Whether you're a first-time homebuyer or a veteran who should know better, it's easy to be seduced by "the house of your dreams."

Here are five common home-buying mistakes:

1. Don’t buy an overbuilt house.
An overbuilt house is the one with all of the extra amenities. It has the swimming pool, the fireplace, the hot tub and a price tag that’s several thousand dollars higher than any other house in the neighborhood. For the same reason that you won't get much of your money back when you make home improvements, you shouldn’t buy an overly improved house (unless it costs no more than the rest of the houses in the neighborhood).

Nine times out of 10 you'll change your mind about the features you want and do other work anyway. Moreover, if you compare the amenity-filled house to those in the same price bracket in a better community, you'll find that the neighborhood, school district and other features are more valuable in the long run. Even if you get less house, you can build "under, around and through" a house. You can't change its location.

It’s better to buy the cheapest house in the best neighborhood than the best house in a lesser area. In that way, if you ever do improve the property, you have a better chance of getting money back when you finally sell.

2. Don’t buy a home that doesn’t meet your needs.
The corollary to mistake No. 1 is, "don't under-buy."

This is the house that truly doesn’t satisfy you. Most first-time buyers can afford more house if they take the risk of spending more cash, borrowing from parents or taking loans from Individual Retirement Accounts and pensions. You'll live in a house you love for years and there will be plenty of time to furnish it. Spend your furniture money on a bigger cash down payment and buy a more expensive home first time around.

As of January, up to $10,000 saved in an IRA may be used to purchase a first home without any withdrawal penalty.

3. Be certain the taxes are accurate.
After location, the second-biggest consideration is taxes. A low real estate tax rate makes a home especially appealing. In New Jersey, where I live, a $250,000 house comes with a $10,000 a year tax bill. In Connecticut, less tax is imposed on a house that costs twice as much. That drives buyers who can afford an expensive home away from our area, and it keeps the resale value of our homes low. A home comparable in size and type in Connecticut will command one-and-a-half times the price it would in New Jersey because of the favorable tax rate.

Don't be fooled by the amount on the current tax or insurance bill. Visit city hall and see if property values in your area are routinely reassessed when property is sold. If so, the new valuation will bring higher taxes. See also when the last valuation took place. If the property is soon to be evaluated, you may be in for a shock. I learned the hard way, when a second home we purchased was reassessed, raising the annual property taxes from $3,000 to $13,000. I lost all tax appeals and eventually lost the property.

4. Make sure the house is inspected twice.
In many areas of the country, sellers must disclose any structural and related problems. If they fail to do so they can be sued, even after closing the deal. In the past, such defects were "deemed to merge with the deed." Buyers had no recourse.

Still, even with "buyer beware" a thing of the past, you certainly don't want the aggravation of having to sue because your roof collapsed. Take advantage of the contract clause that allows you to get out of the deal if you’re not satisfied with an inspection. Never use your handy neighbor or older brother to give the house a once over. Always hire a professional inspector. Get a written report covering everything from warranties on appliances to cracks in the foundation. Amateurs routinely overlook such big ticket items as poor drainage, roof problems, bad foundations or poor plumbing and wiring.

The time between contract and closing can be several months. Get a second inspection and do a walk through the morning of the closing. Try to get an afternoon closing appointment. If there is new damage, have money held in escrow at the closing to fix it. Be tough; no one wants the deal to fall through at this juncture.

5. Hire an appraiser.
Your mortgage bank typically appraises any home before approving the loan. It’s needed. You should know if you’re buying a home that’s priced higher than others in your neighborhood. If the condition, size and location of the house are unique and you really can't assess value, you may want to consider a separate appraisal from the one handled by the bank. Or you could try to get your appraiser approved by the lender so you'll save paying twice.

Don't buy an overbuilt house.
Don't buy a house that doesn't meet your needs.
Be certain the taxes are accurate.
Make sure the house is inspected twice.
Get a professional appraisal.

Home inspection Web sites

InspectAmerica


Appraisal Web sites
Appraisal Institute
Foundation for Real Estate Appraisers