Top 10 mistakes potential buyers make when buying a home

For most people, buying a home is the most important financial transaction of their life. The purchase decision is undoubtedly a decision that must be made with careful thought and attention to detail. A potential buyer must consider many things when buying a home. A Muslim homebuyer has the added concern of finding Sharia-compliant financing. With the help of our Guidance Residential Account Managers, who have decades of experience in the home finance and residential real estate industries, we’ve compiled a list of the top ten mistakes homebuyers make to commit.

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10. DO NOT USE A REAL ESTATE PROFESSIONAL

Choosing the right professional for one of the most expensive purchases of your life is essential. With the ease of access to tools like Google and Zillow, unfortunately, many people think they know it all. Don’t fall into this trap! You must have an expert who has your best interest in mind, since the listing agent represents the seller(s).

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Your real estate agent should be equipped with all modern tools and technology, have knowledge of local communities, the ability to draft appropriate contracts, negotiate on your behalf, and most importantly, hold your hand and guide you every step of the way. of your transaction. A good real estate professional will protect their client from potential problems that may arise from appraisals, inspections and financing contingencies. The references of your realtor are of the utmost importance! It’s a good idea to interview a few real estate agents before going ahead with one. Interview questions, such as the following, can help you make the best decision for you and your family: 1) How many homes have you sold in the last year 2) How many clients do you currently work with and 3) Where are most of your customers purchased homes.

9. NOT HAVING A PLAN FOR WHERE YOU WANT TO BUY A HOUSE

When looking for a house, the client may not be fully aware of the characteristics of the different areas. Start making a list of “make or break deals” for you in a home and which features are “the icing on the cake”, this will help you narrow down your search list. Some common factors to consider include: school districts, ease of access, type of house, number of bedrooms and bathrooms, and masjids.

When buying a home, also consider the expenses associated with the type of home you are buying. These expenses can be homeowners association (HOA) fees, condo fees, and insurance. Also consider how long you plan to stay in the house, as this will impact the amount of your return on investment. You should be asking yourself, “Are home prices in this area going up or down?” “Do I plan to stay here for 5 or 10 years?” If you plan to reside in your home for a long time, think about improvements that are being made near your neighborhood, ie new developments or the construction of a new subway. These will (usually) have a positive impact on your home’s value when you sell your home.

If you’re unsure where you want to buy, we recommend asking your local real estate agent to show you 5-7 properties in different neighborhoods so you can familiarize yourself with the type of home your money can buy in different areas, you can then begin to refine your search.

8. NOT KNOWING HOUSE PROPERTY TAXES

Don’t forget your property taxes! Property taxes can be a game changer for a potential buyer’s ability to qualify for financing. Even if you plan to pay your taxes separately from your mortgage, your monthly taxes will still be considered when applying for financing. Be sure to ask about home property taxes early in the process!

7. DO NOT ORDER A HOME INSPECTION

Some homebuyers tend to think that a home inspection is the same as an appraisal and decide not to order a home inspection. These are 2 different reports with 2 different purposes. The purpose of the appraisal is to give a market value of the house, while the purpose of a home inspection is to find out if there are any defects, hidden or apparent, in the house. Be sure to hire a licensed and reputable inspector who will explain things to you during the inspection!

6. DON’T RENEGOTIATE AFTER A LOW EVALUATION

It is essential that your purchase contract includes a valuation emergency clause which will allow you to withdraw from the contract and receive a refund of your deposit if the valuation is lower than the sale price. This can indeed be the cause of a renegotiation of the sale price and save you money! If the difference between the selling price and the appraised value of the house is significant, you have good reason to believe that the seller of the house is overvaluing the house. If the seller is eager to sell the house, you as the buyer will be in a strong position to renegotiate the sale price.

On the other hand, if you and your family love the house and are willing to pay more than its market value, the possibility of an appraisal doesn’t have to kill the deal! Keep in mind that in a very competitive market or if you have a large down payment, it is not uncommon for buyers to waive the appraisal in order to make their offer more competitive.

5. NOT PAYING A SIGNIFICANT DEPOSIT. NOT CONSIDER RATE OF PROFIT IN SHARIAH-COMPLIANT HOME FINANCING

Unless unable to, a potential buyer should always try to put down a substantial down payment. The mark that every homebuyer should aim for is 20%. A 20% down payment will give the buyer the best rate and provide them with significant equity at the start of their mortgage.

On the other hand, you also want to consider the profit rate of Shariah-compliant real estate finance. Sometimes first-time home buyers will want to save up to 20%, but at the expense of a higher profit rate. This will end up defeating your original purpose of saving money. Consider all of your options and speak to your local Guidance Residential specialist to determine the best option for you.

4. HAVE BAD CREDIT

One of the main criteria needed to receive any type of financing is to have good credit. Anyone considering buying a home will need to be aware of their creditworthiness as it will play a major role in qualifying them. It is important to remember that obtaining credit does not have to be done by paying interest. A potential buyer can build their credit by applying for secured credit cards, 0% auto loans, and making sure bills are always paid on time!

3. NOT SHOWING ENOUGH INCOME ON TAX RETURNS (FOR BUSINESS OWNERS OR SELF-EMPLOYED)

It can be very tempting for business owners or self-employed people to claim every expense under the sun to reduce their taxable income. Unfortunately, this means there is less money in their pockets in the form of profits at the end of the year. When applying for funding, your gross income is irrelevant. What the banks will take into account are your profits or your net income.

2. NOT KNOWING THE DIFFERENCE BETWEEN SHARIAH-COMPLIANT AND CONVENTIONAL FUNDING

Finance in general is a field that can seem daunting and confusing. Unfortunately, financial literacy is not as widespread in the United States as it should be. The Muslim community, as part of society at large, is affected by this problem. It is important that you work with a financial institution that you trust and that you know all the ramifications of the type of financing you choose. There are many important differences between Shariah-compliant or Islamic financing and conventional financing. The first and most important difference is the fact that Islamic financing is not based on borrowing and lending. Islamic financing is almost always asset-backed financing. Shariah-compliant financing can provide protections not available in conventional financing. Learn more here.

1. NOT KNOWING THE DIFFERENCES BETWEEN TYPES OF ISLAMIC FUNDING

Not all Islamic financing options are created equal. When seeking real estate financing, a buyer should consider whether the financing method they choose is non-recourse or whether it allows the financier to exercise recourse against the buyer’s personal property. A potential buyer should also consider whether this form of financing will allow them to refinance or restructure their contract. Another important consideration to make is whether the Islamic financial institution will take risks with the home buyer.

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Thanks to our contributors: Shabeer S., Omar J., Sami K., Abdessamad M., Salah E., Mohamed H., Riffat L.