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Thinking of Buying a Home? Here are 5 Things NOT to Do.

The American dream of buying a home is not what it once was. The cost of homeownership has increased significantly since its heyday in the 1950’s. And I’m not just talking about the effects of inflation. The real problem is that incomes have not kept pace with home values. This is great news for folks who bought their homes 30+ years ago, but it is not good news, nor is it realistic for people like us - Generation X and Millennials.


On the other hand, home ownership can be fulfilling and even lucrative if all avenues are carefully considered. Each part of the country, of course, being a little bit different from a value perspective. And while you may already know what TO do when considering (probably) the largest purchase of your life, but perhaps more importantly, do you know what NOT to do?


1. Get Pre-Approved for “X” Dollars and Use Every Penny.

First of all, let’s be clear on one thing: lenders want your money. They will give you the funds and worry about the consequences later. They, of course, have ways to recoup the money if you cannot pay (and it's not pretty). You do not want to be in that position. When you are getting pre-approved for a loan, the lender is looking at things like your credit, income, debt, savings, and employment history, to determine the maximum amount you can “afford.” That number is typically larger than you what you might expect and unless you already have a budget in mind, you could easily let it drive your purchase decision. The bank does not know your lifestyle and spending habits and do you really want to be strapped month to month with a maxed out mortgage payment? Does the term “house poor” sound familiar?


2. Forget to Check Your Credit.

Each year you are able to download your credit reports for free from all 3 bureaus (Transunion, Equifax, and Experian) at www.annualcreditreport.com (see my first blog for a deeper dive into credit scores). It is very important that you not only review your reports for errors, but also ensure you do not have any black marks that could affect the terms of your loan, particularly the interest rate. Make sure you leave plenty of time to dispute and correct errors before you start the home buying process. You will also want to know your credit score, which is no longer an enigma thanks to many credit card companies and apps like www.mint.com.


3. Be Desperate to Buy.

The last place you want to be is under pressure to make a large purchase. Whatever the circumstances, ensure you leave plenty of time in your current situation to plan and make a good, informed decision.


4. Time the Market.

Timing the market applies not only to stocks, but also to real estate. There is little difference between the two. In both scenarios, you are trying to predict the future and no one in history has been able to do this perfectly. Perhaps you found the right time to buy, but when is the right time to sell (and consistently)? It is hard, if not impossible to do. Home values fluctuate and always will. If you prepare, save appropriately, and want to invest for the long term, it may be the right time to get in, no matter the home values in your preferred area.


5. Buy a Home for your Friends and Family.

No, I am not referring to a multi-family home. I am talking about paying a mortgage for a few extra bedrooms assuming friends and family will be visiting you enough to justify the extra cost. I personally have never been able to make up the cost of an empty bedroom. Perhaps your situation is different, but seriously consider your lifestyle, circumstances, and the extra maintenance involved with a home larger than your needs. Your friends and family may be impressed, but at the end of the day, you are paying for their admiration.


I could write about this topic for days, but you are probably starting to drift off. The bottom line is, ensure you are prepared and know all of the pros and cons before jumping on the home ownership bandwagon. Do not let things like peer pressure or desperation control your decision. Your sanity and pocketbook will thank you later.

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