Here are the 11 most common homebuying mistakes to avoid during your real estate transaction.   I’ve also included tips to save you money and aggravation along the way.  If you commit any of these errors, you can end up broke and very, very unhappy.

1.  Buying a home that’s too expensive

The most common homebuying mistake by far, is overspending.  It is so easy to fall in love with a beautiful home with all the bells and whistles.  Unfortunately, these bells and whistles can be costly and leave you house rich and cash poor.  One of the worst bits of advice I received from a well-intentioned friend was, “buy the house even if you have to read by candlelight.”  What??!!  If your mortgage is so high that you can’t pay the light bill, don’t buy the house.  You want to continue to enjoy your life, take a vacation or buy a car while still paying your mortgage.

2.  Not checking out the neighborhood first

It is important to remember that a home does not exist in a vacuum; it is a part of a community.  In fact, the 3 rules of real estate are LOCATION, LOCATION, LOCATION!!   Sometimes we fall in love with the house and ignore the location.  This is a terrible idea.   Before investing your hard-earned dollars, visit the home on your own at various times of day and various days of the week.  Is the block noisy?  Does the street have too much traffic?  Are there more renters or homeowners in the community?  Try talking to a neighbor who can give you more information about the property in question as well as the neighborhood.

3.  Buying before you know what you need 

In homeownership as well as in life, there are things that we absolutely must have and things that we absolutely don’t want.  Before initiating your home search, figure out those “must haves” and “don’t wants”.  Do you need a 5-bedroom house or are 3 bedrooms sufficient?  Do you want to be in a metropolitan area or the suburbs?  The answers to these questions will determine where you start shopping. 

4.  Buying a home with a Homeowners Association (HOA) 

An HOA is a governing body that manages a community of houses, townhomes or condo’s.  HOA members are elected by the homeowners to maintain the beauty and tranquility of the neighborhood and to enforce its covenants.  Homeowners in these areas pay an HOA fee monthly, quarterly or annually in addition to the mortgage, taxes and homeowners’ insurance.  There are also extra assessments when a large repair must be made.  The fees, rules and responsibilities of each HOA varies.  Prospective buyers must learn the rules for the specific community of interest prior to purchase. 

5.  Home Inspection problems 

A homebuyer has the responsibility of hiring a home inspector.  The inspector will go through the house to identify any needed repairs or structural issues prior to the closing.  Once the inspection is completed, the home inspector will report his findings to the lender and the seller.  If any significant issues are found, the purchaser could possibly cancel the contract or request a rebate from the seller for the repair cost.  The purchaser should always be present at the home inspection and ask questions.  You could find yourself paying for expensive repairs if you fail to participate in the home inspection process.

6.  Making large deposits or cash deposits into your bank account

The homebuying mistake is not as common but it is worth mentioning.  If you will be financing your new home, realize that the bank will be watching your finances carefully until you close.  The lender will analyze your bank statements and paycheck stubs to find any anomalies.  If there are any extra deposits that don’t match your check stubs or undisclosed expenses, the bank may ask for an explanation and supporting documents.  Why would extra money be questioned?  Because it could be a loan that must be repaid and thus increase your debt ratio.  If the debts are too high, the bank may deny your mortgage application.

7.  School district performance 

A perspective homeowner should always pay attention to the school district where the house is located.  This is always true, even if you don’t have or don’t plan to have children.  Just like a home’s location, a home’s school district can add a huge amount to the listing price.  It can also reduce the selling price in areas with underperforming schools.  School taxes can be a substantial burden on homeowners, adding hundreds of dollars to the mortgage expense.  If the schools that are supported by those taxes are excellent, the higher costs can be justified.

8.  Forgetting about maintenance and repairs 

At first glance, a large, beautiful home will be wonderful to own…until it’s not so wonderful.  Buyers often miss the fact that a supersized house has supersized expenses.  Everything will cost more.  Heating, cooling, landscaping, electric and water charges are all higher in a large home.  Furthermore, oversized properties take more time and money to keep clean.    

9.  Not having a buyer’s agent 

A real estate agent who works for the buyer is known as a buyer’s agent.  It is extremely important to have an advocate working for you when making your home purchase.  The buyer’s agent will negotiate with the seller’s agent if repairs must be made, or seller’s concessions are needed.  The best part is that the buyer’s agent shares the commission with the seller’s agent.  All commissions are paid from the sale proceeds, thus the purchaser has no out-of-pocket costs.

10.  No “walk through” on the day of closing

Various problems may be discovered during the home inspection process which must be fixed.  Additionally, the seller may agree to include furniture or fixtures as part of the deal.  How will you know that the repairs were made and done properly?  How do you ensure that the furniture and fixtures were not removed from the house?  You simply do another inspection with your broker on the morning of the closing.  If the repairs were not made, the purchaser can request a credit for the cost of the repair at closing.  This tactic may seem excessive, but it is absolutely necessary.  Unless you do the walk through, there’s no way to know that the seller corrected the problems.  Making a complaint after the closing is more time consuming and often ineffective.

11.  Not putting down enough money 

Although you can buy a home with as little as 0% down, it’s not always wise to do so.  If the loan is backed by the FHA, you must pay mortgage insurance of 1.75% of the selling price upfront plus pay extra monthly premiums for the life of the loan.  The annual premium (which is paid monthly) can be 0.45%-1.05%.  Over time these payments can add up.  If the buyer puts nothing down, there will be no equity in the home which will make it impossible to refinance the mortgage.  Likewise, selling a home with no equity will be difficult because the proceeds of the sale will all go to the mortgage company.  Extra closing costs owed by the seller would be paid out-of-pocket.

A final thought

Homeownership is a goal that many people are striving to reach but there are homebuying mistakes to avoid.  The most important thing to remember is that knowledge is power.  The more you learn about the process, the home and the community where you could live, the better off you will be.  You will be able to recognize a deal that’s worth pursuing.  More importantly, you will know when you need to walk away.