Special Note for Investors

Although I originally wrote 106 Mistakes to guide homebuyers, investors (both new and experienced) have told me that the examples in this book have helped them avoid buying the wrong property. Condo investors especially appreciate the tips on how to read markets and forecast price increases.¹ So, whether you buy a home or an investment property, 106 Mistakes will guide you to a better choice. Indeed, when you follow this advice, your home will almost certainly prove to be your best investment.

Acknowledgments

For their valuable help in preparing this fourth edition, I thank my secretary Barbara Smerage and assistant Mohsen Mofid.

CHAPTER 1

Profit from the Mistakes of Others

Thinking about buying a home? Good for you. You’re about to make one of the best personal and financial decisions of your life—if you do it right. And that’s just what this book will help you do.

As you read through the eye-opening stories—sometimes funny, sometimes sad—you will see how to steer clear of potential pitfalls. Even better, you will learn to profit from the opportunities that you discover (or create) along the way. You will gain not only from the knowledge I’ve accumulated from dozens of my own property transactions, but also from the experiences of hundreds of homebuyers, real estate agents, mortgage loan officers, and home inspectors.

Here are some of the fears, mistakes, and pitfalls you’ll learn how to handle:

1. Getting turned down for a mortgage

2. Paying too much for mortgage interest, fees, and costs

3. Overpaying for your house

4. Discovering that a house or neighborhood comes with hidden and unwelcome surprises

5. Being taken advantage of by a real estate agent, loan officer, or lawyer

6. Buying too little, too much, or the wrong kind of insurance

7. Suffering discrimination

8. Buying a house whose value doesn’t appreciate much

9. Running into problems at (or on the way to) closing

10. Buying a house that doesn’t meet your needs, wants, or budget

Unlike other books on homebuying, the discussions here don’t merely present general principles, simplistic questions, or a “homebuying process.” Instead, 106 Mistakes illustrates what you need to know through dozens of real-life examples. Through these examples, you’ll see how to conquer your confusion, become more confident, and make the right homebuying decision.

The Origin of This Book

Throughout the past 20 years I’ve taught graduate and undergraduate college courses in real estate; professional education programs for Realtors®, home builders, and mortgage loan officers; and STOP RENTING NOW!™ seminars that are directed especially toward first-time homebuyers. In these courses, one of the most favored classroom topics has been “How to prevent mistakes in homebuying.”

Although just about everyone knows that real estate, particularly home ownership, stands out as one of the best ways to build personal wealth, a growing number of people also realize that successful homebuying doesn’t occur easily. It requires education. Shopping for a home, negotiating, arranging financing, and qualifying to buy have become much more complex. There are many ways to get bamboozled. Naturally, then, learning about the mistakes of others has proved to be a good prescription for a happy and profitable homebuying experience.

When I first began to discuss mistakes in homebuying with my classes, I relied on many of my own experiences (and mistakes). Over time, though, students were eager to broaden their knowledge and learn firsthand about the mishaps, misfortunes, and mistakes suffered by others. As a result, I incorporated “interview papers” into class assignments. To carry out these assignments, students interviewed Realtors, home builders, loan officers, recent homebuyers, and other people involved in homebuying and financing.

The students asked their interviewees to describe in concrete detail the homebuying mistakes that the interviewees had made themselves or had seen others make. Next, the students wrote up their conversations and we scheduled a class session or two to discuss what they had learned.

These classroom discussions became quite popular. As a result, many students suggested that they would like to see the most common (and costly) mistakes I’ve collected brought together in a book. Fortunately, John Wiley & Sons, Inc., and senior editor Michael Hamilton agreed. In this book we’ve aimed to help you benefit from the experiences of hundreds of people who have been involved in homebuying. Read through these stories and apply the lessons to your own situation. You’ll enjoy a more profitable and more satisfying homebuying adventure.

¹To protect the privacy of individuals, in many instances I’ve changed names and specific identifying facts. But all told, these experiences are real.

CHAPTER 2

Explore Possibilities, Set Priorities

As you search for a home, you’ll run up against many choices, confusions, and contradictions. You may face discouragement. In fact, some potential homebuyers give up on the challenges they encounter. They then make the biggest mistake of all: They needlessly continue to rent.

As you go through this chapter you will see that, regardless of your present situation, the power of knowledge, motivation, and goals can move you into the home you want.

You also will see why you can profit when you explore various neighborhoods, price ranges, types of homes, and home features. Even if you think you can describe (and afford) the perfect home, the mistakes in this chapter show you why you should still broaden your knowledge of the market. Greater knowledge will encourage you to rethink your priorities and discover better alternatives for you at this stage of your life.

MISTAKE # 1

We want to own, but we pay less to rent.

LESSON: Over time, you will pay far more to rent than to own. Plus, homeowners gain the wealth-building power of home equity.

Do you believe that you’ll pay more to own than to rent? If so, you’re experiencing the same confusion that troubles many of the renters who attend my STOP RENTING NOW!™ seminars. They want to own, but they hesitate because they think owning costs too much. Undoubtedly, the recent increase in home prices has made this myth even more prevalent.

But here are the facts you need to know: After you weigh in income tax deductions, personal freedom, long-term rent increases, and the accumulation of wealth through growing home equity, you will see why it actually costs much more to rent. In addition, renters stand to lose tens (and often hundreds) of thousands in net worth.

Benefit from Tax Deductions

As a homeowner, you can deduct most of your monthly mortgage payments from your taxable income. As a result, your actual out-of-pocket home costs may fall—depending on your combined federal, state, and local marginal income tax rate (MTR)—to 20 to 40 percent less than the actual check you write each month to your mortgage lender.

Say your house payment (principal, interest, property taxes, and insurance) will cost $1,000 a month. Chances are, after counting the tax benefits of owning, that $1,000 may cost you only $700. A $2,000-permonth mortgage payment may cost you around $1,400 a month. Or to look at it in terms of rent, if you’re paying your landlord $600 a month, you may be able to afford $750 to $800 a month for your own home. If you’re now paying $1,800 per month in rent, you might be able to go up to $2,500 a month for your mortgage payment. To get a general idea of your potential savings, see Table 2.1.

Your personal rent-versus-own cost figures will differ from those listed. But this point is true: Don’t assume that monthly mortgage payments will cost more than renting. Talk with a loan representative and tax advisor. Run through specific figures. In today’s world of home finance, lenders offer multiple ways to obtain lower monthly payments. Quite likely, you’ll be pleasantly surprised to learn how advantageous it is to own.

Table 2.1 Rent-Equivalent Mortgage Payments after Benefit of Tax Deduction

Escape from Renter’s Jail

After buying her own home, Yolanda Jones told me, “I can’t believe it. Not only am I saving money each month and building equity, but I feel like I’ve escaped from renter’s jail.” When I asked her what she meant by “renter’s jail,” Yolanda explained, “For the first time in my life I feel free. No more landlords to tell me how I can decorate, who I can have over, or whether I can get a dog. This is my home now. I’m free to do with it what I want. Even if it costs me more it’d be worth it.”

Yolanda brings out a point many renters overlook. When you own, you don’t just buy a home, you gain freedom. You escape from renter’s jail. If you’re like Yolanda, the personal benefits of owning will far surpass those of renting. When figuring your rent-versus-own cost comparisons, keep in mind those great feelings of freedom and security that owning will bring you.

Think Long Term: Rents Will Go Up

We’ve all heard dozens of times how America’s corporate management focuses on the short term instead of the long term. Renters commit a similar error. In some high-cost areas of the country even after allowing for tax deductions and owner benefits, your monthly mortgage costs still may look higher than the costs of renting. If that’s your situation, think long term. In fact, no matter where you live, the most important reason to buy a home is not to save money today. It’s to save hundreds of thousands of dollars over the rest of your life.

Say you pay $1,000 a month to rent. Assume that after tax deductions, owning will cost you $1,500 a month out-of-pocket. Renting sure looks cheaper. But wait—don’t fall into this trap. Think: If you’ve got a fixed-rate mortgage, your monthly mortgage payments won’t go up—and if at some later date you can refinance at lower interest rates, your monthly costs of owning actually will go down.

In stark contrast, over the longer term, you can only expect your rent to increase. Even at relatively modest rates of inflation, rent levels will head up to the stratosphere. Table 2.2 provides several examples of how rents will increase at rates of four, six, and eight percent a year.

Some of those future rent figures look absurdly large. But consider the rent levels of the 1940s and 1950s. In most parts of the country, you could rent a nice house for $25 to $75 a month. Average house payments were $40 to $60 a month. Today’s rent and mortgage payments often run 20 to 40 times higher than the amounts of those earlier years. Likewise, you can safely bet that over the next 20 or 30 years, people in the future will be talking about the ridiculously low rents of the early 2000s.

Fortunately, today’s homebuyers will still enjoy mortgage payments at those “ridiculously” low early 2000s prices (and interest rates) decades into the twenty-first century. Those who didn’t buy will be paying (if they can afford them) rents 3 to 10 times higher. And if we get years of double-digit inflation similar to previous years, rents could even shoot past the figures in Table 2.2. Over time, owning costs far less than renting—and the benefits are far greater.

When it comes to buying a home, think long term. Pay no attention to how high home prices are today compared to where they sat 5, 10, or 20 years ago. Instead, think how low today’s prices are compared to where they’ll be perched 5, 10, or 20 years from now.

Table 2.2 Escalating Rents

Homeowners Build Wealth

We will talk more about the investment benefits of home ownership in Chapter 3. For now, notice the great wealth-building power of home ownership—even in periods of relatively low inflation. True, throughout our country’s 200-year history, home prices have proved cyclical: sometimes fast appreciation, sometimes slow; sometimes recession, sometimes depression. Yet, over time, homeowners have always built more wealth than renters.

As you make your monthly mortgage payments, your outstanding loan balance steadily falls—slowly at first, then more rapidly. Even if your home doesn’t appreciate much (which is unlikely), at the end of your mortgage term (15, 20, 25, 30, or 40 years) you will own a valuable property free and clear. But at rates of appreciation of say three, five, or seven percent, your home equity will grow to hundreds of thousands of dollars (see Figure 2.1).

As renters become poorer through rising rents, you will become richer through growing home equity. Without a doubt (and in more ways than one), continuing to rent will cost you dearly.

MISTAKE # 2

We want to own, but we don’t have enough for a down payment.

LESSON: You don’t need much savings for a down payment. You may not even need a down payment.

I was listening to a talk-radio show recently. The subject discussed was “no-money-down” home financing. Just as I tuned in I heard an agent angrily say, “I’ve been selling real estate for 25 years, and I’ve never seen a nothing-down deal.” This agent went on to complain about the “hucksters” pushing nothing-down seminars, books, and tapes who had gotten rich deceiving the public. “People who attend these seminars and watch too much late-night television just waste my time,” this sales agent said. “I tell ’em when they call me, ‘If you don’t have the money to buy, go bother someone else.’ ”

Work with Agents or Lenders Who Understand Possibility Analysis

Now contrast this agent’s attitude to that of Realtor Joan Evans. “Anytime someone comes into our office seeking a rental,” Joan says, “the first thing I do is ask them, ‘Do you really want to rent? Or would you rather own?’ More often than not, they say, ‘Sure, we would like to own, but we don’t have enough for a down payment.’ When I hear that, that’s when I go to work. One of the best parts of my job is to take renters who think that they don’t have enough money to own and then figure out ways to turn them into homeowners. Granted, it’s not a piece of cake; sometimes it takes six months or more. But I’ve found many of these buyers become my most loyal clients and a great source of referrals and repeat business.”

Figure 2.1 Building Home Equity. (To calculate your future equity with a higher-priced home, multiply the figures shown above by a factors of 2,3,4, or other multipliers that might apply to your purchase relative to the modest $110,000 in this example.)

If you are short on cash, look for a Realtor like Joan Evans. Quickly drop run-of-the-mill agents who show a don’t-bother-me attitude to anyone with less than a five-figure bank account.

For the past several years, mortgage lenders, homebuilders, not-for-profit housing groups, and government agencies have been reaching out to cash-short renters who would like to become homeowners. You now have dozens of little- or nothing-down home finance plans to choose from:

• FHA (Federal Housing Administration) 203(b)

• FHA 203(k)

• FHA assumables

• HUD (Department of Housing and Urban Development) foreclosed homes

• Fannie 97

• Freddie Mac Discover the Gold

• Neighborhood Housing Services

• Central city mortgages

• Community Reinvestment Act programs

• Rural Economic Development Programs (formerly Farmers Home Administration)

• Lease-options

• Lease-purchase

• Sweat equity

• State mortgage bond programs

• Land contracts

• Seller “trust deeds”

• Seller seconds

• VA (Department of Veterans Affairs) mortgages

• VA assumables

• State VA programs

• Habitat for Humanity homes

• New home builder grants

• Economic opportunity programs

• Private mortgage insurance

• Pledged collateral

• Gift letters

• Family loans

• Fannie Mae rehab loans

• Fannie Mae and Freddie Mac zero down

• Wrap arounds

• Self-contracting

• Shared equity

• City down payment assistance

• County down payment assistance

• Co-ownership

• Create value/fixers

• Not-for-profit grants

• Employer assistance

• Government grants

• Neighborhood Advantage Mortgage

• Community Homebuyer Programs

• First-time buyer programs

• Coborrowers

• Cosigners

• Blanket mortgages

• REOs (real estate owned by lenders after it’s gone through foreclosure)

• Manufactured home financing

We’ll look at little- or nothing-down financing in more depth in Chapter 8. For more home-financing possibilities, read my book 106 Mortgage Secrets All Homebuyers Must Learn—But Lenders Don’t Tell, 2003 (Wiley).

To discover ways to buy cash-short in your area, closely read the real estate sections and real estate ads in your local newspapers. Over the course of a month or two, you’re likely to see many properties or finance plans that are available with little or no money down.

Buying when you’re cash poor may not prove easy. But loan reps and real estate pros who know all the homebuying possibilities will be able to help you locate, develop, and qualify for the financing you need to become a homeowner.

MISTAKE # 3

We can’t afford to buy; the monthly payments are too high.

LESSON: If you can afford to rent, you can afford to own.

Before you convince yourself you can’t afford to buy, make sure you compare your rent and mortgage payments on an after-tax basis (see Mistake #1). But if monthly payments still look too high, don’t give up. There are many ways to get over the “unaffordable” monthly payment hurdle. Here’s how Doreen Bierbrier did it.

At the time she bought her first home, Doreen says, “I was earning a modest salary (by Washington, D.C., standards) as a government worker…. The only way I could buy a house in a good neighborhood was to find one large enough to accommodate a couple of housemates who paid rent. If everything worked out, the rental income would cover more than half my house payment and two-thirds of the utilities. Adding in tax advantages and appreciation, I figured I would actually make money. Further, when the loan on the house was paid off, I would own a valuable asset free and clear.”

As time has proven, Doreen had the right idea. While many moderately paid singles and couples have mistakenly pleaded “not enough income” to buy (see also Mistake #5), others like Doreen have acted creatively and figured out ways to bridge the gap between their current earnings and affordability. Other than taking in housemates, you might also:

• Create an accessory apartment in your home (sometimes called a mother-in-law suite) by converting a garage, attic, or den.

• Reduce your monthly payments with an adjustable-rate mortgage.

• Reduce your monthly payments with a graduated-payment mortgage.

• Reduce your monthly payments by using a balloon mortgage.

• Buy a duplex, triplex, or other type of home that’s already producing income that will help cover the monthly mortgage payments.

• See if your area offers a mortgage credit certificate (MCC) program. Through MCCs, the federal government gives you a mortgage subsidy of up to $2,000 a year.

• Take up a part-time job.

• Ask your employer for a raise or housing assistance.

• Buy with someone else.

• Secure an interest rate buy down (discussed in Chapter 8).

• Assume a low-interest FHA or VA loan.

• Assume a low-equity adjustable-rate mortgage.

Generally, these techniques either reduce your monthly payments or increase your available income. But to really boost your borrowing/buying power, prioritize your spending (and savings!).

Match Your Spending to Your Goals

Whenever renters say they can’t afford to own, I ask them to list all of their typical monthly expenses. Nine times out of 10, their list reveals spending patterns that wildly deviate from these renters’ professed priorities. In other words, they nearly all say that they value home ownership highly. Yet, they spend much of their money on such things as upscale rentals, new cars, boats, jet skis, travel, entertainment, furniture, vacations, electronics, eating out, and many other fleeting pleasures.

Before you complain about affordability, fill in the blanks below. Find out where your money really goes each month:

Rent	$____
Electricity	$____
Gas	$____
Cable TV	$____
Internet charges	$_____
Online charges	$_____
Telephone(s)	$_____
Car payment no. 1	$_____
Car payment no. 2	$_____
Gasoline	$_____
Automobile insurance	$_____
Groceries	$_____
Child care	$_____
Clothing	$_____
Electronics	$_____
Lunches	$_____
Dining out	$_____
Entertainment	$_____
Tobacco	$_____
Beer, wine, liquor	$_____
Other vices	$_____
Health club	$_____
Magazines	$_____
Newspapers	$_____
Furniture	$_____
Appliances	$_____
School expenses	$_____
Health insurance	$_____
Weekend trips	$_____
Vacations	$_____
Housekeepers	$_____
Personal care	$_____
Credit card interest	$_____
Other	$_____
Other	$_____
Other	$_____
Other	$_____
Total	$_____

Now, compare your spending to your priorities. I’ll bet you’ll find many ways to eliminate (or reduce) wasteful expenses so you can put more money toward your long-term wealth and well-being: home ownership.

Summing Up

At first glance—especially if you live in San Diego or Boston—it’s too easy to conclude that you can’t afford the monthly payments on the home you want. But first consider the tax benefits of owning. Then look for creative ways to increase your income, cut your expenses, or use some type of affordable, low payment home finance plan. The successful homebuying experiences of millions of moderate-income renters prove that if you can afford to rent, you can afford to buy.

MISTAKE # 4

No bank will give us a mortgage.

LESSON: Many banks and mortgage lenders have special programs for hard-to-finance buyers. Even better, you may not need bank financing.

When Mary and Joe Cortez filed for bankruptcy, they thought they had lost their chance to become homeowners. They were wrong. Just a little more than a year later, this couple successfully bought their first home with a low-down-payment FHA loan. “We couldn’t believe it,” says Mary. “Friends told us we wouldn’t be able to get credit for years.”

No doubt, lenders prefer borrowers whose credit scores top the charts. But the good news is that mortgage lenders need to make loans. And with thousands of potential mortgage lenders, if you’re willing and able to make your mortgage payments on time, you can probably find the loan you need to buy a home.

As long as your past financial difficulties do not carry forward into the present, many lenders will give you a chance. Either convince a lender that your blemished credit occurred for reasons outside your control (plant closing, medical bills, business failure, divorce, unemployment) or show persuasive evidence that you’ve mended your borrow-and-spend ways. Even homebuyers with terrible past credit can qualify for a mortgage—but it does require planning, preparation, and sincere efforts. (Also see Mistake #93.)

Hopefully, you haven’t filed for bankruptcy or faced serious credit problems. Nevertheless, you may mistakenly believe that other kinds of problems will block you from getting a loan. Maybe you’re self-employed or have been in your current job for less than two years. Maybe you’re a college student who works only part-time. Maybe you want to spend 50 percent of your income for a home. Whatever your particular situation, don’t assume you can’t qualify. Many lenders now specialize in less-than-perfect credit risks with loans graded in B, C, and D categories.

Ask around. Talk to knowledgeable Realtors, mortgage brokers, or even other homebuyers who have faced the same kinds of problems you’re facing. In today’s mortgage market, nearly everyone can either qualify for some type of home finance plan or place themselves on a path to get qualified within 6 to 24 months. (Beware, through, some sun-prime [predatory] lenders prey on people who have credit problems. See Chapter 8, “Avoid the Sharks or You’ll Get Eaten Alive,” in my book 106 Mortgage Secrets All Homebuyers Must Learn—But Lenders Don’t Tell).

Look for Owner Financing

When I first started buying houses and small apartment buildings, I was an undergraduate college student. I had no established credit, minimal savings, and only a part-time job. My strategy was to find older people who had tired of managing their rental properties, yet liked the monthly income their properties provided. These types of sellers proved to be great candidates for owner-will-carry (OWC) financing.

By selling their properties to someone who was young and ambitious, they got rid of the hassles of wayward tenants, stopped-up toilets, and furnace breakdowns. At the same time, the money they earned in interest on their seller mortgages gave them better returns than they could have earned from bank savings accounts or certificates of deposit (and far less risk than stocks).

The great thing about owner financing is that owners are free to lend to whomever they please on whatever terms you negotiate.

If it turns out you really can’t get a bank or savings institution to lend you the money you need to buy a home, look for OWC financing. Or just skip the banks to begin with. Many homebuyers and real estate investors never worry about qualifying for a mortgage with a typical lender. They only finance their properties with sellers.

MISTAKE # 5

Our agent told us to get prequalified (or preapproved) by a lender so we would know exactly how much home we could afford

LESSON: No lender can tell you exactly how much home you can afford. Affordability depends on you, not the lender.

All across the country, mortgage lenders and real estate agents tell homebuyers to get prequalified so they know exactly how much home they can afford. It’s as if getting prequalified for a mortgage were like being measured for a custom-made suit. It isn’t. How much home you can afford depends on you.

Can you increase your income? Can you cut your expenses? What type of home finance plan are you willing to use? Are MCC (mortgage credit certificate) programs available in your area? Are first-time buyer programs available? What kinds of special financing incentives are new homebuilders or condo and townhouse developers offering? Do you have friends, relatives, or an employer who can make you a gift or a loan? Are you willing to buy a property that includes an accessory apartment or additional rental unit? How much are you willing to stretch your budget? Would you share your home with housemates? Can you buy jointly with someone else? Can you locate an owner who is willing to carry back financing?

Affordability Is Up to You

How much home you can afford depends on answers to these and many other questions. When you look for a house, find a Realtor or mortgage lender who is skilled in possibility analysis. Don’t rely on fill-in-the-blank preapproval calculations or instant computer automated underwriting programs. You have dozens (even hundreds) of ways to buy and finance your home. Thousands of mortgage lenders and thousands of property owners stand ready to make financing available.

Prequalifying with a specific lender can give you a general idea of how much you can spend based on your current finances and that lender’s (or underwriter’s) qualifying standards and loan programs. But it can’t reveal all of your possibilities. Only through your own efforts of financial planning and possibility analysis can you really decide how much home you can afford and the type of financing that will work best for your situation.

Prequalification versus Preapproval

With prequalification, a lender tells you how much loan you can qualify for based upon the information you provide. A prequalifying letter doesn’t mean that a lender will actually make you a loan.

For that you need a preapproval. Many lenders will actually preapprove you for a specific loan amount—even before you’ve found a home to buy. In fact, Robert Bruss, the respected real estate columnist, repeatedly encourages homebuyers to get preapproved because a preapproval letter tells real estate agents and sellers that you are a serious, no-credit-problem buyer. Once you locate the home you want (that’s within your preapproved borrowing limit), the agent and sellers can feel secure. They feel confident that you can obtain the financing you need.

Nevertheless, just like prequalifying, preapproved borrowing power depends on specific lenders, loan programs, interest rates, and how well you’ve shaped up your financial fitness and credit scores. Preapproval works to your advantage. But don’t mistake one lender’s loan amount for a full view of your home finance possibilities. Note, too, that even a preapproval letter does not guarantee that the lender will actually grant you the loan. The underwriter must still verify all of your documentation and make sure you and the property satisfy other rules and guidelines.

MISTAKE # 6

Our agent said not to waste time looking at homes outside our price range.

LESSON: Learn about the market of homes priced above and below your “price range.”

This mistake follows from the simplistic notion of prequalifying that’s become so popular. Just as no one can tell you exactly how much home you can afford, neither do you necessarily face a tightly defined price range. Your full price range depends on your possibility analysis.

Here’s another reason you want to look at homes above and below your price range. You can’t know what kind of home and neighborhood to aim for until you widely shop the market. Consider the experience of Sue and Bill Henderson:

Sue and Bill followed their agent’s advice and looked only at homes in their price range of $260,000 to $280,000. Then after they bought, they were out driving around and went through some open houses in the $285,000 to $325,000 range.

“Wow,” said Sue. “We had no idea $300,000 would buy so much more house than we got for our $265,000. These homes are bigger and nicer. If we had known, we would have stretched our budget and prioritized our finances. Maybe we would have switched to an ARM [adjustable-rate mortgage] instead of using a fixed-rate mortgage. We could have even gotten a better school district.”

First, Learn What’s on the Menu

Don’t let someone pigeonhole you into a narrow price range. Look at a wide selection of homes and neighborhoods. Too many real estate agents will ask you, “How much would you like to spend (invest) in a home?” Now imagine walking into a new restaurant and sitting down at a table. The waiter comes up and asks, “What would you like to order?” You probably say, “I don’t know. I haven’t seen the menu.” Of course, you might also want to know what credit cards the restaurant accepts.

The situation is similar when shopping for a home. Make sure you’ve thoroughly looked over what’s on the menu and what kinds of financing are available. If you don’t see what you want, switch to a different neighborhood (just as you might look for another restaurant if you weren’t satisfied with the menu or terms of credit). You might find you are willing to pay more than you first thought. Or you might decide to spend less. Maybe $250,000 will give you what you need most for now. Instead of paying $265,000, you can use the money you save for a more comfortable lifestyle, or perhaps other investments.

Don’t fix on a home, neighborhood, or price range until you’ve looked at a varied selection of properties and neighborhoods (within reason, of course). Learn your choices. Compare their relative prices and benefits. Then weigh your trade-offs. You’ll make a better homebuying decision—a decision you’ll be happy to live with.

MISTAKE # 7

Sure, we would like to buy our own home someday.

LESSON: Dreams move on if you wait too long. Put a plan into action now.

In my seminars, I frequently meet renters in their mid- to late 30s and even early 40s who haven’t yet bought their first home. “Why didn’t you buy earlier?” I ask them. “Well, we didn’t think we could afford it,” they often reply.

But this answer doesn’t ring true. Why? Because from 20 years of teaching and working in real estate, I know that nearly everyone who wants to own a home can own a home—if they put their minds to it. So I probe further. “What do you mean, you couldn’t afford to buy? How many mortgage lenders and savvy real estate agents did you talk to? How many owner-will-carry sellers did you contact? How many books and articles on homebuying did you read? How closely and how frequently did you search through the real estate and home builder ads in your local newspaper?” By asking them questions, I’m not trying to put them on the spot or make them feel bad. Rather, I want them to realize the real reason they didn’t buy. It certainly wasn’t unaffordability. It was because they failed to set homebuying as a primary goal.

They never educated themselves, planned their finances, or established a time frame to buy. Instead, they procrastinated. Although they knew they wanted to buy, it was always easier to put it off. As long as they told themselves they would buy someday, they avoided making the effort and doing the planning that makes homebuying possible.

Sadly, procrastination and limp excuses have cost them tens (sometimes hundreds) of thousands of dollars. You can avoid this mistake. Don’t wait for someday. Put a homebuying plan into action now. Set up a habit of savings. Guard your credit. Don’t spend (or borrow) money for things that are less important than owning your own home. Prioritize with a vengeance.

Whether you want to buy this year, or maybe a year or two down the line, plan now to make sure your dreams come true.

MISTAKE # 8

I wanted to wait until I got married.

LESSON: Don’t postpone your plan to buy for some indefinite future.

Some years back, Megin Silver finished her MBA at the University of Virginia and took a good job in Washington, D.C. With one foot in the future, Megin eagerly accepted the challenge of work and career. But with one foot in the past, Megin was uncertain whether a single woman should embark on home ownership. “Anyway,” Megin told herself, “I’ll probably be married within a few years. It will be better to wait to buy until then.”

Years rolled by. Megin was still single. No marriage plans stood on the horizon. Yet, during the time she lived in D.C., Megin watched Washington home prices more than double. She now wishes she had bought earlier. With a refinance at the low interest rates, her mortgage payments would have fallen far below the amount she was paying for rent. Plus, she regrets missing out on years of tax deductions (which in her tax bracket she could certainly have used) and thousands of dollars of equity buildup.