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Shop smart to avoid costly mistakes

You want to buy a home. In a buyer's market, purchasing a home should be simple, you figure. But it isn't hard to make a costly mistake in the rush to buy. Here are some things you don't want to do.

Be in a hurry to buy a home. Corporate job transfers moving to a new city are considered by real estate agents to be best buyers because they usually have only a short time to acquire a new residence. By rushing to buy a home 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, buy a home 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 home, but not to buy one. Instead, look for a home needing minor cosmetic repairs such as painting, cleaning, repairing and landscaping. However, stay away from homes needing expensive work such as foundation repairs, new plumbing or a new roof, because these improvements usually don't add much value to the home.

Over-inspect the home before getting your offer accepted. Many home buyers develop "the paralysis of analysis." That means they inspect and inspect again before making a written purchase offer that 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, 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 cancel the purchase or negotiate a lower purchase price.

Forget the best source of home mortgage financing. Most home buyers and their real estate agents think there is only one way to finance a home purchase: with a 10 percent to 20 percent cash down payment and an 80 percent 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 percent 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 home. The biggest mistake most home buyers make, especially first-timers, is to offer too much. Remember, you can always come up in price, but you can't come down. One of the worst feelings for home buyers is to have their first offer accepted. That usually means they offered too much. Don't be afraid to negotiate hard.

Before making your offer, 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 homes for sale. Then you can add or subtract value for the pros and cons of the home you are offering to buy.

Get into a price bidding competition for a home. 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 home.

Fall in love with a home. 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 home with a major incurable defect. Although a home may seem like a bargain, if it has a major defect that cannot be corrected that drawback will hold down the value and make it difficult to sell. Examples of incurable defects include bad floor plan, noisy location, poor quality school district and a busy street.

Buy an overpriced new home. New houses usually are 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 a new home.

Forget the expenses of maintaining your home. Don't forget to budget for the expenses of your new home. The property taxes, water, electricity, heating, cooling and fire insurance bills are the major expenses.

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 home you want. Most home buyers have to stretch their budget by cutting out non-essentials, but as the years go by, your housing expense will seem easier to pay as your income increases.