A Guide for Beginning Home Buyers

My dearly departed daddy once said, "son, the three most expensive things you'll do in live is getting married, buying a house and having kids." Well the order is not always right but for our purposes we'll discuss here the buying the house aspect. The information here is geared to first time home buyers but is equally suited for even the veteran real estate buyer.

Buying a home is one of the single most important financial decisions you'll ever make. Educating yourself about the home buying process can mean the difference between a happy and harried experience. Review these Do's and Don'ts as well as my quick tips. At the bottom of this page is a hyper link to find out information on neighborhoods and house values.

DO...

• Know why you're making the decision to buy versus rent.

• Determine your specific needs as a first-time buyer. How much room do you need? Are you concerned about schools? Commuting time? Proximity to family and friends? Is this a starter home, or are you likely to be here in five or ten years? Are you buying at the height of or bottom of a market? What financial resources do you have, or must you obtain, to purchase your home?

• Educate yourself about the types of homes available, and determine which one will meet your needs: detached single-family home, multi-family home, condominium or co-op. Understand the differences inherent in one type of property over another. Conduct thorough research, and ask specific questions about the type of property that you choose.

• Research and read. Absorb everything you can about home buying, especially information for first-time homebuyers.

• Understand the role that each professional plays: agent, broker, buyer-broker/agent, Realtor®, lender, attorneys. Know the definitions of these roles and ask plenty of questions.

• Consult free, or affordable resources that complement your own research, such as the U.S. Dept. of Housing and Urban Development.

• Register for home buying fairs and seminars. Non-profit housing organizations, community and civic organizations and financial services companies offer home buying seminars, often at no cost. Even those with a certain "sales" element to them can be useful if you approach them as an information-gathering exercise.

• Go online. The Web provides excellent access to vital and sometimes hard-to-find real estate data that could take months to get using traditional, offline methods. DON'T...

• Approach the process without having done your homework. • Underestimate the power of asking questions and gathering information up front.

• Learn about the process as you're living it.

• Spend a day in the neighborhood you're considering. Walk the streets. Meet the people. Find out what services are nearby. Take notes.

• Attend open houses. Better still, map out plans to attend a number of open houses in your neighborhood of choice. This is a good opportunity to get a sense of what a particular neighborhood offers. You can ask questions about the neighborhood, about the people in it, the quality of schools and the availability of resources. And, you can overhear other potential buyers' questions.

• Buy local newspapers and research the happenings in the neighborhood. Check in with Chambers of Commerce and town halls. Is a property tax cut override looming? Have SAT scores in the town just fallen to a 10-year low? Will they be cutting off sanitation services to pay for a new highway on-ramp?

• Go online and visit Web sites about the town/city/neighborhood. Look into message boards and chat rooms catering to a particular community. Local newspaper Web sites can be a good place to find these.

• Investigate home sales and property values. Do properties in the neighborhood or town turn over frequently? Are house prices going up or down? This may be hard to determine without the help of a real estate agent, but you can check your newspaper's Sunday real estate section to start.

• Obtain valuable, publicly available real estate information. You can research public records in government offices, or, more easily online, where they are increasingly available. Aside from domania.com, there are a handful of real estate sites that offer you free access to comparable home sales ("comps"), i.e., the actual selling prices of homes, as well as other valuable real estate data.

 • Learn about special lending, qualification and down payment programs for first-time homebuyers. You may be eligible for one of these if you are a veteran of military service, a first-time home buyer, or part of a work or affinity group that offers special programs. Research resources offered by Web sites such as Fannie Mae.

• Use open houses as an opportunity to see yourself living in different homes and using their amenities. Imagine yourself going through your morning routine, cooking in the kitchen, etc.

• Assess your financial resources and debt load before you begin. Know how much you can afford and how much debt you're willing to carry. Understand debt-income ratios.

• Determine how much you can afford and how much you want to pay. Use mortgage calculators, and get pre-qualified with a lender.

• Know how you will fund your down payment. How much do you have? How much will be required? Investigate low down-payment purchase options. Note that if you put down less than 20 percent of the purchase price, you may be required to carry Private Mortgage Insurance (PMI), which will add to your monthly housing payment.

• Check your credit well before making an offer and applying for a mortgage. The three major national credit reporting companies are: Trans-Union (800-888-4213/800-916-8800) Equifax (800-685-1111) Experian (888-EXPERIAN/888-397-3742) Credit reports do cost a small fee, but you may be eligible for a free report based on the state you live in or as a result of other services to which you subscribe. Scour reports for inaccuracies or outdated information, and report any issues to the credit bureau.

• Learn all you can about mortgages. Complement your intelligence-gathering with helpful overviews, such as the Federal Reserve Board's free guide, Home Mortgages: Where to Shop and What to Look For. Know about mortgage types, down payment requirements, other costs, relevance to your needs, and how long you expect to live in your home.

DON'T...

• Believe everything everyone tells you. The experiences and wisdom of realtors, buyer's brokers, other buyers, family and friends are important, but be sure to weigh them against your specific needs, tastes, interests and financial resources. Remember that the decision and responsibility are ultimately are yours, and the control should be, too.

• Make assumptions about the role of each professional in the real estate process. Clarify each professional's role beforehand and ask lots of questions. Buyer-agents and others can advocate for you, but they come at a cost.

• Assume that your dream neighborhood is the same at night as it is during the day. In an urban neighborhood, a quiet commercial street can take on a completely different personality at night. Or, you may learn that your prospective next door neighbor likes to listen to head-banging music from the time he comes home until the time he goes to sleep at 1:00 a.m.

• Think that sellers or residents will tell you every hidden secret about a neighborhood. They won't. Spend time there; listen and observe.

• Pay too much for a home because you didn't investigate the market.

• Forget additional regular expenses, such as condo fees, or water and sanitation bills, which you might not have incurred in your previous living situation.

• Enter bidding wars haphazardly. Popular in some regions of the country, the higher cost you pay as a result of one can later prove to be detrimental when you attempt to refinance or to sell the home.

• Assume that your current lifestyle and needs will translate exactly to your new home or neighborhood. Know what will translate and what won't.

• Expect that your dream home will be found in the first home, or first ten homes, that you see.

• Put a time limit on your home search. For some it takes weeks, for others, years. Don't let an unreasonable time limit affect your decision.

• Avoid serious discussion about family finances or concerns about debt management. Discuss them now to avoid regrets later.

• Think that your lender will overlook or ignore past or present credit problems. Correct problems immediately and be prepared to explain legitimate issues and to detail steps you've taken to correct errors.

• Wait until an offer is accepted to think about financing needs and qualifying for a mortgage. The mortgage process can be one of the most time consuming, and being prepared is key.

Quick Tips 

Manage the financial part of the process early:

1. Know how much debt you have, and get rid of as much as you can.

2. Check your credit report. Document and correct errors; save copies of correspondence between you and creditors.

3. Use worksheets and online calculators to determine how much home you can afford and how much of a home loan you're comfortable paying off.

4. Consider pre-approval, versus pre-qualification, if you're really ready to buy, and know the differences between the two: Pre-approval--your lender does a thorough evaluation of your ability to pay for a home, and can provide you with written confirmation of the mortgage amount. Prequalification--your lender does a preliminary evaluation of your ability to pay for a home, along with an estimate of your mortgage amount. Pre-approval demonstrates a serious commitment on your part to the seller, and can be advantageous if you find yourself in a competitive bid process. 

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