Top Three Home Financing Mistakes

By Raymond Stoklosa · March 31st, 2008

Are you making a financing mistake? Take a quick look and see if your financing plan is really a good idea…

Mistake #1. The most common mistake is looking for a home without really knowing how much you can afford to spend.

The amount you can pay for a home depends on your income, the amount of cash you can allocate to the transaction, and the mortgage terms offered in the market at the time you purchase. Factors include your FICO score, interest rates, points, term, down payment requirements, and the maximum allowable ratio between your housing expense and income.

Our advice: Find a loan first and then shop for a home.

Mistake #2. Purchasing a home with someone who is not your spouse without a written agreement.

Questions like: Should splitting mean selling the home? What happens when one partner wants to stay in the house or the more problematic issue of a partner’s disappearance? When co-owners can’t resolve the situation, the law’s answer is a “partition lawsuit” where the owner who wants to sell sues the one who doesn’t. In that case, a judge will order the sale and the proceeds will be split between the co-owners.

Our advice: Discuss and resolve the major issue and then see a lawyer to put it in writing.

Mistake #3. Assuming that your lender will protect you from buying a home with major defects.

Lenders do require an appraisal and that the home meets certain “minimum property standards,” but these requirements are designed to protect the lender not the home buyer.

The appraisal is performed for the use and benefit of the lender; therefore, you must determine for yourself whether the price of the property is “reasonable” and that its condition is “acceptable”.

Our advice: Insist on the seller’s full disclosure and use a qualified inspector to thoroughly understand the condition of the home, before committing yourself to the purchase.

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