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In my line of work I have the opportunity to observe many real estate transactions and have found what I feel are the top 5 purchasing mistakes made by both novice and experienced home buyers.

Part 1 entitled “Overpaying for the property. Why would you want to overpay?” generated some great feedback, ranging from the realtor that felt I was attacking real estate agents to the real estate investment club that has asked me to guest speaker at their next event. One thing you have to admire about our country is the diversity of opinions found on any topic and the freedom we all have to express them.

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2.    Keeping up with the Jones’s. Buying the home you can’t afford.

“Tell me the maximum mortgage I can qualify for “is a common request from client’s seeking a pre-approval for a mortgage. Just because you qualify for mortgage payments, taxes, heat and half your condo costs under the standard funding ratios of 35% of your income and 42% of your income when you factor in other debt, does not mean it is a good idea.

The problem with the standard funding ratios is they do not account for lifestyle preference or where your current position in life. A young couple with four children to clothe, feed and prepare for a post secondary education are treated exactly the same as an elderly couple that has already purchased all the appliances, furniture and toys they will ever use.

Too often I see people buying the most expensive house they can in an effort to purchase on the “best” street or in the best neighbourhood, backing onto the best country club etc. in order to be accepted and gain the perception of being a “success”. A classic case of keeping up with the “Jones’s”. I can see the logic in their decision as there have been many books authored on the subject of how attending the “right” school, church, service club etc gives the best opportunity to mingle with your new “best friends”. They say your ultimate income will be the average of your ten closest friends so if money is important why not strive for the max.

The problem with this logic is that it is a game you cannot win. You will always know someone with a bigger house or that belongs to a more exclusive club so at some point you need to decide what is important to you. You can own the biggest house you qualify for but does that come at the expense of furniture, investments, retirement savings, travel, a child’s education etc. A larger home means a bigger lawn mower, snow blower, new appliances, renovations, more maintenance expenses, etc.

Compounding the problem is the myth that a home is a “good investment” so a more expensive home is a “better investment.” Granted a personal residence is an investment but there are much better options available providing better historical returns on your money. Investment properties would be one example.

Decide what truly makes you happy. I often hear people say they love their home or love their car and as a Taurus I enjoy the finer things in life as well. However, I believe we don’t actually “own” material possessions, and that we are only “renting” them during our lifetime. My advice, “love” people and “like” your possessions.

We welcome your comments.

Part 3- Not arranging optimum financing. This will cost you big time.