Suze Orman: Don’t Make These 4 Expensive Home-Buying Mistakes
Written by
Ashleigh Ray, AI Editor
Edited by
Ashleigh Ray
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When you’re in the market for a new home, the stakes couldn’t be higher. As Suze Orman, a respected financial guru, pointed out in an article on her website, “When it comes to big-ticket purchases, it gets no bigger than buying a home.”
This is why it’s important to navigate this process with caution, so you can avoid costly traps, save a fortune and prevent yourself from becoming house poor. Keep reading for a guide to Orman’s four expensive home-buying mistakes to steer clear of.
Setting Your Housing Budget Based on Lender’s Words
It’s a common first step to ask your lender for mortgage pre-qualification and pre-approval. However, Orman said you should tread carefully here.
The figure lenders provide is based on their assessment of your ability to repay the loan, not your overall financial health. They won’t consider whether you’re saving for retirement, planning to fund your kids’ education or providing financial support to family members.
So, ignore their number, and do as Orman suggested instead — set a housing budget that allows you to comfortably address all your financial goals.
Remember, the lender’s figure is not a target to aim for; it’s a limit to stay under.
Ignoring the True Cost by Focusing on After-Tax Benefits
If you’re itemizing deductions on your federal tax return, you might be tempted to stretch your housing budget a bit further because of the mortgage interest deduction.
Orman has a word of caution for you: don’t.
Basing your housing budget on the after-tax cost is a slippery slope that could lead you to a home you can barely afford. The goal is to find a home that’s comfortably within your means before tax considerations so you’re not stretching your finances too thin.
Skipping the Home Inspection To Sweeten Your Bid
In a competitive housing market, it’s tempting to make your offer more attractive by waiving the home inspection contingency.
However, this is a move is fraught with risks, according to Orman. Without a proper home inspection, you could be walking into a money pit, facing unexpected repairs and renovations that could amount to tens of thousands of dollars.
While paying for a home inspection upfront with no guarantee of your bid being accepted might sting, it’s a far smaller price to pay than the potential hidden costs of a home with serious issues.
Automatically Opting for a 30-Year Fixed Rate Mortgage
A 30-year fixed-rate mortgage might seem like the default choice for many homebuyers, but it’s not always the most financially savvy one. As Orman advised, explore the possibility of a 15-year fixed-rate mortgage.
Though the monthly payments are higher due to the shorter repayment timeframe, the interest rates are usually lower, and the total interest paid over the life of the loan is significantly less.
Particularly for those approaching retirement, securing a home with a 15-year mortgage guarantees you’ll be mortgage-free by the time you retire, paving the way for financial security in your golden years.
Becoming a homeowner is a commitment that extends beyond just the property — it’s a commitment to your financial well-being. So, take control, avoid these mistakes and make a decision that you’ll be proud of for years to come.
Editor's note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates' editorial team.
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