10 Home Buying Mistakes

    Beware:
    Many homebuyers get too much house, the wrong mortgage and fail to consider
    resale value.

    No matter. The same pitfalls
    await whether you’re shopping for a starter home or a lavish mansion. And in
    the current market, with houses selling within days — even hours — of being
    listed, buyers are prone to make mistakes.

    “The problem is people
    get caught up in a wave and they get steered into a transaction,” said
    Richard Roll, president of the American Homeowners Association. “They
    think, ‘If I don’t [buy] now I’ll never be able to do it.’…You’ve got to do
    your homework.”

    1. YOU DIDN’T SET A BUDGET

    Buy a home that’s way out of
    your price range and you could well derail your ability to fund other important
    items such as retirement savings, your kids’ education — not to mention an
    entertainment budget.

    Mortgage brokers will tell
    you how much you can borrow. But that amount may not be what you can afford to
    pay, said Eric Tyson, co-author of “Home Buying for Dummies.”

    “What if you have a lot
    of kids or you like to travel a lot?” he said. “You’ve got to ask
    ‘How is this housing purchase going to affect our monthly spending?’ You have
    to look at all of your monthly expenditures.”

    Experts say your total
    monthly debts, including your mortgage, should not exceed 36 percent of your
    income before taxes. (To help find the right-priced house for you, read our
    primer on how much home you can afford. And for help estimating how much
    mortgage you may get, try our mortgage qualifier.)

    2. YOU PICKED THE WRONG MORTGAGE

    These days, many homebuyers
    are rushing to secure a mortgage as fast as possible without fully exploring
    their options. That’s because sellers often only consider bids from individuals
    who have been pre-approved for a loan. A word of advice? Pick your financing package
    with care.

    Among your choices:
    adjustable rate mortgages, or ARMs, and the more traditional fixed-rate
    mortgages. These days,15-year fixed mortgages have interest rates of 6.39
    percent compared with 6.8 percent for the 30-year loan. Keep in mind that
    shorter-term mortgages will cost more per month since you’re paying off your
    loan faster. Monthly mortgage

    payments on a 15-year fixed
    loan typically run 25 percent higher than the 30-year option, said Keith
    Gumbinger, vice president at HSH Associates.

    First-time home buyers may
    qualify for a program through Fannie Mae (800 732-6643) that requires lower
    down payments and easier qualification limits than standard loans.

    3. YOU PICKED THE WRONG COMMUNITY

    Some places are just flat-out
    expensive, and you’ll probably have to search for a location that’s affordable.
    That doesn’t mean you should choose the cheapest locale.

    If you don’t like the
    location you’ll be unhappy. What’s more, you’ll probably have a hard time
    selling your property if the community isn’t good. Ask around and read the
    local papers to know how the community is faring economically, what the major
    issues are, how many resources it offers.

    Don’t neglect the schools.
    Gather such data as test scores, statistics on the percentage of kids who
    graduate and go to college, the student/teacher ratio and so on. Talk to
    parents and students to get the inside scoop.

    4. YOU DIDN’T KNOW WHAT HOMES REALLY COST

    The best way to determine if
    you’re getting a fair deal is by comparing the cost of the home you’re interested
    in with similar homes in an area. You can do this easily by having your Realtor
    provide you with a CMA (that’s short for Comparable Market Analysis). A CMA
    lists such things as addresses of recently sold homes, prices, date sold, the
    number of bedrooms and bathrooms and — ideally — such things as the home’s
    condition, its size and extra features.

    5. YOU USED A BAD REAL ESTATE AGENT

    Don’t make buying a home more
    difficult by choosing the wrong agent. You want a buyer’s agent who works for
    you and understands your needs and financial limitations.

    References from friends can
    help you find a good pro. Interview three, and ask to see their activity lists,
    which reveal every property the agent sold (or whose clients bought) in the
    past year. Look at sales prices. Make sure the agent has significant experience
    in the area where you want to live and the price range that you’re looking for.

    6. YOU NEVER WENT BACK TO CHECK ON THE NEIGHBORHOOD

    If you’re like most homebuyers,
    you probably spend many weekends looking for a new dwelling. But what happens
    to the neighborhood on weekdays or after dark? Is the house that’s
    “convenient to town” sitting on a main thoroughfare that fills up
    with cars come commute time?

    The only way to answer these
    questions is to go back and see what the neighborhood’s like at various times
    of the day and week. Do your neighbors spend weekends with the stereo blaring?
    You want to know as much about the neighborhood as possible before you buy.

    7. YOU FORGOT TO CONSIDER RESALE

    It’s easy when you’re house
    hunting to forget what it’s going to be like to sell your home down the road.
    But as you tour homes, put yourself in the perspective of the sellers. You may
    be drawn to a home that has quirky features or no closets or just one, tiny
    bathroom (You can use armoires. Share showers.) But others may not be as
    enthusiastic. When you buy, think about the day it comes time to sell.

    8. YOU BOUGHT THE MOST EXPENSIVE HOME ON THE BLOCK

    It’s wonderful when you find
    your dream house, but if it’s the most expensive home on the block you could
    have a problem. Quite simply, your neighbors’ lower home values will dampen
    yours. Remember, people who buy a $500,000 home usually want to be surrounded
    by other $500,000 homes, not tiny $100,000 bungalows.

    9. YOU DIDN’T DO AN INSPECTION

    Bottom line: you should never
    buy a home without having it inspected. After all, you don’t want to learn that
    you’ve bought a house that’s filled with termites or has a frazzled electrical
    system. If you’re building a new home, an inspection can ensure that all the
    work has been finished properly.

    Home inspections typically
    run $300 to $600 and usually include a check of a home’s heating and air
    condition systems, plumbing and electrical works, roof, walls,
    foundation/structure, drainage, the garage and basement.

    What’s frequently not
    covered? Termite, radon, asbestos, mold and lead inspections. Don’t rely on inspectors
    to hire other pros to check for these items, said Mike Casey, president of the
    American Society of Home Inspectors.

    “Most home inspectors
    will describe what they do and what they don’t do,” Casey added. “It
    might be a good idea to ask what standards do they work to.”

    Underground heating oil
    storage tanks also should be inspected before you buy since leaking tanks cause
    huge environmental, legal and financial problems. (A seller’s disclosure
    statement should reveal if there’s an underground tank on the property.) The Environmental
    Protection Agency has tank guidelines for homeowners — plus contacts at state
    Department of Environmental Protection offices — so you can find pros to help.

    Finally, it’s unwise to hire
    a home inspector who is recommended by a Realtor, since they’re likely to refer
    you to a pro who won’t kill a sale. Instead, use recommendations from friends
    or go to the American Society of Home Inspectors for a list of inspectors in
    your area.

    10. YOU FORGOT ABOUT CLOSING COSTS

    Think it’s bad to pay tax
    when you eat out? Wait until you’re paying closing costs, which can run 2 to 5
    percent of the home’s purchase price, according to Tyson.

    A mortgage lender should
    provide you with a specific estimate of what costs will be. But keep in mind
    they include such things as
    origination (points) on a loan, escrow fees, title and homeowners
    insurance, legal costs, property taxes, fees to record your need deed and
    notary fees. 

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