10 Tips for First Time Home Buyers

10 Tips for Forst Time Home BuyersAttention first time home buyers (you know who you are, don’t you?).  Now is the time to take advantage of lower house prices, low interest rates and an amazing $8000 tax credit.  But don’t wait too long, the tax credit ends November 30, 2009 and interest rates and prices won’t stay low forever.  For more tips, read the rest of the story.

1) Are you a first time home buyer? It may sound like an easy question but you can actually qualify to be a first time home buyer if you have not owned a home in the last 3 years.  Of course, of you’ve never owned a home before, you’re covered.  Knowing this is important as you can take advantage of the current $8000 first-time home buyer tax credit.

2) Credit check. If it’s been a while since you last saw your credit report, that is the first thing you should do.  You can go to annualcreditreport.com or myfico.com.  Most “free” credit reports will show you the accounts listed in your name and if they are late but the reports do not typically provide you with your credit score.

For a nominal fee, you can buy your credit reports with the scores.  It’s good to have both since lenders will typically look at the middle and lower scores more than the high score.  In this credit market, you really need to be above a 625 to have a decent chance at a loan.

3) Make a budget. If you’ve been renting for a while, you may be used to having some of your utilities, cable or other services included in your rent.  When you buy, all of these expenses are yours so you need to make sure you can afford a house.

Here’s a list of items renters typically forget to budget for:  homeowner’s insurance; pest control; water/gas/electric/cable; trash pickup; yard maintenance; homeowner’s dues; general maintenance and repairs (light bulbs to missing roof shingles).

4) What is your motivation for buying? This question is important because it determines your motivation.  Home buyers move for all kinds of reasons.  And, any reason is valid if it motivates you.  You may have to make concessions in price or location to find the right house so knowing and remembering why you’re doing this is important.

5) How long will you live there? Your time frame in a house can impact whether a certain house is a good buy or a risk.  If you’re moving into an area that’s ready to explode with growth but you only plan to be there for a year or two, what happens if that growth doesn’t occur?  Will you be stuck in a house that is losing value instead of gaining it?  If you’re time frame is longer (5-7 years) the likelihood that you will gain a benefit increases.

6) Get an agent. Most home buyers don’t realize that houses listed with a broker (and this represents the vast majority) will share their commission with the buyer’s agent  – resulting in no cost to the buyer!   Let me repeat this.  If a house is listed with an agent, the seller is paying a commission that includes the buyer’s agent.  The seller is paying for you to be represented whether you are or not.

Since we are addressing buyers who have either never bought a house or have been out of the market for at least three years, you need an agent who can guide and assist you through the process.

A buyer’s agent works for the buyer.  The listing agent works for the seller.

The key knowledge you want in an agent includes: knowledge of the current market, how to negotiate an offer, how to write a contract, has relationships with suppliers and vendors such as lenders, inspectors, handymen, etc.

7) Get pre-approved by a lender. Even after you’ve made a budget and decided you’re motivated to buy, the next step is to get pre-approved by a local lender.  The old days of a pre-qualification are over.  You need to choose a lender and get fully pre-approved before you go you looking for a house.  Your agent should be able to recommend lenders to you.

If not, I would consider changing agents.  Also, a local lender is preferred especially if you ask that they accompany you to the closing.  Should something go wrong (and it often does), you want your lender there to handle the problem immediately.  Read about 10 Common Mortgage and Financing Related Questions.

8) When should you start this process? Many renters wait until they get 2-3 months out from the end of their lease.  This is a mistake.  Should you discover an issue on your credit report or determine that you’re not ready to cover all of the costs of home ownership, you need to know that now.  This way you can take care of these issues so that when your lease expires, you can make the move.

The current $8000 first time home buyer tax credit will expire on November 30, 2009.  It would a tragedy to miss this opportunity because you didn’t give yourself enough time.

9) Down payments. With a good credit score and decent income, you can possibly qualify for a FHA loan which only requires 3.5% down payment – that’s only $7000 on a $200,000 home.  And, if you need help getting that down payment, you can get a gift from a long-time friend or family member.

If you’re a veteran and have full VA benefits, you may qualify for 100% financing with no down payment.  There are also programs through HUD which require only $100 down.

Of course, the more you can put down, the lower your mortgage payment will be and the more likely you are to be able to secure a loan at a better interest rate.

10) Taxes. What does home buying have to do with taxes?  Everything.  One reason home ownership is attractive is that you will get a tax break on the home mortgage interest you pay.  You don’t get that on a car loan or almost any other type of loan.  So, instead of paying rent with after tax dollars that you never see again, your mortgage not only allows you to live in a home, you will be able to write off the interest you pay.  Check with a tax professional if you have any questions about this.

What now?  So, you’ve decided to take advantage of the $8000 tax credit, you’re motivated, you’ve checked your credit, run a budget and ready to start.  My advice is to contact a real estate agent in the area you want to look.  If you’re looking in the North Atlanta area, contact me here.

Regardless of who you use, this a great time to buy because prices are down and interest rates are low.  If you buy now and hold on was the market recovers, you will enjoy watching your wealth build as your home appreciates.

Relates Posts:

Search for Homes and Home Buyer Information

HUD – Common Questions For First Time Home Buyers

10 Keys To Making A Successful Offer On A Foreclosure