Before You Buy a Home: Common Pitfalls and How to Avoid Them

My husband and I bought our first home in October, 2002. We were a single income family with an infant, and in retrospect, definitely bought more house than we could afford. Prices were rising, though, and this was the first house we'd seen that we were comfortable with. It was close to his work, and he could get there without taking any highways, always a big plus in such a populated area. The schools seemed to be decent, the crime rate was low, and the neighborhood seemed perfect for children. We were hooked.

Little did we know that it would turn into a huge ordeal. The real estate agent's husband, she said, ran a mortgage company and would be happy to work with us to finance the house. She even had him come over when we were thinking about making an offer to help us figure out if we could afford to buy it. We eventually made an offer, negotiated a little, and signed the papers, planning to close at the beginning of October, at the latest. In hindsight, we made many, many mistakes in buying a home, which I hope, with this guide, you can avoid.

Never talk money with someone who has a stake in the house selling. While this might seem obvious, it is all too easy to forget in the rush, excitement, and confusion of buying a home. We should have gone to a bank or other financial institution, or even another mortgage company, any of which would have likely told us how hard it would be to afford the house (which was selling for just over five times our annual income.) But this man, whose wife would receive a fat commission if the house sold, told us that of course we could afford it, and promised us that we could get approved for a mortgage to cover it.

When possible, shop around for the best offer, and don't just take the first one. In our case, we did get lucky. My husband's credit was spotless, and we qualified for a fairly low, fixed rate. However, we did pay far more in closing costs from the mortgage company than we would have had we gone to a bank. Still, at the time we weren't sure what we were doing, and were told that we'd have to be pre-approved in a hurry, or they could sell the house out from under us. Pre-approval doesn't take a long time, however, and you can get offers from several places at the same time.

Get a mortgage based on how long you plan to be in the home. At the time, we figured we would be in our home for a long time, and so we got a fixed-rate mortgage. After all, rates were very low in 2002, and we knew that they wouldn't stay low forever. It made sense for us to go with a fixed rate. However, if you have good reason to believe that you won't be in a house for more than a few years, you might want to consider an adjustable rate loan. You should be careful, however, and make sure of a few things. First, make sure that the rate doesn't adjust until at least a year after you intend to be out of the house. This buys you time if your plans change, or if you have trouble selling your home. Also, and this is painfully important, make sure that the loan has no pre-payment penalties. This is crucial, because if there are penalties, you will have a hard time refinancing or selling your house, and you will have to pay through the nose to do so. Lastly, compare the adjustable and fixed rates. If there is a large difference, say several percentage points, and you've already met the other two criteria, an adjustable just might be for you. However, if there is only a small difference, you might be better off with the fixed, especially if it's a low rate anyway. This way, if you decide after a few years that you really don't want to move, you won't have to worry about your rate suddenly skyrocketing and taking your monthly payments with it.

Next, keep in mind that your mortgage is NOT the only thing you will be paying for on those monthly statements. It sounds really good to hear that your mortgage payment will only be, say, one thousand a month, but beware. That quoted price does not include homeowners insurance (vital, expensive, and paid into an escrow account for you, to be paid to the insurance company from there,) taxes (also expensive and paid into escrow), or private mortgage insurance, if your credit is either less than perfect or if you put less than twenty percent down. All of these can add up to a thousand a month to your total bill, and even if the amount you pay for the mortgage itself never rises, the total you pay almost certainly will, as your taxes go up every year. When you think about buying a house, be sure that you make sure you can pay the full cost, not just the mortgage, and that you will still be able to pay when your taxes increase.

Make sure the inspection is thorough. We got a home inspection done before we bought the house, just as we were supposed to, and at the time, nothing seemed to be amiss. Shortly after we moved in, however, we started noticing little things which, had we noticed them before buying, could have been repaired or allowed us out of our contract. For instance, we discovered that the shower in the master bathroom leaked into the closet on the floor below. Until we heard the dripping, however, the only evidence of a problem was a water stain in the ceiling of the closet, which was not noticed by the home inspector. The wiring in the house is faulty in places, and in one case, it looked like some had been done by an inexperienced person in the basement; they wired it incorrectly and dangerously. This was also not caught before we bought the house. The exterior doors needed to be replaced, as well as some of the first floor windows, and the bilco (bulkhead) door was rusted through in a couple of spots. Had all of this been noticed in the inspection, we could have either worked out an arrangement to have the sellers repair it all at their expense, or been freed from the contract to buy the house. While it's never possible to catch everything that might be wrong with a house, you can boost your odds by going along with the inspector, and looking at everything yourself. Look up, down, and all around when you go, peer into closets, pay special attention to the ceilings on the floor beneath a bathroom, and ask that the inspector check outlets as well. The device to make sure outlets are wired correctly is neither costly nor uncommon, you can get one yourself at any home improvement store. Be sure to look in attics and basements, in cabinets (especially under sinks), and, lastly, pay the extra money to have a mold test done on the house. Some kinds of mold can pose a serious health hazard, and it can hide in walls and floors, making it extremely difficult to get rid of without demolishing the house. If the house you want to buy has mold, you should find out about it before you have purchased it.

Get an attorney, and make sure he or she is doing everything possible for you. Especially if this is your first home, you should get a real-estate attorney. All jokes about lawyers aside, this person is there to be your advocate and make sure you get a fair deal. If something is wrong, he or she is supposed to be there to protect you and make sure you don't get taken advantage of, since the seller will almost certainly have one on his or her side. You also have the advantage, with an attorney, that he or she already knows all the ins and outs of real-estate law. What you should do, however, is make sure that he or she is actually doing everything possible for you. If you think something isn't right, call up and ask. It's the attorney's job to make sure you're satisfied.

Delays can be managed. When we signed on our offer contract and started the process of buying our house, we gave our landlord 60 days' notice, so that he could have time to find new tenants and do apartment repairs that he'd been neglecting. (Our bathroom was leaking into the apartment below, and had been since before we moved in.) We told him that we'd likely have some of our things there until the full 60 days were up, but that we expected to move ourselves out after the closing (then scheduled for the beginning of October), and we didn't mind if he did repairs after we were out. Then, things began to drag. The sellers were having some slow-ups on their end, and all of a sudden, it was the beginning of October and there was no closing in sight. We felt helpless, and our lawyer was frequently available. Then, the law firm switched us to a junior attorney, and she came in like a breath of fresh air. She actually fought for us, and told us about a thing called a 'time of the essence' document. This varies by state, but basically, either side can issue one, giving the other side a certain period of time to get everything taken care of and hold the closing, or the contract is in default. Had we known earlier, we would have been able to close on our house (or find another) much sooner. As it was, we spent a rather uncomfortable couple of weeks and closed just before Halloween.

Read everything BEFORE you sign it. At the closing, you will be inundated with what feels like (and may actually be) hundreds of pieces of paper, many of which will require signatures. You may feel overwhelmed or pressured to just sign it and get your new keys, but I can't caution you strongly enough to not just breeze through, but to read everything. A signed, witnessed document will hold up in court, and anything you sign can be used against you later. Whatever you sign, you can be held to, or punished if you later try to default on it. Buying a house is a very important event, and the repercussions of it will last you for the rest of your life. Even if you think a piece of paper is unimportant, or that you've read it before, read it again, then and there. There is nothing that prevents someone from slipping in an additional clause on the version that you sign that wasn't there in the preliminary draft you read. If you don't understand something, ask, and don't sign until you understand it and accept its implications. Don't allow anyone to rush you through this process; closing on a house is a very big deal, and you are responsible for every signature you make. "I didn't know" is never an effective legal defense, should something go awry. If something doesn't look right, or things have changed at the last minute, don't sign! If you are getting a mortgage, you're shouldering a huge burden of debt at that closing, and it's time for full disclosure. Especially be sure to read the terms of your mortgage and make sure that everything is the same as what you thought you were getting. When in doubt, listen to your instincts. If something sounds off, or you just get an uncomfortable feeling, listen to it and try to figure out what's wrong.

In the end, there are so many things that can go wrong, especially with the market being what it is today. Take your time when you buy, think over all of what I've said, and do a lot of careful planning before you buy a home. My husband and I are still living in our first home, and even with our payment going up from taxes, we're still able to afford it. In the end, though, we got lucky in many ways, and I hope that our story helps you to have your eyes open when you go out and buy a home. Happy hunting!