First-Time Buyer

Nicole and Bryan are buying a house. I hear about this a lot since I work with Nicole and I've bought three times and refinanced six. The other day, Nicole mentioned that she thought the bank liked them because they were first-time buyers. And guess what: she's right.

Not having anything to sell in this real estate market makes you a very desirable credit risk to lenders. This means first-time buyers have a leg up over those who may have a leg caught in the door of a house they can't sell. Sellers are also more likely to look on your offer favorably to another buyer who has property to unload in order to make the purchase.

That being said, you can still fall victim to some first-timer mistakes if you're not careful. Prime among them is to ignore or be unaware of any blemishes on your credit. It needs to be as clean as an operating room. The Federal Reserve says half of the banks have tightened their lending standards in the first quarter of the year. Get a copy of your credit report ASAP if you haven't already done so. You're entitled to a free one from each of the three credit reporting agencies annually. If your score is below 760 you'll have less negotiating power over mortgage terms and fees. Add that up to a more expensive loan.

The second big way to sabotage your house-buying efforts these days is to come up short on a down payment. More and more lenders are demanding 20% down. Anything less and you'll probably get hit with expensive mortgage insurance. This means you pay more to protect against bank losses in case you default. Ironic isn't it? Think of all those buyers who were approved for big mortgages with nothing down and then defaulted and the bank is now getting even through you.

The third big mistake is not obtaining pre-approval before making an offer or even looking at homes. A good real estate agent will counsel you to fill out a mortgage application for pre-approval right away. Otherwise you're not considered a qualified buyer and any smart agent or seller will run the other way. In addition, pre-qualification will tell you exactly how much mortgage you can get.

Now here's the fourth big mistake-believing the amount. What the lender tells you you can afford to pay for a house is not what that house will actually cost you. You have to factor in taxes, monthly maintenance, and improvements. In fact, many buyers only recognize this after they sign the papers and move in. They soon discover they are house poor and there's nothing left to buy that cute den furniture or redo the bathroom.

The fifth land mine you're likely to encounter is closing costs. This depends a lot on what state you live in and what fees are attached. Nicole and Bryan are paying tens of thousands of dollars in closing costs, but then they're buying in pricey Westchester County New York. Hopefully you're closing costs won't be anywhere close, but you need to see them in writing long before you do the deal and it does you in.

(If you'd like to see more of my stories go to www.nbcnewyork.com)

Comments

[Aaror]

Not to say anything bad about realtors, but as a buyer you need to realize they get paid a percentage of what you pay, so they get more money for selling you a bigger house.
If you do independant research, you can find out what percentage of your income you should spend on mortgage payments, I tend to see about 30%. Now, ask your realtor what percentage of your income you should spend on mortgage, you will hear 33%, 35%, even 40%. This is often expressed as "for your loan type you are allowed up to X%," but they will then steer you to the house at the upper range of what you are allowed.
Establish a fixed ceiling, and if the realtor suggests you look at a bigger house, take the additional mortgage payment, multiply it by 1.5, and figure that is how much extra you will pay for the larger house.
The 1.5, by the way, factors in increased costs of utilities, etc. If you want to know what you will probably pay for the house, take your mortgage and multiply by 1.5, that is probably the actual cost. Note that if you pay 30% for mortgage, you still have over half your income (55%) for car, bills, fun, savings, etc. If you pay 40%, you have only 40% of your income left to live on(40% times 1.5=60%, 100% of income minus 60% spent on house=40% left for yourself).

[67bug]

What are "closing costs?" I've never bought a home and don't know many people who have ( I live in a nice area of So. CA so it's very pricey), but I'm curious as to what they are.