Top 10 Home Buying Mistakes

Real estate guru Tom Adkins, "Cost of Freedom" regular and real estate specialist with RE/MAX Property Center of Paramus, New Jersey, details the top 10 dumb things people do wrong when buying a home:

No. 10: Listen to the Wrong People

Mom and Dad bought 40 years ago. Your best friend makes half the money — or twice the money. And that guy in the cubicle next to you? He hasn't even bought a house yet. So why are you listening to them?

Listening to other people may be interesting, but it's far better to learn housing on your own, especially with a good agent.

No. 9: Get a 30-Year Fixed-Rate Mortgage

Terrible idea. Paying principle is dumb.

First, you can't deduct it on taxes. Second, it doesn't change how fast your house appreciates. Third, the principle would be better spent in a 401K or IRA, which automatically gets a 28 percent increase on the deduction alone, if you are in the 28 percent bracket. And fourth? Put that principle towards a bigger, better house… which appreciates faster.

And, as always, get pre-approved for your mortgage (search) — ask for as much as you can possibly qualify for, even if you don't use it.

No. 8: Pay Points on a Mortgage

"Points" are short for discount points (search), which theoretically get you a lower rate. In reality, you are just borrowing less money. And the "return" on points is usually about 5-7 years, when you either sold your home or refinanced. The only time it's worth paying points is when you get a very good rate break (say, ½ percent per point) or you will keep the loan forever.

No. 7: Put Too Much Money Down

The more money down, the lower the return on your equity. Plus, if the hooey hits the fan, the more cash you keep, the better.

No. 6: Buy Too Small

This is the absolute worst mistake people make in real estate is buying a house that's too small. If you move out five years later, you'll have spent three sets of closing costs instead of one. And, you'll be buying that big house for twice what you could have paid for it.

The concept of buying smaller homes and trading up five times in 15 years is a plot by real estate agents to take more money from you.

No. 5: Buy a Fixer-Upper

Pay yourself an hourly wage in your head, and see if it's worth it. Usually, you could get a second job at 7-11 and come out ahead by paying contractors.

Plus, you don't get to enjoy life. Who wants to live in dust and dirt for a year and a half? Certainly not your wife. This is a great way to get divorced.

No. 4: Waiting Too Long to Make the Move

Since houses appreciate over time, the longer you wait, the more it costs. And it's not just a little bit. If a $200,000 house goes up 10 percent, it costs you $20,000 bucks.

Often people wait because they want to save money and put more down. This is really dumb. You can't save as fast as houses appreciate. Can you imagine working all year to save up $15,000 extra dollars and the house sells for $30,000 more?

No. 3: Keeping a Bad Real Estate Agent

If your agent sucks, get rid of him. I can't count how many people I met who said, "My first real estate agent was awful. He overslept, didn't know much, didn't help me with financing, was rude, smelled bad and ate donuts while we were looking at houses. And I wasn't happy with the house he sold me."

Well, duh…why did you keep him?

No. 2: Buy 10 Years Too Late

Buying behind the curve, rather than on the curve or ahead of the curve.

People often buy home in neighborhoods that have already had their best days. Not that they are bad, but they aren't "hot" anymore. It's always better to buy ahead of the curve, when a neighborhood is just taking off, or just before.

This is where agents usually know more than your friends.

No. 1: Put Money Down

Why put money down? There are endless 100 percent financing plans. And almost every one is better than dumping money into a deal.

First, it doesn't make your house go up any faster.

Second, it lowers the return on your equity. If you have 5 percent down, and a house goes up 5 percent, you doubled your money. If you have 50 percent down, and the home goes up 5 percent, you only get a 10 percent return.

Last, if something goes wrong in your life, cash is a lot better than equity. Try getting an equity line of credit if you lose your job.

And a bonus...

Treating sellers with disrespect.

The absolute worst thing to do is insult a seller. Stupid clauses, ridiculous lowball offers and such simply infuriate sellers. Homes are much more personal than cars, bikes and yard sale items. I've seen sellers make deals with lower offers because they liked one buyer and hated another.