Stephanie Armour
USA Today
As a Realtor, Lacy Williams gives presentations to first-time home buyers about what to expect when buying a home.
She often finds she must start at the beginning, helping novice buyers decide whether it makes more financial sense to rent or buy. Then she gets down to the nuts and bolts: how to get a loan, pick a Realtor and look for a home.
“I tell people there are no stupid questions. Ask anything you don’t understand,” says Williams, with Joyner Fine Properties in Richmond, Va. “One of the biggest mistakes they make is they go to an open house and wind up buying from the listing agent. The listing agent represents the seller. They need a Realtor who represents them.”
With the spring buying season in full swing, first-time home buyers are driving much of the current sales activity –– lured in part by low prices, interest rates around 5%, and a federal tax credit of up to $8,000 for those who can sign a contract by April 30 and close by June 30.
But it can be a confusing process, even for veteran buyers. Here are five tasks that Realtors, brokers and other housing experts say first-time home buyers should know how to do before getting into the market:
•Get financials in order. Buyers should check their credit score, taxes, 401(k)s and other aspects of their financial situation to determine the maximum they’re comfortable affording for their monthly mortgage, utilities, maintenance, taxes and insurance.
“If your credit score is a mess, clean it up before applying for a mortgage,” says Ed Mermelstein, a New York-based real estate lawyer and developer. “A bad credit score may not just affect your rates, but may prevent you from getting a mortgage.”
Buyers should also get preapproved by a broker or lender — that means they get an agreement by a bank to lend the buyer up to a specific amount for a home, and it tells sellers that financing is already lined up.
That’s different than a letter of prequalification, which states that a buyer’s financial information and credit look good. A prequalification does not guarantee a loan. Some websites, such as myhome.bankofamerica.com and trulia.com/guides/home_buying, aim to help buyers getting into the market.
•Find a Realtor and start looking. To find a good Realtor, talk to friends, neighbors and co-workers. Referrals can be the best way to select someone. Make sure your choice has experience with the neighborhood and is a good negotiator.
The wrong agent can lead to frustrations. Marc Kruskol, 52, closed on his new home in January after going through about five Realtors.
“I don’t have patience for Realtors who are lazy or don’t do their job,” says Kruskol, who bought a five-bedroom home in Palmdale, Calif., with a pool and three-car garage for $200,000. He got a 30-year, fixed-rate mortgage with a 4.99% interest rate.
Diann Patton, a consumer real estate specialist with Coldwell Banker Real Estate, suggests interviewing Realtors for the job. “This person is going to become your best friend for the next 30, 60, 120 days,” she says.
Before buyers start looking, Patton suggests they make a pro-and-con list of things they must have in a house and prioritize what’s most important. Think about lifestyle needs such as location and proximity to shopping and churches.
“Try not to treat your home like you’re living in the stock market,” she says. “It’s a lifestyle, not about flipping. Don’t try to time the market. We never know if it’s going to go up or down.”
•Investigate the reputations of builders, condos. Buyers who are purchasing a new home should check out the reputation of the builder by getting information from the Better Business Bureau.
And, when buying a condo, first-time buyers should check out the financial health of the condo or homeowner association. In the past, this was rarely a problem because for the most part owners paid their monthly maintenance assessments and the associations were well-funded, says Robert White, managing director of KW Property Management and Consulting, a property-management firm in Miami.
But now some have cut services, and some are going without insurance, and dues-paying owners are subsidizing those who aren’t paying.
“When they buy into a homeowner or condo association, the association may be having financial difficulties,” White says. “A first-time owner could buy into the association, and the association could budget more expenses to the units that are paying, subsidizing the units that aren’t paying. Ask the management company for a copy of the financial statements.”
•Make an offer and apply for a mortgage. There are myriad tips on making that final offer. While every local market is different, most economists say buyers are generally in the driver’s seat today. Fifty-three percent of homeowners believe a seller’s market is still two or more years away, according to a survey of 2,003 adults between March 30 and April 2 by American Express.
This market is very local. Homes in Chicago are getting multiple offers and going for more than 10% over the asking price, for example, while those in Fort Lauderdale are selling for 20% less than list price, according to ZipRealty.
Have enough cash for a down payment, which can be a minimum of 10%, and extra funds for closing costs, including appraisal costs and move-in deposit. Make sure any new additions or construction to an existing home have been properly filed with the city and approved. Be aware that appraisers will likely under-appraise than over-appraise, Mermelstein says.
“Definitely do an inspection. A lot of homes are sold ‘as is’ now, but you can get a credit (from the seller) if there is something big,” says Cindy Royall Libonati, in Woodland Hills, Calif., a Realtor with Ewing & Associates Sotheby‘s International Realty.
To help determine an offering price, check closing costs of comparable homes on websites such as Propertyshark.com and Zillow.com.
•Prepare for closing. At closing, first-time buyers get the keys to their new home. But there’s a lot to prepare first. They’ll have to get certified funds to cover closing costs and down payments (a settlement statement provided a day or two before closing will tell the buyer how much is needed). Homeowners insurance policies must be secured prior to closing as well. A closing cost estimate is provided after the application for the home loan spelling out what funds will be needed at closing.
Many Realtors suggest buyers have a financing contingency that will let them out of their contract without penalty if they don’t get their loan. Buyers should also have a contingency that the home appraise for at least the selling price.
“First-time homeowners don’t know you have to have a cashier’s check, not a check,” says Pat Lashinsky, CEO of ZipRealty, adding that they can be surprised by all the costs. “They can be like ‘Whoa, what’s all this’ if they’re not expecting it.”