HOMES  -  BUYING
 
 

Buying a Home

Buying a home is no simple task. In fact, most first-time homebuyers end up getting at least mildly "taken" for two reasons. First, they get so emotionally attached to the home they want to buy that any serious efforts at negotiation fall by the wayside. Second, first-time homebuyers are simply uninformed about the many nuances of the real estate market. I can't help you if your emotions get the better of you, but the following information will help new and experienced homebuyers alike to be better-informed purchasers.

It's no secret that the new century family has less home-purchasing power than did the generation proceeding it. Many homebuyers have to settle for a house that isn't quite as nice as the one in which they grew up. But remember, the most important thing is to get into your own home or condominium. You'll always have the opportunity to trade up in the future.

Many people find looking for a new home to be a disagreeable task. Going door to door, open house to open house, even realtor to realtor, can be exhausting. It is also an emotionally trying time. You have to face up to the financial reality of what you can and cannot afford.
 
 

Are You Financially Prepared to Look for a House?

The Down Payment

One of the major barriers to buying a house is the down payment. This may be as low as five percent of the house value, but more commonly it approaches 10 or 20 percent. Thus, a $100,000 house may require an initial expenditure of as much as $20,000, plus closing costs. Closing costs may be as high as several thousand dollars, including loan origination fee (also known as "points") of typically one to three percent of the mortgage amount.

Figure Out the "Amount" of House You Can Afford

The amount of down payment and closing costs you will have to accumulate depends upon how much house you can afford. The first thing to do is to get an idea of how large a mortgage you can carry. Some rules of thumb:
 

• Your monthly mortgage payment should not exceed more than one and one-half week's worth of your take-home pay.

• Your monthly mortgage payment should not exceed 28 percent of your net monthly income or 32 percent of your gross monthly income.

• Your total monthly debt obligations, including the mortgage, should not exceed 35 percent of your gross monthly income.

As you can see, a variety of loan-affordability measures are commonly used by lenders, but this will give you a way to estimate the amount of monthly mortgage payment you can afford.

The reality of how much or how little house they can afford knocks many first-time buyers for a loop. You may have to pull back from the search and rent for another year or two in order to save up enough for your first house.

Take note: Many banks' lending guidelines are based on those of the Federal National Mortgage Association (FNMA). These stipulate that your total monthly debt obligation on the house - principal, interest, taxes, utilities (including heat, hot water, and water), as well as a fraction set aside for current and future maintenance expenditures - should not exceed 28 percent of your gross monthly income.

Outstanding Debts

Banks look at your whole financial picture, past and present. If you have outstanding debts - credit cards, car loans, student loans - the bank will add the amount you owe for these to make sure that, together with your monthly debt obligation on the house, your total monthly debt obligations will not exceed about 35 percent of your gross monthly income.

Before you apply for a mortgage, pay off as much of your consumer debt as possible. Your consumer debt includes everything from your Visa card to your gas credit cards, from your car payments to your student loans. The less debt you owe, the easier it will be for you to qualify for a mortgage.

Money in the Bank

Most banks will require that, in addition to the required application costs, down payment, and sundry closing costs, you have at least two months' worth of mortgage payments in a savings account.

Let the Banker Work for You

One way to determine the amount of mortgage you may qualify for is to simply contact a bank or mortgage company in your area and let them know that you are in the beginning stages of buying your first home. Ask if they would set up an informational meeting to discuss the process of applying for a mortgage, and ask them to discuss the various types of mortgages offered, and what they estimate the amount of mortgage available to you might be. The mortgage business is very competitive. Lenders are eager to lend to good customers.

Know What is Available

As you estimate the amount of house you can afford and determine the location that suits your personal needs and your finances, you will also need to familiarize yourself with the different types of homes, condominiums, or cooperative that are available in your price range.

Check Your Credit Rating

A clean credit record for at least two to three years is an important part of getting the mortgage you want.

Warning: Don't count on last-minute ways to accumulate a down payment. It used to be as simple as calling your rich uncle - and begging him to lend you the necessary funds - but no more. In most cases, you'll still need to convince your lending officer that you're capable of good personal money management.

Where to Begin Your Search

One of the easiest ways to begin your search is to read the real estate section of the Sunday newspaper. Chances are it will contain an article or two about a particular neighborhood, as well as extensive sale listings town by town. If you haven't yet decided on one or two communities, you can surmise, at a glance, what towns you can and can't afford, and you can then visit these communities.

Location, Location, Location

Many people think that location is all-important, but affordability is just as important. A location's advantages - in terms of its conveniences, safety, public schools, transportation, shopping areas, and cultural centers - need to be weighed against the costs of a home in a prime location. Keep in mind that one of the benefits of buying - as opposed to renting - a home is that you're building equity in it. And location often can play a key role in the appreciation of the value of your home. One strategy many experienced homeowners use is to buy a less desirable home (smaller, less well situated, a fixer-upper) in the best part of town.

Network

Contact any acquaintances you have who are currently residing in - or who have recently moved from - the area in which you're interested. Ask them to recommend a real estate agency or two, and follow up on their recommendations by making requests for information interviews with a few local realtors.

Another source of information, if you're moving to unknown territory, is your college alumni association. It can provide you with names of alumni living in the area to which you're moving. Call them up, introduce yourself, and ask if they wouldn't mind answering a few questions about where they live. This may sound too bold and personal, but most people are happy to introduce an outsider to their neighborhood. Anytime you give people the opportunity to demonstrate their knowledge, they'll be happy to do so.

Realtors

If you have never dealt with a realtor before, don't be overly impressed by a firm handshake and winsome smile. The first and most important thing to remember about realtors is that they represent the seller, not you (the buyer). Nevertheless, good realtors know what the fair market prices for the homes they are selling are. The difficulty is getting them to own up to it. Like all salespeople, realtors have their own best interests at heart, and if they can get you to pay a few thousand dollars more than the next guy, so much the better for them. As long as you understand a realtor's position in a sale, you will probably benefit from using one.

Buyer's Brokers

Some real estate agents have switched camps and work exclusively for buyers. Known as buyer's brokers, these real estate professionals negotiate the purchase price on the buyer's behalf. Buyer's brokers are listed in the Yellow Pages.

A buyer's broker may also be able to help you determine the areas where affordable housing exists. They charge either an hourly rate or a percentage of the selling price of the home that you purchase.

What's Out There

The decision to buy a particular home depends on several variables, the most common of which are:

Location.   Is the home convenient to work, shopping, school, and recreation? Is the general neighborhood declining or improving? How heavy are the property taxes? Are there any crime or pollution problems. How good are the local schools, community facilities, and services?

Type of Home.   The traditional single-family house is facing stiff competition from newer types of housing, such as condominiums and multifamily units. Even traditional housing shows a tremendous amount of variety, especially between older dwellings and new ones. Typically, newer houses are more expensive and have more conveniences, but they may also have structural problems or inferior construction compared with older ones. Old houses, however, may be less energy efficient and may require considerable ongoing maintenance.