Buying a Home - Avoid These Mistakes
By Steve Gillman - 2008
If you haven't yet done it, be warned that buying a home can
be a stressful process. In part this is because it's usually
the single largest purchase of your lifetime. It's easy to make
a mistake that can cost you hundreds or thousands of dollars
- even if you have been through the process before. With that
in mind, here are three common mistakes to watch out for.
1. Having Too Much Trust In Lenders
Lenders are not all out to get you, and you don't need to
look at them suspiciously, but they're not necessarily looking
out for what's best for you - that's your job. The lender's job
is to sell loans to home buyers. As we can see now (2008), many
loans are not suitable if you want a secure future, so don't
let a mortgage broker or banker do your thinking for you. There
may be good reasons for an interest-only, adjustable-rate, zero-down
loan, but not often.
Listen politely to what a lender recommends or suggests, then
ask him only for facts, and do your own math (get a friend to
help if necessary). Suppose the rate on your loan goes from 5%
to 10%. What will the payments be, and can you easily afford
that? Would you be taking a risk that doesn't make sense?
2. Over-Paying
Over-paying for a particular home could be a problem, but
that mistake is tough to make if you borrow to buy the house.
The lender will have an appraisal done, and will likely refuse
to lend enough for you to buy an over-priced house, thus protecting
you from this mistake. But that's not the mistake I'm referring
to here.
This is about following the advice of real estate agents,
lenders and even your friends, who may encourage you to buy a
more expensive home than you can handle. They'll say it's an
"investment" and claim that real estate always goes
up in value, so you should buy as much as you qualify for. Recent
history shows that home values don't always rise, of course.
This kind of thinking has a lot of families facing foreclosure.
Aim for a price level you feel comfortable with. Ask yourself
if you can easily make the payments, even after a short layoff
from work. If not, you may be aiming too high. Watch out for
lenders "solutions" to this problem, as explained above.
3. Putting Too Much Trust In Real Estate Agents
The real estate agent who helps you, like the lender, has
his own goals. He or she may wish you the best, but they wish
even more good for their own families, so the primary goal is
to sell something and sell it fast. Remember that unless the
agent is explicitly working for you, she has a fiduciary responsibility
to work against you when that's what's best for the seller of
the house. For example, if she thinks you'll pay more because
of a comment you made, she must pass that information on to the
seller.
A buyer's agent can be biased too. They are working for you,
but still only get paid (typically) when a sale is closed. It's
a good reason to push you into a home fast, whether or not it's
the best one for your purposes.
Note whether an agent is showing you the houses that suit
your needs, rather than the ones that he or she likes. Some real
estate agents don't listen very well. They show you what they
think you should want, rather than asking important questions
to determine what you need. This can lead you to buy a house
which doesn't suit your needs or costs more than you want to
pay.
Real estate agents are not experts on all things, and some
are barely an expert on anything at all. I've met agents who
don't understand a simple seller-financing offer. Others suggested
that cracks in foundations were "no big deal," though
they knew nothing about construction or home inspection. Take
what they say with a grain of salt, and seek out other counsel,
unless an agent has specific experience in an area.
Avoid these three mistakes when buying a home, and you should
get one that is actually right for you.
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