8 Buying Mistakes That Could Cost You Your New Home
Few homebuyers stop to think about the fact that they could lose their home. But mistakes do happen. Some are hard to avoid—resulting from bad advice, bad luck, or a falling market. Many mistakes, however, can be avoided with just a little bit of extra knowledge.
Here are eight easy-to-avoid mistakes that could lose you your home before you've even had a chance to enjoy it.
Choosing Bad Agents
Not all real estate agents are equally qualified simply because they hold a real estate license. While some may know the territory and have your best interests in mind, many are poorly informed or are working hard to be sure the seller gets the most they can from the sale.
With that reality in mind, here are some key steps to follow when selecting an agent:
- Interview your agent and don't worry about the possibility that you'll offend them by asking hard questions or clarifying the agent's answers.
- Avoid hiring the cheapest and most eager agent you can find, regardless of experience, because you believe that agent will work harder for you.
- Be sure to sign a buyer's broker agreement.
- Once you have signed on with an agent, stick with them. Avoid the mistake of going directly to the listing agent of the home you decide to buy and asking that agent to write a purchase offer for you.
Wiping Out Savings
How much should you spend on your new home? The simple answer: You should spend what you can afford.
If you put every cent you can scrape together into a down payment for your new home, borrow money from relatives to pay your closing costs, and plan on charging all repairs and future maintenance to a credit card—you're spending too much.
Need to cash out your retirement accounts to make ends meet? Don't.
Attending "No Money Down" Seminars
Free seminars may sound like a great way to learn about real estate. After all, you have nothing to lose but time, right?
In reality, many of these seminars usually look a little more like this: You start by calling that toll-free phone number to make a reservation. Then, you sit through a three-hour sales pitch for books, tapes, CDs, and specially discounted services hawked by seminar gurus who have most likely never bought or sold a piece of real estate in their lives. But they are hoping to capitalize on your vulnerability.
If you follow the advice of your so-called guru, you may find yourself making dozens of lowball offers that get rejected, until you find a seller who will carry all the financing at 18% interest with a three-year balloon payment.
In the end, you'll have lost a lot more than time; meanwhile, everyone else—including the "guru" and the bank—will make a fortune off your mistakes.
Refusing Professional Advice
If you are a real estate expert, you would not be reading this article. That means you likely need professional advice as you put together your loan and mortgage agreement. Here are some ways to start:
Picking Wrong Neighborhoods
The three most important words in real estate are location, location, location. That means that even a terrific house in a bad neighborhood can be a poor investment.
How can you tell whether the neighborhood is bad? Sometimes it's obvious, but a little research can also be very helpful. Try doing the following:
- Ask the police department about crime statistics.
- Talk to neighbors before you buy.
- Walk the neighborhood at different times of day, looking for issues such as junk in the yards or boarded-up windows.
- Compare the price of the house you're considering to the price of other houses in the neighborhood. If it’s priced thousands less than homes in neighborhoods you’ve considered but cannot afford, chances are the location is the problem.
Choosing "Exotic" Financing
The lower your monthly payment, the more money you will have leftover every month to spend on other things. That said, it's important to carefully examine the fine print describing very low-cost loans, which may look great today but turn out to be a real problem in a year or two.
What's wrong with low-cost loans? Many so-called "exotic" loans have rates that start low and then balloon. Others are adjustable, which means this year's low rate could become next year's exorbitant rate.
Passing Up Home Inspections
No matter how lovely it is, every home has its challenges. While peeling paint and broken railings are visually obvious, a failing roof, corroded pipes, problematic wiring, or an elderly heating system may escape your notice. All of these cost money to fix.
How do you spot problems—especially when they're covered, hidden, or inside the walls?
Home inspections are your best tool for finding what's wrong, and qualified home inspectors are trained to check into every system, appliance, and pipe. Of course, you're not going to turn down your dream house because it needs a new coat of paint—but you may be able to negotiate the price, or ask the owner to have the house painted before purchase.
What happens if you decide you would prefer to save the money you would spend on a home inspection and instead buy a new barbecue grill? There's a good chance you won't notice that the interior walls are crumbling because a fresh coat of paint can work wonders.
Plunging Into Debt After Closing
Now that you’re a homeowner, you’re blown away by all the incentives arriving in the mail offering great deals on a home equity loan. They may be enticing: You could pull out all your equity and use this newfound money to buy all those necessities you’ve been denying yourself and your family.
A vacation in Hawaii next December sounds wonderful to you. Or what about buying patio furniture, or maybe new decking or a spa for the backyard?
If this sounds like a great plan, think again. Having bought a new home, you have a responsibility to care for and pay for your investment. If you spend yourself into more debt, the first minor setback—such as a lost job or health care emergency—could send you into foreclosure.