Mistake _9. Overextending Your Budget

A lender who pre-qualified you for a loan may tell you that you’re able to buy a $150,000 house. But keep in mind that buying for the full amount you can qualify for may put you out of your comfort zone. It’s not uncommon for homebuyers to purchase the max they’re qualified for and not have the cash flow to decorate or put in the yard for a few years. Some homeowners can handle this, while others are frustrated by having no furniture or a dirt yard. For most people it works out better to go for a smaller house and be able to put in a yard or redecorate.
Now that qualifying ratios are more credit driven than in the past, lenders are approving debt ratios as high as 65 percent. That means that your house payment and all other debts equal 65 percent of your income. Some families can handle that kind of debt load, while others would go bankrupt fast. It’s up to you to look at your lifestyle and realistically determine what you can handle. However, there’s another way to look at the amount of home you can buy.
Some people claim you should buy the most home you possibly can now. As your income goes up and home values rise, you win. You not only save a move but end up with more equity and a home you’ll enjoy more.
This approach worked for many owners who bought in the last 30 years and have watched their homes’ value soar dramatically. Many of these homeowners say they struggled in the beginning, but as their incomes went up, the house payments took a smaller part of their paycheck.
Fred and Rhonda were among those homeowners who bought their home in 1979 for $32,000 and recently sold it $196,000. According to Fred, their house payment in the beginning took nearly a third of his income. By the time they sold it, it was nearly paid off and took less than 10 percent of his paycheck.
Neither way is right or wrong. It just depends on your values and priorities.

Mistake _8. Buying a Property That’s Hard to Sell

This is one the biggest mistakes homebuyers make. It happens so often that you wonder what buyers are thinking when they sign the purchase agreement. The most common reason given by these homebuyers for why they bought a certain property is that it was such a good deal. It was the biggest house they could find for the price.
Typical hard-to-sell properties are:

• Homes that back up to railroad tracks, freeways, industrial areas, frontage roads, etc.
• Homes that have been overimproved for the area. A typical example would be a 900-square-foot bungalow with an addition on the back or side. Sometimes it’s a well-planned addition that blends in; other times it’s a tacky add-on. Neighborhoods that have become run down with a high percentage of rentals or foreclosed properties.
• Homes that stray too far from the architectural mainstream of what people are buying. Typical examples are round homes, earth-covered homes, and conversions from other buildings, such as barns, silos, and sheds. They can be quaint and even be featured in a home magazine, but selling and getting back the money invested in them is not always easy. Properties that have lot or landscaping problems. Examples are a steep slope for a backyard or a gully; little or no backyard; or no privacy from neighbors. The way a house sits on a lot can also affect value. And of course the most common problem is exterior and interior colors that don’t complement or fit the house. You may love bright blue, but if you paint your house that color, you’ve just reduced its value considerably.

One instance of a homeowner making a property impossible to sell involved a buyer who spent $30,000 adding on to a small (800-square-foot) 40-year-old house. It was done professionally and did blend in. Still, the end result was an older house with an add-on. In this case, the most it would add to the house’s value was around $10,000. Unfortunately, the owners had taken out a second mortgage to do the addition, and now they couldn’t sell the home for anywhere near what they owed.
For them the worst case was that they would have to stay in the home for a few years until they paid down the loan. It could get ugly if they had to move because of a job transfer in the next few years. Another common reason buyers give for purchasing these properties is that they can fix them up or correct the problems. That may be so, but by the time they add up the costs and time, it would have been much cheaper to buy a better house or a better location. When you look at a property and see a negative but feel other features may outweigh the problems, especially price, slow down and think it through. There are red flags waving.

Mistake #7. Buying a Home on Impulse

Too many new homebuyers and existing homeowners fall into the trap of going through a model home in a new subdivision, and the next thing they know they’ve committed to buy. You need to look at several new home projects and 10 to 20 existing homes before you get serious. New homes are professionally decorated and carefully arranged to push your emotional buttons. Existing homes are sometimes spruced up or staged to do the same thing. Resist the temptation to buy before you look around and know what’s available in your area. If you’re living in a one-bedroom apartment, anything over 900 square feet can look spacious. The impulse to grab the first home that tugs on an emotional string or two is strong. If it’s a new construction, check out the builder’s reputation. Talk to three or four people who bought from that builder and listen to what they have to say. This is also a great way to see what your neighbors would be like.
Mike and Linda were seriously considering buying a home in a new subdivision. They loved the style and floor plan of the models and had even talked to the builder’s lender. But before they committed, they decided to check with several homeowners on one of the first streets built in the subdivision.
They learned there were some unresolved drainage problems and that several homebuyers were considering legal action. Also, many of the callbacks took several weeks to resolve, and then only after repeated calls. It didn’t take long to realize that the builder didn’t have too good a reputation, and further checking revealed he had declared bankruptcy less than a year ago. That was enough for Mike and Linda to write that project off their list and move on. Luckily they did, because that development was featured on a local news channel a couple of months later for the problems the homeowners were having with the builder and developer.