Five Costly Home Buying Mistakes

Buying a home is a big financial commitment – very likely, the biggest financial investment you’ll ever make.

from Zillow
Five Costly Home Buying Mistakes© George Doyle/Stockbyte/Thinkstock

Buying a home is a big financial commitment – very likely, the biggest financial investment you’ll ever make. And if you don’t go about it the right way, you could end up making costly mistakes along the way. Here are five costly home buying mistakes:

Trying to time the market bottom
No doubt, the real estate market has been in a tailspin for several years now.  As a result, everyone is in limbo — sellers are on the sidelines because many of them owe more on their homes that the home is worth, and buyers are waiting for prices to drop further.  Remember, buyers: Home prices are just one factor in how much a home will cost per month. The other consideration is mortgage rates.  They’re rising — and that means higher monthly payments. In fact, even if home values fall — and we’re expecting them to drop another 5-7 percent this year — higher mortgage prices could counteract that. For example, say a house was worth $300,000 in November 2010.  If you bought it then, got a fixed-rate mortgage of 4.1 percent and put 20 percent down, it would cost you a little over $1,200 a month. If you waited just two months, and values dropped 1.8 percent, it would cost you $63 more per month; if you waited 14 months, when values are projected to be down about 6 percent and mortgage rates are projected to reach 5.7 percent (per Freddie Mac), your payments would be $126 more per month. Ouch.

Not researching loan options
Get this: Borrowers are spending twice as much time researching a car purchase than they are home loans — 5 hours versus 10, respectively — even though homes cost an average of five times more! This disparity can cost you thousands of dollars over the long haul. That’s why it’s important to shop around for different loan options. A site like Zillow Mortgage Marketplace enables borrowers to get unlimited loan quotes from vetted lenders without sharing any personal contact information. That means you compare different mortgage rates and terms without having to field follow-up calls from lenders. It’s risk-free shopping.

Buying a house you can’t afford
In addition to getting pre-approved before you house hunt, know that as a general rule of thumb, the total cost of your mortgage payment (including any taxes and insurance) — should not exceed 30 percent of your take-home pay.

Not knowing your credit score
Find out what your FICO score is (or get a ballpark credit score here for free) and if it’s sub par – in the low 600s, for example – launch a campaign to raise it, keeping in mind that even a 20-point increase could save you thousands of dollars over the life of the loan.  What’s ideal? The lowest interest rates are reserved for those with a score of 720 or above.

Falling in love too quickly
Love is blind! Don’t let your emotions get to the best of you.  If you do, you may overlook costly flaws, skip an inspection, fail to factor in commute times (gas prices are up there!), property taxes, the location/neighborhood (an important consideration for resale purposes), and more. To ensure you’re getting the best house at the best price, take the time to shop around, comparing at least three homes before you make a decision. You’ll be glad you did.

Vera Gibbons is a financial journalist based in New York City and is a contributor to Zillow Blog. Connect with her at http://veragibbons.com/.

  • Your Comments

    • Leanardo

      Good post. I have found this website with a free calculator. The service is free for seniors to use and they compare different reverse mortgage providers so you can get a good deal on a reverse mortgage. I recommend you visit this website.
      Reverse Mortgage Lenders Direct . com

    • http://derek-turner.webs.com/moneytransfers.htm Forex Trader

      Skipping an inspection would be a big mistake, but at least in
      California most buyers wait to spend the money on an inspection until
      after their offer has been accepted, with an inspection contingency.
      Then you’re not spending money to inspect a home that someone else gets
      to buy.

    • http://derek-turner.webs.com/moneytransfers.htm Forex Trader

      Skipping an inspection would be a big mistake, but at least in
      California most buyers wait to spend the money on an inspection until
      after their offer has been accepted, with an inspection contingency.
      Then you’re not spending money to inspect a home that someone else gets
      to buy.

    • http://indiana.churchillmortgage.com/ Selena Manchester

      Costly is never a fun word. For home-owners, the mistakes in cost can cause a lot of burden and time-consuming problems.

    • http://www.theinvestortoday.com real estate course

      I’ve seen too many buyers trying to time the market bottom. When real estate goes up or down, often it does so very gradually or very quickly. Your advice is spot on that if you overplan, you’re just going to miss it altogether. Worry about getting a good deal and not about where the market is going since you don’t control the latter.

    • http://www.theinvestortoday.com real estate course

      I’ve seen too many buyers trying to time the market bottom. When real estate goes up or down, often it does so very gradually or very quickly. Your advice is spot on that if you overplan, you’re just going to miss it altogether. Worry about getting a good deal and not about where the market is going since you don’t control the latter.

    • Glensarahs

      You can also refinance to a lower interest later. A lower purchase price is better. Who says everyone finances? Who says everyone is going to stay in the home until it is paid for?

    • Glensarahs

      I don’t like this article. You can counteract the increase in interest by paying extra to your mortgage. You can’t counteract the purchase price.  I’d rather pay a higher interest vs a higher purchase price.

      • Lumloy371

        The purchase price can be counteracted with negotiation, trading, an inspection revealing defects, comps & patience. One can make a standing offer, which might begin to look good if the market will not accommodate the asking price.