Mistakes are difficult to avoid in something as complex as home buying, especially for the first time home buyer.
And it's the simple missteps that can end up costing you for years. After all, you can’t return a home the way you would a pair of shoes.
The good news is that with a little planning, research and professional insight the worst mistakes can often times be avoided.
Here are five home buying mistakes that could cost you thousands of dollars in the long run -- and how to avoid them.
Mistake #1. Not Hiring a Real Estate Agent or Realtor
Most people would say 3% of the selling price is a bit much just for filling out paper work and showing you a couple of homes, but real estate agents do a lot more than that.
A buyer's agent -- not a seller's agent, take note -- has access to homes outside of mainstream listings, market data you probably can’t find on your own and connections that can help you with everything from financing to legal papers and finding a reputable home inspector.
If you've done your part and selected a quality real estate agent, he or she can negotiate with the seller's agent to get you the best deal on the home, at the best price. A good agent should also be experienced navigating the various procedures and contracts necessary to complete the process of buying a home.
Mistake #2. Buying a House That Won't Sell
Although a house might be a perfect fit for your needs, it's important to consider its resale value. Be on the lookout for marketable features such as a good view, nearby schools and location benefits, as well as architectural details that set it apart from other homes.
If there are small issues you're overlooking because you're anxious to buy a home, chances are you'll have to get those fixed before you can sell the property in the future. Does the kitchen need updating? Is the house next door a rental residence? Would the house be more accommodating with an extra bathroom? Negotiate the contract to cover all of these issues, or be prepared to walk away.
Don't be afraid to take a realistic view of the property -- the best house in a not-so-good area is still just another house in a crummy neighborhood.
Mistake #3. Getting Too Attached
Don’t hang your hat on a home, no matter how perfect it is. Letting the seller or his agent know how much you want the home can make them hold out for a better offer, or propose their own terms knowing that you’ll bend anyway.
There’s likely to be a similar or better home out there -- take advantage of the buyer's market and keep looking until you find the right fit. If nothing else, be prepared to walk away from the house if you're not getting everything you want out of the deal.
Mistake #4. Forgetting to Make a Contingent Offer
Two things should always appear in a purchase offer: a financing contingency and an inspection contingency. The financing contingency allows you to walk away or negotiate if the home appraises for less than your offer price.
The contingent offer requires a professional inspector to go over the home and declare it safe, and lets you cancel or change terms if any problems are found. Without these contingencies, you risk tying yourself to a home you don’t want and terms you may not be happy with. So if problems are found, work with your real estate agent to make a contigent offer to get a fair home price.
Mistake #5. Borrowing More For a House Than You Can Afford
One of the biggest problems with sub-prime lending was making people believe they could afford homes which they really couldn't. What the bank is willing to lend you isn’t necessarily an accurate indicator of what you can afford.
Have a budget in mind before you start shopping for loans. Your agent, lender, mortgage broker or financial advisor can help with assessing your financial situation and recommending a comfortable price range. Besides the mortgage and closing costs, consider the overall cost of living associated with the property, including homeowners’ association dues, utilities, and property taxes.
Once all of these factors have been considered, ask yourself if you can realistically afford the home and if the price range accommodates your other financial goals, such as education and retirement savings.
The Investing Answer
If you’re spending the better part of your earnings on a home, it makes sense to ensure you’re making the right choice. A few extra hours of research and questioning can save you a good deal of financial stress in the future. Plus, you'll thank yourself even more once you've successfully negotiated the purchase of your dream home.