August 10th, 2009 10:09 PM by Stephen McClain
Here is a great article by Liz Weston regarding the obstacles and challenges facing first time Homebuyers.
First-time homebuyers face an unfamiliar road and risk purchasing the wrong place at the wrong time. Here's a guide to the potholes.
Buying your first home is an exercise in faith. You don't really know what you're getting into, you're awash in unfamiliar terminology and everyone you meet seems to have strong (and utterly contradictory) ideas about which way the housing market is headed.
You may not be able to avoid every home-purchase mistake, but you can keep your regrets to a minimum by avoiding the following traps:
Yes, it's terrible to have to be so suspicious, but this is a big investment you're making. A good home inspection can keep you from buying a money pit. You can ask your agent for a recommendation, but get referrals from other recent buyers and try to interview at least three potential candidates before making your choice.
Few states regulate home inspectors closely, so real-estate columnist Ilyce Glink recommends you choose someone who belongs to the American Society of Home Inspectors, which requires its members to complete at least 250 inspections (or 750 if they don't have other licenses and experience). Ask about fees (which typically range from $300 to $700) and whether the inspector is licensed, bonded and insured, said Glink, author of "100 Questions Every First-Time Home Buyer Should Ask." Make sure you get a detailed, written report and, if at all possible, accompany the inspector so you can discuss the findings while they're still fresh.
As I wrote in "8 big mortgage mistakes and how to avoid them," lenders know that you'll do whatever it takes to pay your mortgage, even if that means shortchanging your retirement, forgoing vacations and piling on credit card debt. You need to be the one to set limits on how much you want to borrow and how you borrow it. In general, limiting your housing costs -- including mortgage, property taxes and homeowner's insurance -- to 25% of your gross income will ensure you have enough money left over to cover other goals, like retirement savings.
There are a couple of problems with this advice. The first and most obvious is that no one can predict where interest rates will be five years from now. If they're substantially higher, you will have just passed up the opportunity to lock in rates when they were near generational lows. If your payment has been rising with those rates, you may not be able to afford your home even if your income is higher.
The other problem if you opt for one of the exotic mortgages is that you may not be building any equity in your home. If prices drop, you may owe more on your house than it's worth, which is going to make refinancing pretty tough unless you can come up with a ton of extra cash.
More experienced homeowners who are disciplined about money might be able to handle a trickier mortgage.
"You're locking in your housing costs for the next 30 years," said real-estate investor Gary W. Eldred, author of "The 106 Common Mistakes Homebuyers Make (and How to Avoid Them)." "If interest rates go up, your payment stays the same, and if they go down, you can refinance." Before you decide on a mortgage, spend some time in MSN Money's Home Financing Decision Center and educate yourself about the options.
Real-estate columnist Tom Kelly knows how important credit scores are, but didn't think much about the ramifications when he applied for a new credit card while in the process of applying for a home-equity line of credit. That, plus his wife's closure of a few other accounts, shaved more than 30 points off the couple's credit score.
It was "really bad timing," Kelly said. "The lender for our proposed line of credit basically said, 'What have you guys been doing?' after our application had been filed and the new FICO scores had arrived."
This ongoing inspection can reveal good news, bad news or both. You may find your home is on a popular shortcut for commuters or near the gathering place for local kids, but only for a few hours a day.
"Something which you construe as a problem might only happen one day a week or at a certain time of the day," LePre said.
He also recommends quizzing a few neighbors about what they like and don't like, and about which direction the neighborhood seems to be going.
"Find out if there are any 'crazies' on the block," he said. "If there is empty space nearby, ascertain what the zoning is for that empty space. Is the next block over . . . zoned commercial? Do you want a McDonald's as a neighbor?"
If your finances are uncertain or your job prospects are up in the air, you might want to wait. Renting is also a better option if you're planning to move in a year or two.
Eldred notes in his book that the media have been decrying the high cost of housing and predicting price peaks at least since the 1940s. Although prices have fallen in various cities at various times, the overall trend has been upward.
Eldred recommends being cautious if your market is showing signs of weakening, such as:
Even then, don't put off a purchase if you're able to stay put for several years -- long enough to ride out any downswings.
"In five or 10 years, prices will be higher than they are today," Eldred predicted.
This article is provided as a courtesy to perspective homebuyers by Stephen B. McClain, Broker/Owner of Cornerstone New Home Solutions and a certified Real Estate Instructor for the Texas Real Estate Commission under independent contract with Champions School of Real Estate. You may contact Stephen at smcclain@cornerstonenewhomesolutions.com.