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The most expensive mistakes a homebuyer can make


By Glenda Taylor, Bob Vila

Not Working with a Buyer’s Agent


If you’re like many potential home buyers, you scan the listings of available homes in your area, choose one you like, and then call the agent who’s listed on the ad. Big mistake. This agent is the seller’s agent and is legally bound to represent the seller’s interests, not yours. To protect your financial interests, you need a real estate agent who represents buyers—a buyer’s agent. Once you contract with one, she’ll handle all communications with other agents, show you through homes, and work on your behalf.


Failing to Negotiate the Sales Price


First-time home buyers often worry about insulting the seller by offering less than the asking price. This can be a costly mistake because most sellers are prepared to come down on their price. Your buyer’s agent can counsel you on an appropriate bid based on how long the house has been on the market and the recent sales prices of similar homes, but the final decision is up to you. Don’t be afraid to negotiate.


Not Cleaning Up Bad Credit


Life happens—perhaps you were out of work for a while and made a couple of car payments late, or you misplaced the occasional credit card bill. Unfortunately, it takes only a few late payments to negatively affect your credit score, and if you have less-than-stellar credit, you’ll end up paying more in interest on a home loan. Before you start house-hunting, obtain a free copy of your credit report and work toward raising your credit score. Many communities offer free credit counseling to help you clean up your credit.


Buying a Fixer-Upper


If you’re a fan of home improvement shows, you may think you’re ready to tackle a fixer-upper. But before you sign on the dotted line, there’s something you should know. Many communities require licensed professionals to upgrade wiring, plumbing, and roofing. Even if you’re allowed to do the work yourself, it will have to meet local building codes. So, if you’re not 100 percent confident in your building skills, you may end up having to hire subcontractors, and this will add substantially to the cost of a house that needs a lot of work.


Buying “As Is” Without Inspections


You’ve undoubtedly seen houses listed “as is,” but those two words should send up a red flag. When a seller lists a property “as is,” it means the seller will not warranty any defects in the house. What you see is what you get with these houses. Before making an offer on an “as is” house, pay to have the home professionally inspected. It will cost around $400, depending on the size of the house and the complexity of the inspection, but what you learn about the condition of the home will save you from getting stuck with unexpected, expensive repair costs.


Getting the Wrong Loan


Unless you’re buying a house to flip, don’t be lured by the promise of the low monthly mortgage payments that come with an adjustable-rate mortgage (ARM). An ARM offers low payments for a year or so, but after that the payments can increase along with increases in the national prime lending rate. If the Fed raises interest rates, you could end up with monthly payments so high you’re forced to sell. Get a fixed-rate mortgage from the start, and you’ll always have the same monthly payment.


Having a Change of Heart


When you make an offer on a house, you put down earnest money as a show of good faith. The amount of money is up to you, but it’s typically well over $1,000. If the deal falls through because you couldn’t obtain financing or because an expensive problem was uncovered during an inspection, you’ll get your money back. If you back out of the deal because you found a better house, however, you’ll lose your earnest money. It pays to be very sure before you make an offer.


Overestimating Your Budget


It’s always a good idea to get preapproved for a loan before you start house-hunting. That way you’ll know exactly how much you can spend. But being approved up to a certain amount doesn’t mean you should spend that amount. Owning a house involves a lot of unforeseen costs, such as utility costs, homeowners association fees, maintenance and repair costs, property taxes, and more. Once you factor in all those costs, buying a house at the top of your preapproval rate could strain your finances.


Buying a House on Emotion


If the house with a white picket fence and cottage-style shutters brings back fond memories of your childhood visits to grandma's, it can be difficult to see past its curb appeal. Buying on emotions can be a costly mistake if the house doesn’t meet your real-life needs. Your best bet is to make a list of all the things you need in a house and then eliminate any houses that don’t meet those needs, no matter what nostalgic or joyful feelings they may stir up.


Making a Small Down Payment


In the long run, you’ll pay a lot more for a house if you put down a tiny down payment. Your lender may accept as little as 3 percent of the cost of the home as a down payment, but if your down payment is less than 20 percent, you’ll have to pay private mortgage insurance (PMI), and you could also get stuck with a higher interest rate. Combined, the two could add thousands of dollars to your annual mortgage costs. If possible, save up so you can put 20 percent down when it comes time to buy.


Talking to Only One Lender


Don't assume that all lenders are offering the same interest rates and terms on home loans. Before working with any lender, it’s a good idea to visit at least three and ask about their rates, fees, and terms. Request an estimated amortization schedule from each and then compare the numbers. Over the course of a home loan, you could save thousands just by choosing the right lender.


Skipping the Walk-Through


The inspection is over, your financing is in place, and you’re getting ready to close on your new house. A few hours or a day before the closing, you’ll have the option of taking one last walk-through before you finalize the deal and get the keys to the house. Don’t skip the opportunity. At this point, the house is usually vacant so it's easier to spot problems, and it's your last chance to see if anything’s wrong. Switch all the lights on and off, check the appliances, look under the sinks for leaks—make the most of the walk-through, because once you close, you, not the seller, are responsible for repairs.



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Home Magazine: The most expensive mistakes a homebuyer can make
The most expensive mistakes a homebuyer can make
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