Welcome back to a buyer's market. It's been a while since the folks with the mortgage approvals burning a hole in their pockets were in charge of the real estate scene. We've seen prices skyrocket beyond all common sense and the rules for many buyers change. Bidding wars, absurd enticements like personal letters-we've been seeing everything short of blatant bribery (and I'm sure there's been some of that, too) from buyers trying to woo sellers.
But things have changed. As the markets around the country have cooled, the buyer is back in command. And if you're a first-time homebuyer, that means you have more leverage than you've had in years to find the home you want at a decent price, if you know what you're doing. Following are some common sense tips for first-timers that will help you steer your ship in these tricky waters.
* Sit down with a mortgage or lending professional and get pre-qualified to determine what price range you should comfortably stay in. Do this before you even start looking. Don't worry about getting pre-approved at this point; you can do that when you find a house you want to make an offer on. Right now, all you're trying to do is figure out what you can qualify for and how much home you can afford.
* Work on your credit rating. When you ask a mortgage banker to pre-qualify you for a loan, you'll learn your credit score, if you don't know it already. If it's below 675, then you have some repair to. The lower your score, the higher your interest rate will be on your mortgage. Don't waste your time with for-fee credit repair companies; instead, look at steps like paying off credit cards and student loans, paying your bills on time and get a copy of your credit score to correct obvious errors.
* Figure out how much home you can comfortably afford. Just because you can qualify to buy a $350,000 home doesn't mean you should if it will make you a slave to your mortgage. Look at your monthly housing expenses, total monthly obligations and gross monthly income and decide on the smartest purchase price for you. If you stay in a conservative price range, you'll be able to buy but also comfortably make your mortgage payments and enjoy your home.
* Do your homework on the area-crime, schools, businesses moving in and out, etc. Learn what the region is like.
* Work with a Realtor. Despite the profusion of Realtors in the past few years, the best are truly professionals who can guide you through the maze of legal matters and documents involved in buying a house. Get referrals and hold your Realtor to a high standard. And remember that the seller pays the commission, so working with a Realtor costs you nothing but can help you save money and find the right home.
* Do a home inspection. Always insist on a home inspection before you finalize your purchase contract, and make sure it's by a certified inspector who you hire and pay for. You want your inspector to be your advocate.
* Do read the contract carefully and have a professional review it. Today's real estate contracts are incredibly complex and a few words can change the nature of a deal.
* Let mortgage bankers or lenders talk you into "creative financing" like negative amortization or graduated payment adjustable rate mortgages. Rates are rising and such loans can leave you owing more on the house than it's worth.
* Work from a verbal contract. Verbal agreements have no legal standing whatsoever. If you make an offer, make it in writing. If the seller accepts, get a contract.
* Let the seller hire the appraiser. Your lender should hire the appraiser, because the lender wants to protect their investment and that's how you'll get a fair valuation on the home.
* Become overwhelmed by your emotions. It's exciting to find a good home, but slow down and make analytical decisions. If the house isn't what you want or you smell shady dealings, be ready to walk away. There are always more houses.
* Get stuck in a bidding war. With all the inventory on the market, there's no need.
* Don't give a deposit directly to a seller. Always use a third party like an attorney or title company.