Buyer prepare: Tips for first-time home buyers
By Salvatore Caputo • Bankrate.com

Step 1: Ask yourself if you're ready.
You need to decide whether you're financially ready to buy a home, says Connie Barbosa, vice president and branch manager of Slade's Ferry Bank in Somerset, Mass. She suggests first-time buyers ask themselves some simple questions:

• Do you have a steady job and income?
• Do you plan on remaining in the same area for a few years?
• Do you have enough money set aside for your down payment and closing costs?
• Do you have an emergency fund?
• Do you live within your means, avoiding credit card debt?

Another consideration is whether you're mentally prepared for the responsibility, says Charles Glass, a real estate agent who sells in the Washington, D.C.-Maryland market.

Step 2: Find out what you can afford.
When you're sure you have the right mind set to be a homeowner, it's time to determine how much house you can afford. Probably the best way to do that is to get pre-qualified for a loan. In fact, some real estate agents won't work with someone who is not pre-qualified.

There are three options for pre-qualifying: go to a lender with whom you have already established rapport, find a real estate agent you trust and follow the agent's recommendations for a lender, or research lenders online.

Glass says the first option is the best because "if you've built a relationship with a lender, they will go to extra lengths to make sure they qualify you for the loan."

Your total monthly mortgage payment -- principal, interest, taxes and insurance (or PITI) -- should not exceed 32 percent of your monthly gross income, Barbosa says. The U.S. Department of Housing and Urban Development (HUD) suggests that figure should be 29 percent. So this is not an exact science. You can calculate a ballpark figure from this information, but then talk to your lender to get a better feel for how much flexibility you might have with different lending arrangements.

According to Bank of America's Consumer Real Estate Group, you should find a lender that offers "first-time buyer options and financing ideas that take into consideration your personal situation. For example, many first-time buyer mortgage programs require only a low down payment or even no money down. If a down payment is required, you may be allowed to use 'gift' money from family members and other sources. Some first-time home buyer programs feature no closing costs. There may also be down-payment assistance programs available in your community."

Remember, the bigger the down payment, the less you're borrowing, and the less expensive your mortgage will be in the long run.

HUD offers programs to help first-time buyers, too. real-estate/agency1.asp

Step 3: Find out what's available
Now it's time to decide where you want to live and research what types of housing are available -- one-story single family, condos, town homes, etc. You can get an idea by looking at ads and driving around the community before you ever call a real estate agent, Glass says. In fact, he prefers clients who have done some research.

In searching for an agent, find one who makes you feel comfortable and, more importantly, one who listens to you, Glass says.

HUD points out that it's traditional for the real estate agent to represent the seller's interests, although most state licensing laws require them to treat the buyer fairly. Laws regarding the relationships between real estate agents and clients vary from state to state and buyers should be aware who your agent is working for.

Step 4: Choose a neighborhood.
Once you know the housing stock, you can look at specific neighborhoods. Cruise by at night time to see whether you get a "vibe" that it's a safe neighborhood. If you have children, you'll want to check out the quality of the schools. You may want to check out what types of large-scale facilities (airports, highways, chemical plants, etc.) are nearby, and whether you're convenient to shopping, work and schools. You can do much of this independently, but you can also ask your agent to help you find sources of information about such things.

Step 5: Define your house and find it.
Now, you can narrow down the features you want in a house. Do you want an energy-efficient model? Do you want two stories, a basement, a bathroom downstairs or a large back yard? You may not find a unit with every feature that you want, but this will help you to define what's most important for you, Glass says.

When you've found a house that has your most important features, is in the right neighborhood and is affordable, you're ready to buy.

Step 6: Do a home inspection.
HUD recommends that an offer should be contingent on a home inspection. As the buyer, you cover the cost of the inspection. If you're unsatisfied with the results, you may ask the seller to pay for certain repairs or to lower the price, or you may decide to walk away from the deal.

Reggie Marston, a home inspector who can be seen regularly on HGTV's "House Detective" program, says home buyers should have an inspection done regardless of the age of the home and should interview several inspectors before hiring one.

"A home inspection should uncover defects that could become very costly to repair after (buyers) assume ownership," he says. "It will also uncover safety issues, water infiltration issues, roof problems, structural issues, etc.

"A first-time home buyer should start interviewing home inspectors before or at the same time they're interviewing real estate agents and mortgage lenders. Normally, real estate contracts only allow three to 10 days for a home inspection after acceptance of the contract and that doesn't allow the purchaser adequate time to find a qualified home inspector."

Step 7: Shop around for homeowners insurance.
Your lender will require you to carry homeowners insurance. Such insurance comes in many flavors, so it's a good idea to search for a policy that meets your needs for protection while being easy on your pocketbook. Access insurance information that is appropriate for your state. Many states provide data on typical rates charged by insurers, as well as information on the frequency of consumer complaints against a company.

Step 7: Negotiate.
Once you've found the house you want, you should make an offer that's lower than the seller's asking price. The seller expects this and will likely make a counter-offer. You have to decide before you start negotiating what your make or break point is, and stick to it. Just be reasonable. Don't expect the seller to give you a 50 percent discount on a good property.

Step 8: Closing.
In a number of states, it is customary for each party to have an attorney review the closing papers and to be present at closing. Whether that's the custom in your state or not, it's a good idea to hire your own attorney to review the documents to be sure that your best interests are represented in the paperwork. You'll foot the bill for your own attorney.

Step 9: Move in.
You've done all the homework and bought a great home. Enjoy it.