Home' Trinidad and Tobago Guardian : July 20th 2014 Contents SBG22 PERSONAL FINANCE
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt JULY 20 • 2014
The housing market is hot,
thanks to interest rates at his-
toric lows and median property
prices that have jumped more
than 30 per cent between the
first quarter of 2011 and and
the first quarter of 2014, according to the Cen-
tral Bank s March 2014 Summary Economic
But along with a hot housing market comes
increased competition for homes.
Given the complexities associated with the
costs of buying a house, jumping into the mar-
ket and effectively competing with aggressive
bids can be daunting. If done wrong, a home
purchase can result in enough financial regrets
to last a lifetime for first-time homebuyers.
Here are eight of the most common mistakes
made by first-time buyers---and how to avoid
1. They don't even consider renting
as the better financial decision.
Despite all the good that comes with owning
a house---home equity, tax benefits and comfort
in knowing what your housing costs are going
to be over a period of time---when it comes
to the heap of costs associated with buying,
it may be a better deal financially to rent.
(Buyers can find help with online calculators
that compute home costs into equivalent
The first question is: how long do you expect
to be there? "The average young person is at
their job for two to four years, and when you
start to amortise closing costs over that period
of time, it just doesn t make sense," said Brad
Wheelock, a senior vice president and branch
director at RBC Wealth Management. "What s
the likelihood that you ll get out of that home
without too much financial damage?"
Buyers need to realise that all of the expenses
renters never have to worry about, such as
homeowner s insurance and closing costs, may
end up being as much as a down payment.
And that s not even including all the unseen
"Lawn care can be fun, but you may decide
that it s not a good use of your time and you
need to find someone else to pay to do it,"
said Art Carden, assistant professor of eco-
nomics at Samford University s Brock School
2. They're not prepared to compete
in an all-cash market.
Not every homebuying market today is as
competitive and expensive as New York, LA
and the San Francisco Bay Area, where housing
prices are exorbitant, demand far outstrips
supply and all-cash offers are common. But
given the expectation that mortgage rates and
home prices will continue to rise around the
country over the next few years, the most
important thing prospective buyers can do is
be financially prepared as early as possible.
Buyers must be ready to make very quick
decisions as their markets heat up. "Much of
the lower-priced stuff goes quickly," said loan-
Depot s Norris.
Before even starting your search, save as
much as possible for a down payment, clean
up any blemishes on your credit report and
get preapproved for a loan. "The first-time
homebuyer needs to be very savvy and have
an upfront preapproval letter that will help
give the seller confidence that (the buyer) can
close the loan and obtain the funds," Norris
A fault of many first-time buyers is impa-
tience, said Cara Pierce, a certified housing
counselor with ClearPoint Credit Counseling
Solutions. "(Buying a home) is really like finding
a job---it s going to take a lot of time to prepare.
That way, when the deal comes along, you re
ready to pounce on it."
3. They put the car before the home.
Your debt-to-income ratio is one of the
first things lenders look at when it comes to
assessing how well you ll be able to afford
mortgage payments. "It s a big deal for folks
not to load themselves with debt before they
buy a house," said Glenda Gabriel, a neigh-
bourhood lending executive at Bank of Amer-
ica. "(Debt) could be the difference between
approval and not being approved."
According to loanDepot s Norris, customers
debt---attributed today mostly to student loans
followed by things like car payments---has
gone on average from $40,000 in 2010 to
$51,000 today. "It would be much easier to
own a home if you can show a history of saving
and not have gotten yourself into too much
debt," he said.
4. They put too much faith in online
While many credit counselors and financial
advisers advocate researching mortgages
online---it s a good place to check with the
city or county where you want to buy to see
if you qualify for products like VA loans and
FHA loans---interviewing and working with
lenders in person can greatly help demystify
the lending process. The process can differ
based on a buyer s qualifications, how a mort-
gage company operates and current market
Although half of borrowers claim to grasp
basic loan terms and conditions, more than
two out of every five bad experiences stem
from misunderstandings over fees, terms and
ownership costs, according to a recent survey
"Go to different places and talk to loan offi-
cers to get a feel for what the differences are
between similar types of loans," said Clear-
Point s Pierce, who suggests attending first-
time homebuying classes. "Sometimes a com-
pany won t charge an origination fee, but then
the interest rate is higher ... and in some cases
you can put many of the upfront costs---closing
costs, title insurance---into the loan, which
makes your balance larger."
5. They put too much faith in online
When it comes to checking out houses and
neighborhoods online, real estate agents have
become wary of what clients find at sites like
Zillow and Trulia, which can give buyers a
false sense of home values.
"My rant of the moment is Zillow and what
we have to undo," said RED s Barrentine. "If
a buyer believes that the actual value of the
property is $1.1 million as listed online when
it s really $1.3 million, it s a real disservice to
the client. You really should [spend time] with
someone that understands the market, some-
one who s there day in and day out."
Driving around neighbourhoods with an
agent highlights the subtleties of a given mar-
ket, things not easily represented online.
Kirsten and Darrell Becker, co-owners of
Becker Studios in Santa Barbara, California,
Continued on Page 23
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