Tips for first-time home buyers
Step 1: Ask yourself if you're
ready.
You need to decide whether you're financially ready to
buy a home, says Connie Barbosa, vice president and branch manager of
Slade's Ferry Bank in Somerset, Mass. She suggests first-time buyers ask
themselves some simple questions:
• Do you have a steady job and income?
• Do you plan on remaining in the same area for a few years?
• Do you have enough money set aside for your down payment and closing
costs?
• Do you have an emergency fund?
• Do you live within your means, avoiding credit card debt?
Another
consideration is whether you're mentally prepared for the
responsibility, says Charles Glass, a real estate agent who sells in the
Washington, D.C.-Maryland market.
"A first-time home buyer is probably used to renting,"
Glass says. "They've got to get used to budgeting a little differently
in terms of having a reserve when things go wrong. And whether it's a
new home or an old one, things will go wrong. Experienced homeowners
know this. First-time buyers don't."
Step 2: Find out what you can
afford.
When you're sure you have the right mind set to be a
homeowner, it's time to determine how much house you can afford.
Probably the best way to do that is to get pre-qualified for a loan. In
fact, some real estate agents won't work with someone who is not
pre-qualified.
There are three options for pre-qualifying: go to a
lender with whom you have already established rapport, find a real
estate agent you trust and follow the agent's recommendations for a
lender, or research lenders online.
Glass says the first option is the best because "if
you've built a relationship with a lender, they will go to extra lengths
to make sure they qualify you for the loan."
Your total monthly mortgage payment -- principal,
interest, taxes and insurance (or PITI) -- should not exceed 32 percent
of your monthly gross income, Barbosa says. The U.S. Department of
Housing and Urban Development (HUD) suggests that figure should be 29
percent. So this is not an exact science. You can calculate a ballpark
figure from this information, but then talk to your lender to get a
better feel for how much flexibility you might have with different
lending arrangements.
According to Bank of America's Consumer Real Estate
Group, you should find a lender that offers "first-time buyer options
and financing ideas that take into consideration your personal
situation. For example, many first-time buyer mortgage programs require
only a low down payment or even no money down. If a down payment is
required, you may be allowed to use 'gift' money from family members and
other sources. Some first-time home buyer programs feature no closing
costs. There may also be down-payment assistance programs available in
your community."
Remember, the bigger the down payment, the less you're
borrowing, and the less expensive your mortgage will be in the long run.
HUD offers programs to help first-time buyers, too.
Step 3: Find out what's available
Now it's time to decide where you want to live and
research what types of housing are available -- one-story single family,
condos, town homes, etc. You can get an idea by looking at ads and
driving around the community before you ever call a real estate agent,
Glass says. In fact, he prefers clients who have done some research.
In searching for an agent, find one who makes you feel
comfortable and, more importantly, one who listens to you.
Step 4: Choose a neighborhood.
Once you know the housing stock, you can look at
specific neighborhoods. Cruise by at night time to see whether you get a
"vibe" that it's a safe neighborhood. If you have children, you'll want
to check out the quality of the schools. You may want to check out what
types of large-scale facilities (airports, highways, chemical plants,
etc.) are nearby, and whether you're convenient to shopping, work and
schools. You can do much of this independently, but you can also ask
your agent to help you find sources of information about such things.
Step 5: Define your house and find
it.
Now, you can narrow down the features you want in a
house. Do you want an energy-efficient model? Do you want two stories, a
basement, a bathroom downstairs or a large back yard? You may not find a
unit with every feature that you want, but this will help you to define
what's most important for you, Glass says.
When you've found a house that has your most important
features, is in the right neighborhood and is affordable, you're ready
to buy.
Step 6: Do a home inspection.
HUD recommends that an offer should be contingent on a
home inspection. As the buyer, you cover the cost of the inspection. If
you're unsatisfied with the results, you may ask the seller to pay for
certain repairs or to lower the price, or you may decide to walk away
from the deal.
Reggie Marston, a home inspector who can be seen
regularly on HGTV's "House Detective" program, says home buyers should
have an inspection done regardless of the age of the home and should
interview several inspectors before hiring one.
"A home
inspection should uncover defects that could become very costly to
repair after (buyers) assume ownership," he says. "It will also uncover
safety issues, water infiltration issues, roof problems, structural
issues, etc.
"A first-time home buyer should start interviewing home
inspectors before or at the same time they're interviewing real estate
agents and mortgage lenders. Normally, real estate contracts only allow
three to 10 days for a home inspection after acceptance of the contract
and that doesn't allow the purchaser adequate time to find a qualified
home inspector."
Step 7: Shop around for homeowners
insurance.
Your lender will require you to carry homeowners
insurance. Such insurance comes in many flavors, so it's a good idea to
search for a policy that meets your needs for protection while being
easy on your pocketbook. Access insurance information that is
appropriate for your state. Many states provide data on typical rates
charged by insurers, as well as information on the frequency of consumer
complaints against a company.
Step 8: Negotiate.
Once you've found the house you want, you should make
an offer that's lower than the seller's asking price. The seller expects
this and will likely make a counter-offer. You have to decide before you
start negotiating what your make or break point is, and stick to it.
Just be reasonable. Don't expect the seller to give you a 50 percent
discount on a good property.
Step 9: Closing.
In a number of states, it is customary for each party
to have an attorney review the closing papers and to be present at
closing. Whether that's the custom in your state or not, it's a good
idea to hire your own attorney to review the documents to be sure that
your best interests are represented in the paperwork. You'll foot the
bill for your own attorney.
Step 10: Move in.
You've done all the homework and bought a great home.
Enjoy it.
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