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Buying a Home - Avoid These Mistakes

By - 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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