The 106 Common Mistakes Homebuyers Make (and How to Avoid Them)

The 106 Common Mistakes Homebuyers Make (and How to Avoid Them)\ \ By Gary W. Eldred \ John Wiley & Sons\ ISBN: 0-471-75123-5 \ \ \ Chapter One\ Profit from the Mistakes of Others \ Thinking about buying a home? Good for you. You're about to make one of the best personal and financial decisions of your life-if you do it right. And that's just what this book will help you do.\ As you read through the eye-opening stories-sometimes funny, sometimes sad-you will see how to steer clear of potential pitfalls. Even better, you will learn to profit from the opportunities that you discover (or create) along the way. You will gain not only from the knowledge I've accumulated from dozens of my own property transactions, but also from the experiences of hundreds of homebuyers, real estate agents, mortgage loan officers, and home inspectors.\ Here are some of the fears, mistakes, and pitfalls you'll learn how to handle:\ 1. Getting turned down for a mortgage\ 2. Paying too much for mortgage interest, fees, and costs\ 3. Overpaying for your house\ 4. Discovering that a house or neighborhood comes with hidden and unwelcome surprises\ 5. Being taken advantage of by a real estate agent, loan officer, or lawyer\ 6. Buying too little, too much, or the wrong kind of insurance\ 7. Suffering discrimination\ 8. Buying a house whose value doesn't appreciate much\ 9. Running into problems at (or on the way to) closing\ 10. Buying a house that doesn't meet your needs, wants, or budget\ Unlike other books on homebuying, the discussions here don't merely present general principles, simplistic questions, or a "homebuy-ing process." Instead, 106 Mistakes illustrates what you need to know through dozens of real-life examples. Through these examples, you'll see how to conquer your confusion, become more confident, and make the right homebuying decision.\ The Origin of This Book\ Throughout the past 20 years I've taught graduate and undergraduate college courses in real estate; professional education programs for Real-tors(r), home builders, and mortgage loan officers; and Stop Renting Now!(tm) seminars that are directed especially toward first-time home- buyers. In these courses, one of the most favored classroom topics has been "How to prevent mistakes in homebuying."\ Although just about everyone knows that real estate, particularly home ownership, stands out as one of the best ways to build personal wealth, a growing number of people also realize that successful home-buying doesn't occur easily. It requires education. Shopping for a home, negotiating, arranging financing, and qualifying to buy have become much more complex. There are many ways to get bamboozled. Natu-rally, then, learning about the mistakes of others has proved to be a good prescription for a happy and profitable homebuying experience.\ When I first began to discuss mistakes in homebuying with my classes, I relied on many of my own experiences (and mistakes). Over time, though, students were eager to broaden their knowledge and learn firsthand about the mishaps, misfortunes, and mistakes suffered by oth-ers. As a result, I incorporated "interview papers" into class assignments. To carry out these assignments, students interviewed Realtors, home builders, loan officers, recent homebuyers, and other people involved in homebuying and financing.\ The students asked their interviewees to describe in concrete detail the homebuying mistakes that the interviewees had made themselves or had seen others make. Next, the students wrote up their conversations and we scheduled a class session or two to discuss what they had learned.\ These classroom discussions became quite popular. As a result, many students suggested that they would like to see the most common (and costly) mistakes I've collected brought together in a book. Fortunately, John Wiley & Sons, Inc., and senior editor Michael Hamilton agreed. In this book we've aimed to help you benefit from the experiences of hun-dreds of people who have been involved in homebuying. Read through these stories and apply the lessons to your own situation. You'll enjoy a more profitable and more satisfying homebuying adventure.\ (Continues...)\ \ \ \ \ Excerpted from The 106 Common Mistakes Homebuyers Make (and How to Avoid Them) by Gary W. Eldred Excerpted by permission.\ All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.\ Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site. \ \

1Profit from the Mistakes of Others12Explore Possibilities, Set Priorities4Mistake #1We want to own, but we pay less to rent5Mistake #2We want to own, but we don't have enough for a down payment9Mistake #3We can't afford to buy; the monthly payments are too high13Mistake #4No bank will give us a mortgage16Mistake #5Our agent told us to get prequalified (or preapproved) by a lender so we would know exactly how much home we could afford18Mistake #6Our agent said not to waste time looking at homes outside our price range20Mistake #7Sure, we would like to buy our own home someday21Mistake #8I wanted to wait until I got married22Mistake #9We were told not to buy unless we planned to stay put for at least four or five years24Mistake #10We know exactly what we want26Mistake #11We have to have a pool29Mistake #12We liked the house on Elmwood best, but our furniture wouldn't work there31Mistake #13There were so many rules, it was like living under socialism32Mistake #14What! Beans for dinner again?34Mistake #15We bought because we were so tired of looking35Mistake #16We feared that discrimination would limit our possibilities for home ownership373Home Ownership: How to Make It Your Best Investment40Mistake #17We're not planning to buy. Experts say home prices won't appreciate in the future as they have in the past41Mistake #18The experts were wrong in the past, but things are different today43Mistake #19Lower rates of inflation mean lower rates of appreciation for homes45Mistake #20We thought we could make higher returns investing in stocks47Mistake #21We weren't concerned about our home as an investment; we just wanted a comfortable place to live52Mistake #22We were told to buy in the best neighborhood we could afford. The best neighborhoods always appreciate the fastest55Mistake #23We were told never to buy the biggest or most expensive house in the neighborhood57Mistake #24I'd never buy a condominium. They make poor investments59Mistake #25AT&T never lays anyone off, do they?62Mistake #26With all the new construction, we thought the economy was really booming. Home prices had to go up64Mistake #27The newspapers say home prices are decreasing/increasing674How to Find a Good Buy69Mistake #28We thought we got a real bargain. Our house was listed $20,000 below other houses we looked at in the neighborhood69Mistake #29We thought we got a real bargain. We paid $20,000 less than the appraised value71Mistake #30The appraiser didn't tell us home values were going to fall77Mistake #31We didn't think to calculate replacement costs79Mistake #32We didn't pay attention to lot value. We wasted $32,000 on remodeling81Mistake #33Those "comps" weren't really comps83Mistake #34We figured the swimming pool added more to the home's value than it really did85Mistake #35We looked at selling prices but still overpaid88Mistake #36The sellers named the price, we named the terms90Mistake #37Everything looked like a bargain91Mistake #38I didn't buy anything. All the houses were grossly overpriced925Locate a Great Neighborhood95Mistake #39My agent said this was a good school district95Mistake #40We never saw the railroad tracks97Mistake #41We bought into an upscale development that's moving downscale99Mistake #42When we bought our house, the land across the street was a cornfield. Now it's a parking lot and shopping center101Mistake #43It didn't occur to me that on weekends the place could turn into a zoo of wild kids and party animals103Mistake #44Those people were a bunch of snobs105Mistake #45You're saying we can't build a fence around our yard? Isn't that unconstitutional?107Mistake #46No need to worry; those laws are never enforced110Mistake #47We live in Naperville, but our kids can't go to Naperville schools112Mistake #48We didn't know there were stables nearby. The wind was blowing from a different direction the day we looked113Mistake #49No one told us we had bought in a flood plain114Mistake #50After a downpour, we can't drive down these roads115Mistake #51We seldom see the sun here116Mistake #52We bought out in the county to avoid the city's high property tax rates117Mistake #53The city cut our services and raised our taxes118Mistake #54Everyone around here seems apathetic. They've accepted decline119Mistake #55The sellers said it was only 25 minutes to downtown121Mistake #56We didn't walk the neighborhood1226Is This Home for You?124Mistake #57Our agent said it was a lot of house for the money124Mistake #58Our agent was part order-taker, part chauffeur, and part narrator-but she didn't give us the help we needed126Mistake #59Our agent never mentioned ...128Mistake #60We didn't hire a professional inspector. My dad knows all about houses133Mistake #61We didn't think a new home needed to be professionally inspected135Mistake #62I thought lead paint had been outlawed years ago136Mistake #63We now know why the sellers put up paneling in the downstairs den139Mistake #64After we moved in, the sellers' remodeling contractor put a lien against our home. And we had to pay it!140Mistake #65We should have looked at the utility bills141Mistake #66Those little repairs and renovations sure can add up143Mistake #67Before we could add central heat and air, we had to spend $1,800 for new wiring and ductwork145Mistake #68The house looked great. I just didn't like cold showers, listening to my son's favorite radio station, or lugging groceries up the stairs147Mistake #69We had such great views148Mistake #70I didn't notice that the house was situated on two lots149Mistake #71We focused on problems, not possibilities1507Negotiate Win-Win152Mistake #72We thought our agent represented us153Mistake #73I tried to buy directly from an owner to save the commission, but instead lost $10,000156Mistake #74We didn't know we could withdraw our offer160Mistake #75We never met the sellers. We didn't know anything about them161Mistake #76The worst they can do is say no164Mistake #77We thought the sellers had accepted our offer165Mistake #78The listing handout said "wet bar/sink" included166Mistake #79We fell in love with the house and had to have it169Mistake #80Our negotiations centered on price170Mistake #81"Split the difference" sounds like a good compromise to me172Mistake #82We let our agent negotiate for us174Mistake #83We pushed to get the absolute best deal we could1768The Best Loan at the Lowest Cost178Mistake #84We never heard of special financing for people like us179Mistake #85We thought the FHA loaned only to low-income people and involved too much red tape183Mistake #86We wanted a fixed-rate mortgage. ARMs were too risky189Mistake #87We didn't negotiate for seller financing193Mistake #88Those were the fastest two years of our lives195Mistake #89I paid $2,500 down to lease-option a townhouse, then found out that no bank would give me a mortgage197Mistake #90We paid too much for our mortgage199Mistake #91Our lender canceled our loan approval because I went into labor early and had to take temporary leave from work210Mistake #92My loan fell through because of poor credit. But it wasn't my credit that was bad213Mistake #93Our lender turned down our loan application2159Become a Satisfied Homeowner221Mistake #94Our friends told us we were getting a great deal222Mistake #95The layer created more problems than he solved224Mistake #96We shouldn't have taken escrow allowances for repairs227Mistake #97We accepted an escrow allowance of $6,000 for termite damage. Our repairs cost $18,347229Mistake #98We thought the roof warranty was good for 20 years231Mistake #99Our homeowners' insurance didn't cover our losses234Mistake #100After we bought, property taxes jumped $2,200 and we got hit with a $1,600 special assessment for new sidewalks238Mistake #101We didn't know title insurers offered discount policies241Mistake #102Our closing was like showdown at the OK Corral243Mistake #103We couldn't believe the way the sellers left the house for us244Mistake #104The sellers wouldn't move out of the house24610The Biggest Mistakes of All249Mistake #105We didn't buy. We were afraid of making a mistake249Mistake #106We thought it over. We're going to continue renting25211How to Afford the Home You Want25712Draft Your Offer280Internet Appendix301Index304