I am a big proponent of investing in real estate. In fact, as I write this, my wife and I are buying a new home. That said, it hasn’t been painless. What are examples of pain points when buying a home? We’ve endured challenges, trials and tribulations, stressors, and dreaded bidding wars. We’ve felt the pinch of low inventory and high demand, the sting of having to increase our budget, and the pain of losing out on a home we desired.
Some of the pain of home buying can be relieved by being informed about the process, hurdles, and decisions that need to be made. But some home buying pain points exist no matter how one goes about it. It’s best to be prepared, and that’s what I can help you with in this article.
Home Search
You’ve likely heard of home search apps, most of which show everything you need to know to make an informed decision. While these apps provide a ton of information for each home, therein lies the first challenge: What information should you focus on? Even this step can be challenging for some to weed out the right homes to look at. We all must start somewhere though, right? Think about the different data points the app provides and think about what’s relevant to you.
Setting A Budget
One of the biggest pain points during the home buying process by far is establishing a budget, and that’s where I like to start. What can I afford? How can I afford it? What do my monthly expenses look like and can I afford a monthly mortgage payment, property taxes, insurance, homeowners association dues, etc., and still stay in the black?
Most apps – including Quicken Loans – offer a mortgage calculator to helps you figure out these expenses. Here’s the hard part: sticking to your budget. There’s always a nicer home for just a little more money, and home prices tend to go up over time. But it’s crucial to remember that if the home is not within your budget, you can’t afford it. Don’t allow yourself to be at the mercy of a monthly home payment. I previously wrote about how to prepare for the budget of your choice if you are new to the process.
Must-haves, wants and needs
Once your budget is established, the next challenge is deciding what features you must have in your next home. Remember, there is no perfect home at the perfect price. If it is too good to be true, it probably is. Think about what you can you live with and without. What must you receive for the price you expects to pay for a home? Do you have children, and if so, will their needs be met by the schools and facilities assigned to said district? What is the tax rate? Is there any additional tax assessment for the property you’re looking at, like Melo-Roos assessments in California? Are you factoring in any HOA rules and fees into your monthly payment? What would it take to resell the property, should you need to move somewhere down the line?
This is a lot to consider, but once you start your research you will quickly home in – no pun intended – on a vision of a home you want and can afford. And in doing so, you can begin looking at homes in person and find one you want to buy. Remember, there is no perfect home, and you are the only one that can decide if it’s right for you.
So, once you do find that home, what happens next?
What’s Your Goal?
Buy A Home
Discover mortgage options that fit your unique financial needs.
Refinance
Refinance your mortgage to have more money for what matters.
Tap Into Equity
Use your home’s equity and unlock cash to achieve your goals.
Submitting An Offer
You’ve found “the one,” the home that has the aura of homeyness, the feeling of achievement, and the place where you want to lay your head down at night. But do you have a real estate agent or Realtor? Are you aware that they charge for their services? Do you know who is paying for that? Surprise: It might be you.
After a groundbreaking case known as Burnett v. National Association of Realtors, the rules for agent commissions have changed. Make sure you clear this up with any real estate agent you work with so you are aware of any fees that you must pay when you buy a home.
When you find an agent you like, they will help you come up with a strategy for buying a home and submitting a competitive and affordable offer for the home you want. Yes, there are strategies to home buying and home selling, and one of them is pricing. Your agent should show you what comparable homes in the area have sold for, or you can do it yourself using home search apps. Most home search apps have a section in each listing showing comparable sales.
More Than Money
What you’ll find, though, is that purchase offers are about more than just price. There are set timelines for inspection contingencies, appraisal contingencies, loan contingencies, title search and review, due diligence periods, and more. Furthermore, what is included with the home is not a given. Did you include all the appliances in your purchase price? Did you want that extra refrigerator the seller has in the garage?
Now, here’s the kicker: Even if you think you are submitting a fair offer both in price and terms, nobody can force the seller to accept it. You may not be the only buyer who submitted an offer, especially for a highly desirable home. Multiple offers can spark a bidding war, with the seller free to choose the best offer or make counteroffers that favor their interests. On rare occasions, the seller may ask buyers to waive contingencies like the home inspection or appraisal to make the sale even more favorable to them. For all these reasons, the proper strategy is imperative when submitting an offer to best appeal to sellers.
Say you submit an offer and it’s accepted by the seller. You will get a call from your real estate agent congratulating you and announcing that you’re now in escrow. So, what’s next? What are you in for? What did your research not tell you about?
Ready To Become A Homeowner?
Get matched with a lender that can help you find the right mortgage.
Escrow Ups and Downs
Prepare yourself for endless paperwork. There, I said it. Buying a home involves a lot of boiler-plate language, terms and conditions, electronic signatures, notaries, contingencies, and contracts. There is more language to review in these contracts than in a prize-winning novel, and you are – unreasonably – expected to review all of that which you are signing.
In this case, you must make sure you talk to your agent, your title company, and your lender about key areas to review. Make sure these contracts say what you expect them to say. Don’t be afraid to question why you are obligated to sign something or ask what happens if you don’t sign a certain document – especially if you are uncomfortable with the language or the terms. Keep in mind, however, that declining to sign something may affect your purchase process.
Inspections And Appraisals
Once you’ve recovered from the mounds of paperwork, you need to keep track of inspections. And guess what? Those fees are non-refundable. What you pay for home inspections and appraisals are for those professionals to keep. They are not paid based on whether you get to the finish line. This is a risk you take when going into escrow, so keep it in mind before submitting an offer. Think of it as a risk you’re taking to ensure you aren’t being duped into thinking a home’s safe to live in when it’s not.
Speaking of inspections, one thing to note is that you are entitled to more than just a general home inspection. Your home inspector may recommend more specific inspections of specific areas, such as the roof. You should consider doing these additional inspections, especially if you think there may be something wrong with that area of the home. It’s always best to have as much information about the house you’re buying as possible and know what you are investing your hard-earned money into.
Expect Unexpected Fees
When considering what is disclosed to you via paperwork, inspections, HOA docs, etc., you may find there are unexpected monthly fees that you did not factor into your budget. Take, for example, utilities you were not paying for prior to owning a home, like pest control or an alarm system. This happens to us all, as we cannot know all the expenses a home requires until we live in it.
There also may be additional levies or taxes that you are unaware of until disclosure documents are sent to you, like Melo-Roos assessments in some California developments. While you do not have to wait to go into escrow to learn about these expenses, you should be aware of them by the time you read seller’s disclosures. In addition, if there is a homeowners association, understanding the condition of the HOA is just as important. What are its reserves? Are there any open lawsuits against the HOA? Feel free to ask your agent about this. They are there to protect you and to investigate this for you. While this is something that may be required to be disclosed to you by the seller, it can be easily buried in 100 pages of boiler-plate language.
Know Your Contingencies
Understanding all these buying pain points can help you ensure you get the right home or pull out of a deal before it’s too late to do so. This is where contingency periods come in.
Contingency periods lay out guardrails that allow a buyer, or in some cases a seller, to pull out of a deal without penalty. While contingencies are not a “get out of jail free” card, they do allow buyers to the opportunity to bow out of a sale at certain points if unexpected problems come up.
One type of contingency is the inspections or due diligence contingency period. This is time set aside to investigate the property, determine its condition, and learn about any necessary repairs or problems it has. Once the inspection period is over, the buyer can no longer inspect the home. The buyer either will negotiate with the seller for credits to cover repairs, ask the seller to make repairs prior to closing, or accept the condition of the home as is. Note that sellers may price homes according to condition. Remember, no home is perfect.
Like most buyers, you’ll need a mortgage to buy a home and with this comes a loan contingency. To get a mortgage, buyers need to meet financial requirements, including having an adequate credit scores, sufficient assets, steady monthly income, and a consistent payment history.
Then comes the appraisal contingency. Your lender will order an appraisal to make sure you aren’t borrowing more than the home is worth. The appraisal should equal the down payment plus the mortgage you are asking for. If the appraisal of the home comes in higher, you’re in luck because you scored a home that is worth more than you are paying for it. If the appraisal comes in below the offer price, you have three options: Ask the seller to lower the price to the appraisal amount, pay the difference in cash between the appraisal and your offer price (this is called paying the appraisal gap), or walk away from the deal if the seller will not budge.
Don’t Forget Closing Costs
Another major expense buyers often don’t know about when buying a home is closing costs. The paperwork and processes that you receive during the transaction are not free, and you and the seller will have fees to pay. The fee structure can be complex, so be sure to ask questions, and do not be afraid to ask for discounts anywhere you can. Make sure before you make an offer that you understand what your closing costs may look like.
One last thing to consider: Have an “uh-oh fund.” (Earlier iterations of this article called this fund something else, but we would like to keep this article appropriate). Unforeseen expenses will come up. I cannot emphasize that enough. It does not matter how much you plan your escrow, additional expenses are inevitable and you will need to be able to pay whatever bills comes your way. Do not get caught up in fees you can’t cover only to find out you can no longer afford the home because you did not plan accordingly.
Take The First Step To Buying A Home
Find a lender that will work with your unique financial situation.
The Bottom Line
So, there you have it folks. I will leave you with a few parting words as takeaways for you after reading my rant about the pain of home buying. First, that there is no perfect home, renovation shows are one-offs, and you should not assume that you will find that exact granite top and hardware combo you were looking for. You will find problems in the inspection process. Just weigh the risk of what you find with whether can live with the flaws in the home.
Next, remember that the process is not linear. Home buying is all about what you are willing to take on. The process is stressful, filled with angst, and yields many days of uncertainty – but in the end, it will all be worth it.
Lastly, be on top of the process but do not try and force it all to work. Remember that you are in the driver’s seat. If something is off, you have contingencies that allow you to walk away from a deal within those time frames. Those contingencies are there to protect you as the buyer. Use them. There will be another house for you out there somewhere.
Ben Shapiro
Ben Shapiro is an award-winning financial analyst with nearly a decade of experience working in corporate finance in big banks, small-to-medium-size businesses, and mortgage finance. His expertise includes strategic application of macroeconomic analysis, financial data analysis, financial forecasting and strategic scenario planning. For the past four years, he has focused on the mortgage industry, applying economics to forecasting and strategic decision-making at Quicken Loans. Ben earned a bachelor’s degree in business with a minor in economics from California State University, Northridge, graduating cum laude and with honors. He also served as an officer in an allied military for five years, responsible for the welfare of 300 soldiers and eight direct reports before age 25.
