Becoming an informed home buyer and having professional help is the best way to avoid pitfalls and scams in the home buying process. There are, however, some pitfalls and scams in the home buying process you need to be aware of for your own protection. This article sets forth some of those that are most common.
Common Pitfalls in the Home Buying Process
- Get Experienced, Professional Help: One major pitfall home buyers fall into is not seeking proper professional help. Make sure you get the assistance of an experienced real estate agent. This individual can save you money, time, and aggravation. A full-time real estate agent deals with both buyers and sellers and brings their experience to your home buying effort.
- Hire a Realtor to Work As Your Agent: One mistake many home buyers make is not understanding an agent’s interests. The agent’s job is to get the best offer possible for their client’s property. You want your own agent to help you find a home and represent you in the home buying process.
- Get Pre-Qualified: Make sure you get pre-qualified before looking at homes. You need to know how much you can afford based on your down payment, credit score, and how much a lender will finance. Doing so helps you avoid disappointment if you find a home that you love but cannot afford.
- Know the Costs Involved in Purchasing a Home: As a home buyer, you need to fully understand the costs involved. In addition to the down payment, you will have closing costs to budget for as well. These could include taxes, inspection fees, and title fees, among others.
Expert Tip: Your Realtor can help you avoid hidden fees that first-time home buyers are often unaware of by making sure everything is explained thoroughly.
Possible Scams in the Home Buying Process
First time home buyers need to be aware of the types of scams dishonest people attempt to use on unaware, inexperienced home buyers. Some of the most common scams out there are:
- “Rent to Own” a Property That Actually Is Not Available: If you are offered a rent-to-own contract on a property that is vacant, make sure the property is being legitimately offered for sale.
- Providing a Very High-Interest Loan: Do not be so eager to purchase a property that you are willing to accept a mortgage with a little-known company offering to lend you money with little or no pre-approval at a high-interest rate.
- “Bait and Switch” on Interest Rate or Payment Amounts: Unscrupulous lenders may offer a competitive interest rate or low monthly payments initially. After all the preparation for financing your new home is finished, suddenly the interest rate or payment amount is higher. Then the lender tries to get you to accept the less favorable terms.
- Loans with Escalating Interest: Beware of mortgages with extremely low introductory monthly payments. Known as “exotic” mortgages, payments are low initially because the mortgage begins with a low-interest rate. Your payments cover only part of the interest and the unpaid interest becomes part of the mortgage itself. As the interest rate rises, your monthly payment may double or triple leaving you unable to make the payments.
- Lenders Who Base Loans on “Stated Income”: “Stated income” is income for which you do not have any documentation. If a loan officer suggests that you falsify income or assets on your loan application, find someone else. Lying on a loan application can result in criminal charges.
- Unrealistic or Absurd Home Valuations: Beware of homes that have an asking price much lower than comparable homes in the same area. There may be problems with the house or perhaps there are liens against the property. Ask your Realtor to check out the home completely to determine why the owners are asking such a low price.
- Title Scams: Some scammers present themselves as owners of “free and clear” homes. They encourage a buyer to not use a title company as it is “not necessary.” If you do not use a title company, you may end up buying a condemned home or one of which there are several large liens. A title company ensures that you are dealing with the property’s legal owner or an authorized agent and also discloses any problems or legal issues associated with the property.
How to Avoid Scams
As with any other step in the home buying process, the way to protect yourself is to be informed and aware of potential problems. Keep the following tips in mind when searching for your next home.
- Make sure the people you deal with have legitimate phone numbers and physical addresses. Working with someone online or who only has a postal box for mail means there is no way to locate them if you think you have been scammed.
- Avoid using cash only or wiring money to someone offering the property for sale as these are hard to trace if you are being scammed. Generally speaking, someone looking to take advantage of you will probably be scared off if you insist on using a traceable payment method.
- Watch out for lenders or others involved in the home buying process requesting upfront fees. No legitimate program requires payment of a fee prior to undergoing a loan pre-approval or receiving financing assistance.
- Stop, think, and evaluate before making decisions when you are buying a home. If you let your emotions dictate the sale, you may end up in trouble, making decisions that are not in your best interest.
Most importantly, securing the assistance of a licensed Realtor with proven experience is imperative for a home buyer. Your Realtor can help you navigate the home buying process, avoiding pitfalls and scams and getting the home you want at a price you can afford.