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

Gary W. Eldred

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 493

Veröffentlichungsjahr: 2011

Beschreibung

Everything first-timers need to know to avoid the most common mistakes homebuyers make Written especially for first-timers, this eye-opening guide turns you into an educated consumer, ensuring that the home or condo you buy is both a comfortable place to live and a great investment for the future. Compiled from the experience of hundreds of homebuyers, real estate agents, home builders, and mortgage lenders, it shows you the most common mistakes buyers make and illustrates them in practice so you don't fall into the same traps. Now revised and updated for today's hot real estate market, this invaluable resource covers everything from negotiating with sellers and making the down payment to shopping for the best mortgage and handling the closing. The new Fourth Edition also includes totally up-to-date guidance on using the Internet to find properties, secure financing, and collect important data. If you're thinking about buying a home in this overheated market, don't make these mistakes: * Researching selling prices and still overpaying * Believing everything your agent tells you * Buying into an upscale neighborhood that's moving downscale * Underestimating utilities and other costs * Allowing your agent to negotiate for you * Letting fear get the better of you and not buying at all Written by one of the nation's leading real estate experts and packed with hundreds of valuable tips and suggestions, The 106 Common Mistakes Homebuyers Make, Fourth Edition will give you the confidence--and the wisdom--to buy the right home at the right price.

Leseprobe

Table of Contents

Praise

Title Page

Copyright Page

Preface to the Fourth Edition

Special Note for Investors

Acknowledgments

CHAPTER 1 - Profit from the Mistakes of Others

The Origin of This Book

CHAPTER 2 - Explore Possibilities, Set Priorities

MISTAKE # 1 - We want to own, but we pay less to rent.

MISTAKE # 2 - We want to own, but we don’t have enough for a down payment.

MISTAKE # 3 - We can’t afford to buy; the monthly payments are too high.

MISTAKE # 4 - No bank will give us a mortgage.

MISTAKE # 5 - Our agent told us to get prequalified (or preapproved) by a ...

MISTAKE # 6 - Our agent said not to waste time looking at homes outside our ...

MISTAKE # 7 - Sure, we would like to buy our own home someday.

MISTAKE # 8 - I wanted to wait until I got married.

MISTAKE # 9 - We were told not to buy unless we planned to stay put for at ...

MISTAKE # 10 - We know exactly what we want.

MISTAKE # 11 - We have to have a pool.

MISTAKE # 12 - We liked the house on Elmwood best, but our furniture wouldn’t ...

MISTAKE # 13 - There were so many rules, it was like living under socialism.

MISTAKE # 14 - What! Beans for dinner again?

MISTAKE # 15 - We bought because we were so tired of looking.

MISTAKE # 16 - We feared that discrimination would limit our possibilities for ...

CHAPTER 3 - Home Ownership: How to Make It Your Best Investment

MISTAKE # 17 - We’re not planning to buy. Experts say home prices won’t ...

MISTAKE # 18 - The experts were wrong in the past, but things are different today.

MISTAKE # 19 - Lower rates of inflation mean lower rates of appreciation for homes.

MISTAKE # 21 - We weren’t concerned about our home as an investment; we just ...

MISTAKE # 22 - We were told to buy in the best neighborhood we could afford. ...

MISTAKE # 23 - We were told never to buy the biggest or most expensive house ...

MISTAKE # 24 - I’d never buy a condominium. They make poor investments.

MISTAKE # 25 - AT&T never lays anyone off, do they?

MISTAKE # 26 - With all the new construction, we thought the economy was ...

MISTAKE # 27 - The newspapers say home prices are decreasing/increasing.

CHAPTER 4 - How to Find a Good Buy

MISTAKE # 28 - We thought we got a real bargain. Our house was listed $20,000 ...

MISTAKE # 29 - We thought we got a real bargain. We paid $20,000 less than the ...

MISTAKE # 30 - The appraiser didn’t tell us home values were going to fall.

MISTAKE # 31 - We didn’t think to calculate replacement costs.

MISTAKE # 32 - We didn’t pay attention to lot value. We wasted $32,000 on remodeling.

MISTAKE # 33 - Those “comps” weren’t really comps.

MISTAKE # 34 - We figured the swimming pool added more to the home’s value ...

MISTAKE # 35 - We looked at selling prices but still overpaid.

MISTAKE # 36 - The sellers named the price, we named the terms.

MISTAKE # 37 - Everything looked like a bargain.

MISTAKE # 38 - I didn’t buy anything. All the houses were grossly overpriced.

CHAPTER 5 - Locate a Great Neighborhood

MISTAKE # 39 - My agent said this was a good school district.

MISTAKE # 40 - We never saw the railroad tracks.

MISTAKE # 41 - We bought into an upscale development that’s moving downscale.

MISTAKE # 42 - When we bought our house, the land across the street was a ...

MISTAKE # 43 - It didn’t occur to me that on weekends the place could turn ...

MISTAKE # 44 - Those people were a bunch of snobs.

MISTAKE # 45 - You’re saying we can’t build a fence around our yard? Isn’t ...

MISTAKE # 46 - No need to worry; those laws are never enforced.

MISTAKE # 47 - We live in Naperville, but our kids can’t go to Naperville schools.

MISTAKE # 48 - We didn’t know there were stables nearby. The wind was blowing ...

MISTAKE # 49 - No one told us we had bought in a flood plain.

MISTAKE # 50 - After a downpour, we can’t drive down these roads.

MISTAKE # 51 - We seldom see the sun here.

MISTAKE # 52 - We bought outside the city limits to avoid its high property ...

MISTAKE # 53 - The city cut our services and raised our taxes.

MISTAKE # 54 - Everyone around here seems apathetic. They’ve accepted decline.

MISTAKE # 55 - The sellers said it was only 25 minutes to downtown.

MISTAKE # 56 - We didn’t walk the neighborhood.

CHAPTER 6 - Is This Home for You?

MISTAKE # 57 - Our agent said it was a lot of house for the money.

MISTAKE # 58 - Our agent was part order-taker, part chauffeur, and part ...

MISTAKE # 59 - Our agent never mentioned …

MISTAKE # 60 - We didn’t hire a professional inspector. My dad knows all about houses.

MISTAKE # 61 - We didn’t think a new home needed to be professionally inspected.

MISTAKE # 62 - I thought lead paint had been outlawed years ago.

MISTAKE # 63 - We now know why the sellers put up paneling in the downstairs den.

MISTAKE # 64 - After we moved in, the sellers’ remodeling contractor put a ...

MISTAKE # 65 - We should have looked at the utility bills.

MISTAKE # 66 - Those little repairs and renovations sure can add up.

MISTAKE # 67 - Before we could add central heat and air, we had to spend ...

MISTAKE # 68 - The house looked great. I just didn’t like cold showers, ...

MISTAKE # 69 - We had such great views.

MISTAKE # 70 - I didn’t notice that the house was situated on two lots.

MISTAKE # 71 - We focused on problems, not possibilities.

CHAPTER 7 - Negotiate Win-Win

MISTAKE # 72 - We thought our agent represented us.

MISTAKE # 73 - I tried to buy directly from an owner to save the commission, ...

MISTAKE # 74 - We didn’t know we could withdraw our offer.

MISTAKE # 75 - We never met the sellers. We didn’t know anything about them.

MISTAKE # 76 - The worst they can do is say no.

MISTAKE # 77 - We thought the sellers had accepted our offer.

MISTAKE # 78 - The listing handout said “wet bar/sink” included.

MISTAKE # 79 - We fell in love with the house and had to have it.

MISTAKE # 80 - Our negotiations centered on price.

MISTAKE # 81 - “Split the difference” sounds like a good compromise to me.

MISTAKE # 82 - We let our agent negotiate for us.

MISTAKE # 83 - We pushed to get the absolute best deal we could.

CHAPTER 8 - The Best Loan at the Lowest Cost

MISTAKE # 84 - We never heard of special financing for people like us.

MISTAKE # 85 - We thought the FHA loaned only to low-income people and ...

MISTAKE # 86 - We wanted a fixed-rate mortgage. ARMs were too risky.

MISTAKE # 87 - We didn’t negotiate for seller financing.

MISTAKE # 88 - Those were the fastest two years of our lives.

MISTAKE # 89 - I paid $2,500 down to lease-option a townhouse, then found out ...

MISTAKE # 90 - We paid too much for our mortgage.

MISTAKE # 91 - Our lender canceled our loan approval because I went into labor ...

MISTAKE # 92 - My loan fell through because of poor credit. But it wasn’t my ...

MISTAKE # 93 - Our lender turned down our loan application.

CHAPTER 9 - Become a Satisfied Homeowner

MISTAKE # 94 - Our friends told us we were getting a great deal.

MISTAKE # 95 - The lawyer created more problems than he solved.

MISTAKE # 96 - We shouldn’t have taken escrow allowances for repairs.

MISTAKE # 97 - We accepted an escrow allowance of $6,000 for termite damage. ...

MISTAKE # 98 - We thought the roof warranty was good for 20 years.

MISTAKE # 99 - Our homeowners’ insurance didn’t cover our losses.

MISTAKE # 100 - After we bought, property taxes jumped $2,200 and we got hit ...

MISTAKE # 101 - We didn’t know title insurers offered discount policies.

MISTAKE # 102 - Our closing was like showdown at the OK Corral.

MISTAKE # 103 - We couldn’t believe the way the sellers left the house for us.

MISTAKE # 104 - The sellers wouldn’t move out of the house.

CHAPTER 10 - The Biggest Mistakes of All

MISTAKE # 105 - We didn’t buy. We were afraid of making a mistake.

MISTAKE # 106 - We thought it over. We’re going to continue renting.

CHAPTER 11 - How to Afford the Home You Want

Affordability Depends on You

Housing Cost (Front) Ratio

Total Debt (Back) Ratio

Tricia and Herb Renko Shape Up Their Financial Fitness

Steve Runs the Numbers

Qualifying the Renkos

Back to the Housing Cost Ratio

Mortgage Approval Often Requires a Strategy to Qualify

Qualifying Ratios and Compensating Factors

Compensating Factors Make a Difference

Types of Compensating Factors

Put Your Compensating Factors (Letters of Explanation) in Writing

Credit Record

What about Major Setbacks?

Freddie (and Fannie) Encourage Lender Flexibility

Are You a Manageable Credit Risk?

Write Clear Letters of Explanation

Get Copies of Your Credit Reports

Automated Underwriting and Credit Scoring

Objective or Irrational?

Borrower Gains and Losses

You Can Raise the Necessary Cash

Fiscal Fitness Exercises

Save More by Cutting Your Expenses

Save More, Increase Your Income

Seek a Gift, Grant, or Loan for Your Down Payment

CHAPTER 12 - Draft Your Offer

A Legally Enforceable Agreement

In Writing

Includes the Names and Signatures of All Parties

No Counter Offer Changes

Delivered to the Other Parties

Clauses Clear and without Material Mistake

No Material Fraud or Misrepresentation

Buyers, Too, Must Speak the Truth

Parole Evidence Rule Doesn’t Apply

A Clear and Comprehensive Agreement

The Myth of the Standard Contract

Property Description

Earnest Money

Required Minimum

Don’t Give the Sellers Your Deposit

What Happens to the Money?

Contingencies

The Financing Contingency

Physical Inspection Contingency

Types of Inspection Experts

Attorney Approval Contingencies

Other Types of Contingencies

Assignments

Prorations (Apportionments)

Calculating Prorations

Decide ahead of Time

Backup Offers

Time Is of the Essence

Risk of Damage

Same Condition Clause

Spell Out the Condition You Want

Casualty Damage

Final Walk-Through

“As Is” Condition

Proceeds from Condemnation (Eminent Domain)

An Example

Buyers’ Rights

Date of Possession

Lease Agreement

Penalty Clause

Keys, Warranties, Et Cetera

Quality of Title

Preliminary Title Report

Title Insurance

Who Pays?

Notices and Extensions

Dispute Resolution

Attorney Fees and Costs

Who Is the “Prevailing” Party?

“Reasonable” Fees and Costs

Implications

Sloppy Drafting: An Example

Summing Up

Internet Appendix

Index

Praise for Author Gary Eldred

“Donald Trump and I have created Trump University to offer the highest quality, success-driven education available. Our one goal is to help professionals build their careers, businesses, and wealth. That’s why we selected Gary Eldred to help us develop our first courses in real estate investing. His books stand out for their knowledge-packed content and success-driven advice.”

—Michael W. Sexton, CEO Trump University

“Gary has established himself as a wise and insightful real estate author. His teachings educate and inspire.”

—Mark Victor Hansen, Coauthor, Chicken Soup for the Soul

“I just finished reading your book Investing in Real Estate, 4th Edition. This is the best real estate investment book that I have read so far. Thanks for sharing your knowledge about real estate investment.”

—Gwan Kang

“I really enjoyed your book, Investing in Real Estate. I believe it’s one of the most well-written books on real estate investing currently on the market.”

—Josh Lowry Bellevue, WAPresident of Lowry Properties

“I just purchased about $140 worth of books on real estate and yours is the first one I finished reading because of the high reviews it got. I certainly wasn’t let down. Your book has shed light on so many things that I didn’t even consider. Your writing style is excellent. Thanks again.”

—Rick Reumann

“I am currently enjoying and learning a lot from your book Investing in Real Estate. Indeed it’s a powerful book.”

—Douglas M. Mutavi

“Thanks so much for your valuable book. I read it cover to cover. I’m a tough audience, but you’ve made a fan here. Your writing is coherent, simple, and clean. You are generous to offer the benefits of your years of experience to those starting out in this venture.”

—Lara Ewing

Copyright © 2006 by Gary W. Eldred, PhD. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

Eldred, Gary W.

The 106 common mistakes homebuyers make : and how to avoid them / Gary W.

Eldred.--4th ed.

p. cm.

Includes index.

ISBN-13 978-0-471-75123-6 (pbk.) ISBN-10 0-471-75123-5 (pbk.)

1. House buying. I. Title: One hundred six common mistakes homebuyers make. II. Title: Common mistakes homebuyers make. III. Title.

HD1379.E43 2005

643’.12--dc22

2005047505

Preface to the Fourth Edition

Successful sales for the three previous editions of 106 Mistakes proved that this unique guide to mistake-free homebuying will give you the heads-up knowledge you need. Indeed, I greatly appreciate the positive comments that readers have sent me (via e-mail: [e-mail]) as well as favorable media reviews (a special thanks to Robert Bruss). In addition, 106 Mistakes has been condensed by Reader’s Digest and cited in many leading publications such as Business Week, Money Magazine, Your Money, Bottom Line, and Kiplinger’s Personal Finance.

Now, this new fourth edition keeps everything that past readers have found helpful, but it also presents the latest developments in the fields of homebuying and mortgage lending. Plus, we’ve added examples and information that show you how to:

1. Identify homes that will appreciate the fastest.

2. Qualify and secure lower cost financing.

3. Work profitably with your real estate agent and loan broker.

4. Understand the ins and outs of credit-scoring.

5. Write and negotiate your purchase offers.

6. Gain valuable information from the Internet.

Because failing to buy remains the number-one mistake of renters, this fourth edition includes an expanded Chapter 11, “How to Afford the Home You Want.” This chapter leads you through the mortgage qualifying process and shows you how to shape up your finances and strengthen your borrower profile. Because many homebuyers still mistakenly accept without question the so-called standard purchase contract form, Chapter 12, “Writing Your Offer,” explains the pitfalls of such contracts and tells how to rewrite them to achieve a win-win agreement.

For homebuyers who wish to use the web, I’ve included within each chapter various web sites where you can research topics such as home values and sales prices, neighborhood data, mortgage loans and costs, financial calculators, consumer information, environmental hazards, bargain-priced properties, credit scores, credit records, and school rankings. For your convenience, I’ve also listed these web sites in an Internet Appendix. You’ll find a comprehensive homebuyer checklist that integrates with the topics covered in this new edition at the web site, www.stoprentingnow.com.

I’ve written this fourth edition of 106 Mistakes to guide you through a satisfying and profitable homebuying adventure. I wish you the best as you move toward your cherished goal of home ownership.

Special Note for Investors

Although I originally wrote 106 Mistakes to guide homebuyers, investors (both new and experienced) have told me that the examples in this book have helped them avoid buying the wrong property. Condo investors especially appreciate the tips on how to read markets and forecast price increases.1 So, whether you buy a home or an investment property, 106 Mistakes will guide you to a better choice. Indeed, when you follow this advice, your home will almost certainly prove to be your best investment.

Acknowledgments

For their valuable help in preparing this fourth edition, I thank my secretary Barbara Smerage and assistant Mohsen Mofid.

CHAPTER 1

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 “homebuying 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 Realtors®, home builders, and mortgage loan officers; and STOP RENTING NOW!™ seminars that are directed especially toward first-time homebuyers. 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 homebuying 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. Naturally, 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 others. 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 hundreds 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.

1To protect the privacy of individuals, in many instances I’ve changed names and specific identifying facts. But all told, these experiences are real.

CHAPTER 2

Explore Possibilities, Set Priorities

As you search for a home, you’ll run up against many choices, confusions, and contradictions. You may face discouragement. In fact, some potential homebuyers give up on the challenges they encounter. They then make the biggest mistake of all: They needlessly continue to rent.

As you go through this chapter you will see that, regardless of your present situation, the power of knowledge, motivation, and goals can move you into the home you want.

You also will see why you can profit when you explore various neighborhoods, price ranges, types of homes, and home features. Even if you think you can describe (and afford) the perfect home, the mistakes in this chapter show you why you should still broaden your knowledge of the market. Greater knowledge will encourage you to rethink your priorities and discover better alternatives for you at this stage of your life.