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Our Top 5 Pitfalls To Avoid

For First Time Home Buyers

Winning in this market, requires a solid strategy. Schedule Your Session!

1. Not Planning for Closing Costs and Other Fees

Buyers in New Jersey pay between 3-5% (including mansion tax) of the purchase price for mortgage closing costs. Other costs include home inspector fees, agency fees, and of course, moving expenses. We’ll help make you aware of any additional costs you need to account for, so you’re not blindsided. In general, a buyer will be responsible for certain closing costs, including: Title insurance (for the lender), Home inspection costs, Credit reports, Appraisals, Recording Fees, Mansion tax, Surveys, and Settlement fees. Remember that closing costs should be estimated and planned for in advance of the deed transfer. A loan estimate should be given to you that will tell you in certain terms what you will be responsible for paying on closing day, followed by a closing disclosure that finalizes it.

2. Not Understanding the Full Cost of Homeownership

As a first-time home buyer, you’re probably accustomed to the monthly cost of renting, which usually includes your rent payment, some of the utilities, and your internet and cable bills. As a homeowner, you’ll be responsible for additional monthly costs that may have been covered by your landlord. That includes things like water, sewer and garbage bills, monthly HOAs (if you’re buying a condo) and the cost of lawn care. You’ll also be responsible for paying property taxes and homeowners insurance. And don’t forget the cost of maintenance. It’s recommended that you set aside 1-3% of the purchase price of the home annually to cover repairs and maintenance. If you’re buying a home for over $1 million, you will have to pay a mansion tax of 1% of the total.

3. Getting Pre-Qualified at the Last Minute

Many first-time buyers wait until they’ve found a home before talking to a lender, but there are many benefits to getting pre-qualified early. Pre-qualification can help you shop in your price range, act fast when you want to make an offer, and catch— and correct—any errors on your credit report before they cause a problem. This could help save you thousands in the long run because an error on your credit report could result in a lower score and higher interest rates. Also, if you receive loans or gifts from family and/or friends for a down payment, have that money in your account well ahead of time so it can be factored into your pre-approval. Waiting until after you make your purchase offer can delay the pre-approval process, and ultimately impact the ability to purchase the home quickly.

5. Spending Your Entire Budget

When a lender provides a pre-approval or pre-qualification letter, they’ll typically include the maximum amount they will lend you. But just because a lender will let you borrow a certain amount doesn’t mean you should spend it. There are rules lenders follow to determine what you can borrow, such as the 28/36 rule, which says that a homeowner should spend no more than 28 percent of their gross monthly income on housing expenses, and no more than 36 percent on overall debt. But buying a home also comes with significant upfront costs, such as the down payment and closing costs, so you’ll want to make sure you have savings left for emergencies and other unexpected expenses after you close on your new home. All in all, we recommend setting a search budget that is 10% less than what you have to spend. Having that buffer will come in handy to cover anything unforeseen.

ADDED BONUS PITFALL

6. Making Sudden Financial Changes Before a Mortgage Commitment

Big financial changes, like changing jobs, buying cars can affect how much a bank will lend you. Best to wait and make sure you get the best rate, and the full amount you’re seeking.

Frequently Asked Buyer Questions

What is escrow and where is the money held?

In the context of home buying, escrow refers to a third-party holding of funds or documents on behalf of the two primary parties involved in a transaction—usually the buyer and the seller. This process helps ensure that everyone fulfills their contractual obligations before the sale is finalized. Escrow is held with the seller’s attorney.

Here's how escrow commonly works in a home purchase:

1. Earnest Money Deposit: After a buyer makes an offer on a home and the seller accepts, the buyer often puts down an "earnest money" deposit to demonstrate their commitment to purchasing the property. This money is typically held in an escrow account managed by an escrow agent, often a title company or other neutral third party.

2. Inspections and Appraisals: The escrow period allows time for necessary inspections and appraisals to be conducted on the property. If any issues arise, the buyer and seller may renegotiate terms or terminate the contract.

3. Loan Approval: If the buyer is financing the property, their lender will be completing its underwriting process and approving the loan during the escrow period. The lender may require certain conditions to be met before funds are released.

4. Document Safekeeping: The escrow agent will also typically hold onto any important documents, such as the deed to the property, to ensure they are transferred properly at the time of sale.

5. Closing Costs and Final Payments: During the close of escrow, the buyer will typically send their down payment and closing costs to the escrow account. The escrow agent ensures that all funds are distributed appropriately—paying off any existing mortgages on the property, paying service providers, and transferring the remaining funds to the seller.

6. Ownership Transfer: Once all conditions are met and all parties have fulfilled their obligations, the escrow agent will oversee the signing of final paperwork. The deed is recorded, transferring ownership from the seller to the buyer.

7. Closing of Escrow: After everything is complete, the escrow account is closed, and the remaining funds are disbursed accordingly.

The escrow process protects all parties involved by ensuring that no funds or property will change hands until all conditions of the sale have been met. It adds an extra layer of security and peace of mind to a complex and high-stakes transaction.

If I’m in breach of the contract, can the seller take the entire amount?

The state of New Jersey is an “actual damage” state, and that means the seller can’t simply take your deposit. They have to first prove there is a default, then quantify the damages. It can be a long process, which is why this is often solved in negotiations before it goes to court.

What happens if the seller breaches the contract?

Fortunately, a home buyer has certain remedies available if it is proved that a seller has wrongfully failed or refuses to perform the obligations under a contract, including: termination of the contract and return of the deposit, plus payment of reasonable expenses, court-ordered completion of the home sale and money damages for breach of contract

What is the attorney review process, and why is it important to get into contract so fast?

The review process is when the accepted bid in contract form is delivered to both the seller’s and buyer’s attorneys. The clock starts counting down, and unless the buyer’s attorney rejects the contract (which would then require some back and forth), the deal will be under contract in 3 business days.

While cautious optimism is fine during the review period, but until you are truly under contract the house is still technically on the market, and on all the retail sites. It’s why you want to move things along as quickly as you can.

Here's how we can help: Getting to the contract phase is no time to relax. We believe we’re only halfway there—and will not rest until the contract is signed. We can select a local attorney who knows the players and how to get the deal done. We will stay on top of your attorney, because in a busy market, they are also busy (we’re your squeaky wheel!)We can ask the attorneys to put agents on copy so we can track and move things along

And if you are wondering "Is there value in using a local attorney with whom your agent has a relationship?" Yes. Local attorneys know the area agents and how to get the deal done. They are also well versed in the local laws (if you’re out of state), which can be crucial.

What are prorated taxes?

Tax proration refers to the allocation or dividing of certain money items in the settlement sheet for the property transfer. Calculations are performed at the closing to determine what amount of property taxes each party (seller and buyer) is supposed to pay for that tax year.

Is the rate capped? Does the town reassess after I buy it?

The town does have the opportunity to reassess the value of the property after a sale to adjust for current market value, and may typically assess it at 80-90% of that market value, but are not bound to that range.

Real estate isn’t about the singular transaction. It’s about helping your family build generational wealth.

Let's build your game plan for the future.

You're not alone. Whether you are a buyer or a seller, having a strategy to plan your next real estate endeavor is key to success - and we would love to share our expertise to ensure you win in the current market. We put our client's first and thats why we don't offer listing appointments or buyer consultations. We start with strategy first, understanding your unique situation, rather than selling you the features and benefits of hiring an agent. We want to help you build your long term real estate strategy and that starts with understanding your needs first and how to maximize value. To do that, you need to build a solid real estate strategy.

Get in touch today. We’re happy to discuss your unique housing situation and answer your questions—from the simplest inquiry to the most complex. Reach out and put your market worries to rest.