you’re qualified for a $800K home and the perfect home is on the market for $790K. While it’s technically listed in your budget it’s likely to sell higher than your budget. Your agent will know this just by browsing the listings and can save you a lot of time an heart-ache.
Bottom line is… as a first time homebuyer there’s a lot of pieces of the puzzle to put together, but if you get this piece right (working with a great buyers agent) your agent will put your puzzle pieces together for you! So choose her (or him) wisely. 😉
If you’re looking for an agent in the San Francisco Bay Area give me a call! I love talking real estate and happy to answer any questions you may have. Let’s meet for coffee. I primarily cover the Tri-Valley (Livermore, Pleasanton, Dublin) and Silicon Valley (Mountain View, Los Altos, Los Altos Hills, Cupertino, Sunnyvale) and I work with a fantastic team of agents. So if you’re looking in another Bay Area city I can introduce you to a great agent.
2. Getting Your HomeBuyer Ducks In A Row
In the days of instant gratification it can be frustrating when you decide it’s time to buy a home and find out you’re not financially ready. It’s a good idea to get the preparation started even if buying a home might still be 1-2 years out.
So, while you’re finding the right buyer’s agent to work with here are some things to do to get ready:
- Start saving!
While 20% for a down payment is often the recommended standard, there are options for those who don’t have that kind of downpayment right now. First time home buyer programs can go as low as 3% down! This is where talking to a great mortgage broker will come in handy.
bonus tip- save more than the 20% (of 3%) you need! You will need additional funds to also cover closing costs and lenders often want to see you have some money in reserves to cover a few mortgage payments just in case.
- Credit Score!
Knowing your score is vital. This will be one of the first things the mortgage broker will ask you for, but you can get a head start by pulling your own free report and checking it for accuracy. If your score is less than expected it might be a good idea to work on raising your score as you save for the downpayment. Not only will qualifying for a mortgage be easier, but you’ll likely get a better interest rate which can increase your buying power or lower your payment.
Lenders like to see you have consistent employment. They all have different guidelines, but a good rule of thumb is 2 years at the same company. So if you’re 20 months into your job and considering a new job you just might want to wait to make that job change until after you buy a house. Now, as always, there are exceptions to this rule. If you’re switching companies, but doing the same job it won’t hurt you too much. However if you’re switching jobs and positions, for example going from police officer to web designer, getting a loan will be more challenging.
3 Mistakes Bay Area Homebuyers Make—continued…
3. Waiting To Buy Until You Can Afford Your Dream Home
It can be disappointing to find out you can’t afford to buy a home in your ideal neighborhood… and it’s a pretty common situation. But does that mean you shouldn’t buy until you can afford your ideal neighborhood. Absolutely NOT!
My first home purchase as a 1 bedroom condo. It wasn’t what I really wanted (a single family house) but it’s what I could afford. 18 years later….I’m glad I bought it!
Now, there is no way to predict the ups and downs of the housing market, but what we do know is it’s never been higher. So, will it go down again? Most likely yes, at some point it will go down. So maybe if you wait you’ll be one of the lucky ones who timed the market perfectly, but will you be better off? How many months of rent will you have paid out with no return as you wait for that dip in the market? What if housing prices continue to increase for a few more years…faster than you can save for the downpayment to keep up? Only you can decide what you’re comfortable with and what is right for your family.
That condo I bought 18 years ago… at the top of the market…at the time. yikes! Paid way over asking due to a bidding war and still…had I waited until the market went down I probably wouldn’t have qualified for the loan. Buying is a balancing act.
Maybe you can’t afford the single family home in your ideal neighborhood, but you can buy a great townhome, condo, or smaller home. It’s certainly a way to get into home ownership and if the market goes up you can sell it to upgrade. What if the market goes down? At least your monthly costs won’t change (assuming your mortgage rate is fixed). You might ask, if the market goes down won’t my rent go down too? Not necessarily. During the market crash that began in 2006 when home prices fell dramatically well into 2012, not only did rents go up but loans were harder to get. Many renters found themselves forced to move farther away for because they were priced out of renting in their current location. Some left the area all together. So timing a purchase is a balancing act and only you can decide when the right time is for you.
When you’re ready to explore your options give me a call! I’m never too busy to discuss your real estate needs.