Buying a home is the largest single investment most people can make. This is a summary of the financial mistakes you should avoid when buying a house. There are obviously non-financial mistakes to avoid as well. Financial mistakes when buying a house include: -purchase price -closing costs -wrong loan Purchase Amount This is when people buy a house they can barely or cannot afford. One of the reasons people do this is because they think the property will appreciate in value fast. If the price goes up quickly the buyer has three options: -sell the house for a nice profit -cash out the new equity in the home to help pay for it -refinance for home using the new equity as leverage to get a lower rate and lower monthly payment Closing Costs Closing costs are costs associated with the closing of a real estate transactions. They can include: -appraisal fee -pest inspection -lender fee -mortgage broker fee -government taxes -title fees -escrow fees -hazard insurance These costs do not necessarily have to be paid out of pocket. It can be to the borrower's advantage to have these closing costs added into the loan. This is typically done be the lender allowing for a seller's concession of up to 6% of the value towards covering these third party closing costs. Sellers do this often by raising the price of property by these closing costs and then giving a concession to cover them. In this way their net profits are the same. Sometimes a buyer will give concessions just to sell the property without increasing the price. Wrong Loan People can put down too little. This can limit their loan options. Loans can be bad because of: -it is possible to get a loan with a steep prepayment penalty that precludes the buyer from refinancing on a reasonable timeframe if they choose to -not knowing your loan options, including lower payment options such as interest-only loans -fixed for the wrong length of time - if you plan on staying in a house for 10 years than having a 5 year fixed loan may not be right thing to do |
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