In the current buyer’s market, purchasing a house should be simple, you figure. But it isn’t difficult to make a costly mistake in the rush to buy a house. To minimize your chances of making an expensive error, here are the 10 worst home buying mistakes to avoid.
• Be in a hurry to buy a house. Corporate job transfees moving to a new city are considered by real estate agents to be best home buyers because they usually only have a short time to acquire a new residence. By rushing to buy a house after just a brief visit or two to a new community these home buyers often buy in bad school districts, overpay for their homes, don’t have them thoroughly checked by professional inspectors, and don’t check out neighborhoods carefully before buying.
• Buy a red ribbon deal. If you want to pay top dollar for a house, buy a house in perfect condition so all you have to do is turn the key in the door. For that privilege you will be paying full market value. That’s the way to sell a house, but not to buy one. Instead, look for a home needing minor cosmetic repairs such as painting, cleaning, repairing and landscaping. Shrewd home buyers discount the price by more than the cost of the renovations, thus making their first profit at the time of purchase. However, stay away from houses needing expensive major work such as foundation repairs, new plumbing and new roof because these improvements usually don’t add much value to the home.
• Over-inspect the house before getting your offer accepted. Many home buyers develop “the paralysis of analysis.” That means they over-inspect the home before making a written purchase offer which the seller can accept. By the time they are ready to buy, someone else has made a purchase offer. If you are unsure about the home’s condition, just include a contingency clause in your purchase bid, such as, “This offer contingent upon a satisfactory professional inspection of the home by a licensed contractor.” Should the inspection reveal unexpected defects, you can then either cancel the purchase or negotiate a lower purchase price.
• Forget the best source of home mortgage refinancing. Most home buyers and their real estate agents think there is only one basic way to finance a house purchase with a 10 to 20 percent cash down payment and an 80 or 90 percent home mortgage. But there are many other methods. The best source of home mortgage financing is the home seller. If the home is owned free and clear, don’t hesitate to ask the seller to carry back the first mortgage at a fair interest rate such as 9 or 10 percent.
The big advantage is you won’t have any loan fee to pay. More important, you won’t have to meet the often unreasonable rules for obtaining a mortgage from a bank or S&L. Another easy finance method is to assume an existing assumable mortgage, such as a VA, FHA or ARM mortgage, with the seller carrying back a second mortgage.
• Offer too much for your new house. The biggest mistake most home buyers make, especially first-timers, is they offer too much. Remember, you can always come up in price, but you can’t come down. One of the worst feelings for house buyers is to have their first offer accepted. That usually means they offered too much. Don’t be afraid to negotiate hard.
To be certain you aren’t offering too much for a home, before making your offer bid ask the real estate agent to prepare a written comparative market analysis. This form will show you the recent sales prices for similar neighborhood homes, as well as asking prices of other comparable nearby houses currently for sale. Then you can add or subtract value for the pros and cons of the house you are offering to buy.
• Get into a price bidding competition for a house. A closely related mistake is to get into a price bidding competition with another buyer. If you learn another buyer is offering to buy the same home you want, back off. The only winner will be the seller because one of you will overpay for the house.
• Fall in love with a house. Another major mistake many home buyers make is they become emotionally involved with a home and they become heartbroken if they can’t buy it. No matter how much you love a home, don’t let the real estate agent and the seller know. If you do, you can be sure the seller will hold out for top dollar. The old negotiation tactic “He who cares least wins” should become your motto.
• Buy a house with a major incurable defect. Although a home may seem like a bargain, if it has a major defect which cannot be corrected that drawback will hold down the value of that home and make it difficult to sell when you are ready to move up. Examples of incurable defects include bad floor plan, noisy location, poor quality school district, and a busy street.
• Buy an overpriced brand new house. New houses are usually priced substantially above nearby comparable older homes. The reason is home buyers will pay more for a new home because they think it won’t need repairs for many years. But be careful, especially when buying one of the first homes in a new subdivision where the builder may have artificially inflated the prices. Check comparable new home prices in nearby subdivisions before buying.
• Forget the expenses of maintaining your house. Finally, don’t forget to budget for the expenses of your new house. The property taxes, water, electricity, heating, cooling and fire insurance bills are the major expenses to consider. If you can keep your total monthly housing cost including mortgage payment below 40 percent of your family’s gross income you should be able to afford the house you want. Most house buyers have to stretch their budget by cutting out nonessentials, but as the years go by your housing expense will seem easier to pay as your income increases.