Home Buying Blunders That Can Cost You Money

Home Buying Blunders That Can Cost You Money

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Doing a deal right can mean tens of thousands of dollars in your pocket

There’s plenty you can do to affect how much money you spend on a purchase, according to our survey of real estate pros.   In a typical transaction, the money you stand to gain from making smart moves—or lose from making poor ones—can be substantial, from 11 to 20 percent of a home’s value, according to our survey.  Dodging the following errors will lead to the smoothest, most profitable buying experience.  Following are the top 5 home-buying blunders.

Rushing into a deal 

One of the more costly mistakes home buyers make is agreeing to too high a price on a home, according to the real estate agents in our survey. A related mistake is overestimating one’s knowledge of the real estate market. “It’s not until you've been in the market in a particular area for a while that you know what homes are really worth,” says Brendon DeSimone, a real estate agent and author of “Next Generation Real Estate: New Rules for Smarter Home Buying & Faster Selling” (Changing Lives Press, 2014). “If you make an offer on the first house you fall in love with, you risk spending too much based on emotion, not practical sense.” So take your time, go see lots of homes, and get a good idea of the local price scale. A tip: If you do enter into negotiations on a house and they come to a standstill, don’t be afraid to walk away.

Biting off more than you can chew

Of the surveyed agents, 33 percent said another mistake customers make that puts them in a more financially untenable situation is underestimating the costs of home ownership. It’s not enough to calculate the monthly mortgage. You also need to factor in your closing costs and all of the additional fees you’ll owe. Many of the fees are negotiable, such as the home inspector’s fee, the cost to do a title search, etc. And find out what the current homeowner pays for utilities, taxes, and other monthly costs, so you can be sure you can really afford that home. Also get estimates for repairs you want to make to the home before you move in.

Failing to upgrade your credit score

To get the most favorable rate on a loan, you have to have a strong credit profile, and that means a credit score of at least 740, says Greg McBride, chief financial analyst for Bankrate.com. Recently, if your score was 740 and you applied for a $300,000, 30-year fixed mortgage, you could qualify for a 3.75 percent interest rate, with monthly payments of $1,389. If your score was below 680, the best national rate we found on Bankrate.com was 4.25 percent, with a monthly payment of $1,476 for the same loan; over the life of the loan, you’d pay $31,130 more. Don’t wait until the last minute to scrutinize your credit reports and make any necessary changes to improve your profile. If you find errors, be sure to dispute them.

Not shopping around for a mortgage*

When shopping for that mortgage, compare the deals you can get from a mix of large national banks, online banks, local regional banks, credit unions, mortgage brokers, and mortgage companies. Interest rates can fluctuate daily, so try to shop on the same day or within a few days, if possible. Keep in mind that while lenders, brokers, and agents can be informative, they also have a stake in the transaction. You shouldn’t rely only on the information you get from those that have something to sell. The Consumer Financial Protection Bureau offers a toolkit that lets you check interest rates by state, understand loan options and advises you on how to win at the closing table when you are ready to finalize your purchase. Another good idea: Get pre-approved for a loan before you shop; sellers take preapproved buyers more seriously.

Skipping the home inspection

“One of the biggest causes of buyer’s remorse I see is people who do not do a home inspection and find out later there were big problems with the house,” says Betty Gross, a real estate agent in New York. You want to be present during the inspection to learn about any costly repairs that might be needed and to get basic info on the home, such as where the electrical panel is and where you shut off the water. A home inspector can also point out repairs that will need to be done in the next few years. You can find licensed home inspectors in your area on the website of the American Society of Home Inspectors.

Consumer Reports March 2015

Darik Steinbach Headshot
Phone: 952-239-4290
Dated: April 14th 2015
Views: 190
About Darik: I have been selling residential real estate in Minneapolis full time for 10+ years. I constantl...

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