Home buying tips: Don't be trapped by financial pitfalls

Riding out the life cycle of a mortgage isn't for the faint of heart -- or wallet. It can cost big bucks to buy, maintain, renovate and sell a home. And if you're not careful, your dream house could send you to the poorhouse.

Intensifying the sting from those expenses is the still-shaken real estate market, in which property values are slowly recovering from a historic downturn.

Even with all those factors in play, owning a house doesn't have to be your undoing, experts say. But the perils of home ownership can get the best of you if you fall prey to any of these five scenarios.

As a general rule of real estate, the higher the listing price, the more impressive the home will be. So if you don't want to blow your budget, avoid looking at houses above your price range in the first place, says Patricia Pipkin, a Realtor in Santa Fe, N.M., and a regional vice president for the Chicago-based National Association of Realtors.

Buyers need to carefully evaluate their finances before they begin house hunting, and then be honest with their real estate agent about what their income, savings and credit affords them, she says.

That also means factoring in supplemental expenses such as taxes, insurance, repairs and homeowners association fees. Insurance and tax alone sometimes exceed the principal and interest of the loan, says Randy Lovitt, president of Century Title Inc., a title company in Metairie, La. "And expect that component of your payment to go up constantly over time. Insurance goes up, and taxes never go down," he says.

The housing meltdown called into question the long-held belief that individuals can build wealth through home ownership. Experts say you have to be savvy about the notion of a personal residence as an investment.

"A house is certainly part of your portfolio, but it should not be your primary investment," says Jerry Basford, a personal finance professor and associate vice president for business and auxiliary services at the University of Utah.

A young professional seeking career advancement might not want to stay put for the five to 10 years it usually takes to see a return on the investment, Basford says.

"Many people still believe purchasing a home is the ultimate way to show that you're financially stable. And today, for a lot of young people, that may not be," he says.

Real estate professionals such as Pipkin remain optimistic about property investments. Prices are improving in some areas, and mortgage rates have risen, but are still low by historical standards.

"If you're going to look at it as a long-term investment, usually things do work out," Pipkin says.

Skip out on a few bucks' worth of maintenance, and you might set yourself back thousands in the long run.

Failing to replace air conditioning filters regularly could shorten the life span of the AC. Replacing a unit typically runs thousands of dollars, says Claude McGavic, executive director of the National Association of Home Inspectors in Bradenton, Fla.

Homeowners also need to be vigilant about warning signs in their homes, McGavic says. When wiring is older, flickering lights can signal an electrical problem that could eventually cause a fire. Or the sudden appearance of tiny specks that resemble granules of pepper around the house can indicate termites.

Think twice before hiring a handyman or a brother-in-law to tackle your remodeling project.

If you don't employ a licensed contractor and attempt to save a few bucks by relying instead on someone less experienced, you might end up spending far more than what you budgeted.

One of the biggest mistakes McGavic sees is that people don't obtain the proper permits for their work. If you fail to obtain a building permit, your repairs could come under scrutiny when you try to sell your home.

"If you ever get caught, there's a fine. Plus you have to pay for a permit. Plus, you'd have to pay for a contractor to fix it. That can be expensive," McGavic says.