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What you need to know before you buy

Ever since they wed three years ago, a third-grade teacher and her husband have yearned to own a home in a prized neighborhood. However, buying there in 2007 would have been beyond their reach. And doing so last year would have required that they take out a far larger mortgage than they wanted.

But 2009 proved golden for the couple. Recently they snagged a hefty discount on a commodious ranch house in their dream neighborhood. Moreover, at current mortgage rates, their house payments are just a tad higher than they'd been paying each month to rent a small apartment.

"Like lots of first-time buyers, they're very upbeat about buying a home this year when prices are so reasonable," says Sid Davis, the real estate broker who represented the couple.

In many areas - and there are exceptions - the enthusiasm of wannabe first-time home buyers has intensified every month since last spring, according to Davis, author of "A Survival Guide for Buying a Home."

Why do many people in their 20s and 30s view 2009 as a sweet time to break into homeownership? Davis cites several factors, including moderate home prices, low mortgage rates and the wide selection of properties now on the market.

Also, first-timers who close on a home purchase before Dec. 1 are eligible for a federal tax credit of up to $8,000. (See the Internal Revenue Service Web site,, for more information.)

But the reality for many would-be home owners is that they're so uncomfortable with the home-buying process that moving forward into unknown territory is frightening, Davis contends.

"There's no shame in admitting you're a novice on the ins and outs of real estate and mortgage finance. You just need to educate yourself," he says.

Here are pointers for first-time buyers:

- Check in early with mortgage lenders.

Obviously, the country's financial crisis has led to major changes in the mortgage industry, including tighter standards as to who gets approved for a home loan. In this new environment, those who fare best are the ones who establish links to lenders before they go home shopping, Davis says.

"Call at least three lenders to discuss your home-buying plans and determine how much you're capable of borrowing. Then pick the best of the three and work closely with that lender," he says.

After running a credit check and examining documents that verify your income and assets, your lender should issue a letter indicating you've been pre-approved to borrow up to a set amount.

Besides helping you with pre-approval, lenders can answer many of your general home-buying questions.

"Don't bother spending time with any lender who is impatient about answering all your questions - no matter how silly they may seem to you," Davis says.

- Let the government help instruct you on home-buying.

Though the Internet is no substitute for face-to-face conversations as you educate yourself on real estate, Davis says there are several Web sites with helpful suggestions for home buyers, including that of the U.S. Department of Housing and Urban Development (, which "is packed with tips and state-by-state information on local incentives for first-time buyers."

While you're on the HUD site, you also might want to scan information on low down payment home loans available through the Federal Housing Administration (FHA).

"These days FHA loans are looking like an especially good bet for many first-time purchasers. Not only are the down payment requirements low, but the credit standards are slightly looser than for conventional loans," Davis says.

- Plan to spend no more on a home than your comfort level allows.

Credit standards are more stringent than they were before the recession began. Consequently, it's unlikely lenders will allow you to borrow vastly more for a home than your income justifies.

"Because the system has more safeguards than before, your odds of making a colossal mistake are lower than they used to be," says Eric Tyson, a personal finance expert and co-author of "Home Buying for Dummies."

Even so, he cautions first-time buyers to be conservative in setting their own budgetary limits on monthly housing outlays.

"It's still very possible to borrow more than your lifestyle warrants, especially if you plan to travel extensively or wish to have several children. You should also be cautious if you have an elderly parent who relies on you," Tyson says.

- Move promptly into the home-shopping phase.

While it's good for first-time buyers to learn the basics about mortgage finance before they look at property, "time is of the essence if you want to have a shot at finding the right home and still having enough time to close on your transaction before the Dec. 1 deadline," Tyson says.

However, you still won't want to lock in an ill-conceived purchase simply to get in under the wire on the tax credit program.

"It would be unfortunate to rush into buying the wrong house and then need to turn around and sell it soon. That's because the roundtrip costs of buying and selling a property can easily add up to 15 percent of the value of the place," he says.