5 homebuying traps to watch for

There are all kinds of good reasons to buy a house right now, but you could minimize the benefits with these missteps.

By Karen Datko Apr 15, 2011 7:10AM

Some folks are itching to buy a house right now. The incentives couldn't be better. Interest rates are near historical lows, and in many areas of the country the cost of housing is at or near the lowest price it's going to get. 

 

Some might think the question is: What are you waiting for?

 

Stop, take a breath, and consider these traps to avoid before you make what will likely be the largest purchase of your life: Post continues after video.

Considering your house an investment. MSN Money's Liz Weston made this excellent point in a recent article:

(Yale economist Robert Shiller) found that except for a brief period after World War II and the boom between 2000 and 2006, the inflation-adjusted return on housing has been zero. Zilch. Nada. And Shiller's analysis didn't factor in the considerable costs of maintaining, repairing and modifying a home.

Your house is a place to live with tangible and intangible benefits -- you don't need permission to paint or decorate, and you have a place to call "home sweet home." However, depending on where you live, renting may be a far better financial option.

Buying too much house. Your lender and your real-estate agent will try to tell you how much you can afford, but they don't know your goals. Ever heard the expression "house rich, cash poor"? Weston advises, "In general, limiting your housing costs -- including mortgage, property taxes and homeowners insurance -- to 25% of your gross income will ensure you have enough money left over to cover other goals, like retirement savings."

Overpaying for a mortgage. Lenders are mighty picky about whom they extend credit to. Money Talks News explained how to get the best mortgage deal in three steps:

  • Increase your credit scores as much as possible.
  • Research interest rates and call the lenders to learn about fees.
  • Get lenders to compete for your business.

To that we'd add: Have a large down payment. Financing is still available for those without much skin in the game, but a large down payment means you'll have to borrow less, you'll have a lower monthly payment and you'll pay less interest over the life of the loan. It also could prevent your mortgage from exceeding the value of your home if housing prices in your area continue to drop. You don't want to be "underwater."

Buying if you don't intend to stick around. Three years used to be standard advice, but longer is better these days. We'd say five years. Weston says, "Even better, 10." Why? Given enough time, the value of your home will likely improve. Considering how expensive it is to sell and move, you'll be more likely to break even if you eventually relocate.

 

Skipping the home inspection. Otherwise smart people we know who did without a home inspection ended up in the proverbial money pit. You need an expert to tell you if the wiring meets code, the furnace is up to the job, the drainage is good and the structure is sound. Your Uncle Carl may be good at do-it-yourself repairs, but he won't have an eye for those kinds of details. Problems found during a professional inspection can allow you to back out of the deal without penalty or get the seller to make the repairs or lower the price of the house.

 

More on MSN Money:

VIDEO ON MSN MONEY

3Comments
Apr 15, 2011 12:29PM
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These aren't five traps to watch for.  These are five things people don't do because they are smarter than the person that wrote the artice. 

 

No agent would think about advising against these simple, simple thoughts and if you don't have an agent and don't know these things either, then you probably can't read this comment anyway. 

Apr 26, 2011 3:54PM
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  just called 80 percent idiot sucker fools?...the ballot box says it can not be true.........
Apr 26, 2011 3:37PM
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have we forgoten the banks print up 10 to 100 debt dollars with every dollar borrowed and these compete equally with every "real" hard earned, hard saved dollar and drove the prices higher by either 10 to 100 times the "value" thusly the once average average  245,000 dollar house had what value..?  i buy at prices that do not disturb my wallet, savings or futures except for where there are options as tax protestings...  i have found cash prices at one eigth the last sale prices, and only worry about carry costs as taxes and fee from all the vultures attached "sensibly" to bleeding people for the things they need....
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