Six Things New Homeowners Waste Money On

OK, we’ve said it time and again, but it bears repeating: Buying a home is a very big expense—and once you’ve kicked off all that spending, it’s easy to find yourself caught up in rampant lifestyle inflation. After all, you’ve got an enormous, shiny new house just waiting to be filled with all sorts of nice stuff, right?

Well, take some quick advice: Don’t keep spending.

Homeownership comes with its fair share of unique costs—property taxes and urgent repairs and energy bills, oh my. There’s no need to add to their cost by shelling out for unnecessary expenses. Here are six major cash outlays that buyers can avoid.

Too much house

This one requires some thought before you actually nail the deal: How much house do you really need? Just because you’re pre-approved for a hefty purchase price doesn’t mean you should go as big as you can.

“The house that you can afford with the money you’re lent can make the budget go out of whack,” says Andrew Gipner, a financial adviser at Longview Financial Advisors inHuntsville, AL.

Not sure where to trim? Consider having less closet space, buying fewer bedrooms, or—especially—eliminating a formal dining room.

“You don’t use the dining room nearly as often as you think,” says Noelle Hans-Daniels, a Sotheby’s Realtor® in Indianapolis. “It’s kind of a wasted space.”

Fixing up your outdoor space ASAP

Once you close on your home and move in, you might be itching to host your first late-season barbecue. Or maybe you’ve been dreaming about a koi pond, like, forever. But hold on: Updating your outdoor space shouldn’t be your first priority, especially if you’re tight on cash. Unlike couches and beds, which are essential to a functioning house, landscaping and decor can be put on pause.

That goes double if you’re building new: According to Hans-Daniels, building your backyard at the same time as your home can cost “a lot more than if you did it after the fact.”

So exercise some caution before committing: Try pricing out your plans with a landscape contractor, and consider rolling them out in phases.

Old, outdated insurance

Still using the same company that offered you renters insurance seven years ago? It might be time for a change. Shop around.

“You may stay with the same company, but you may find something that’s a little better price for the same thing,” Gipner says. “Sometimes, people may not want to shop around or may be married to a particular company.”

Just because the same company had a good deal on auto or renters insurance doesn’t mean it’s the best fit to protect your home. Go through all your options with a fine-toothed comb, looking for a deal that won’t crush you financially but also leaves your house and its belongings secure.

After all, now it’s not just your stuff—it’s your roof, yard, and foundation you have to protect, too.

Space-filling stuff

If you’re moving from an apartment, chances are good you’re astounded by how much space you have. There’s another bedroom and a dining room and … yet anotherbedroom!

Don’t feel like you have to fill it all at once. Give yourself—and your home—time for personality to emerge.

“A lot of people will go out and say, ‘Oh my gosh, I’ve got to fill this space and buy stuff,’” Gipner says. “I’m not against possessions, but the way some people do it can be seriously detrimental to their finances.”

Instead of immediately stuffing the TV room with a generic, new couch and coffee table, wait it out. See what you really need and what you really like. In the meantime, stick the money you save into a renovation fund.

Extended warranties

Many homes don’t come with appliances installed, so first-time homeowners might find themselves making large purchases (like a dishwasher or refrigerator).

Here’s a tip: You don’t need the extended warranty.

“I’m against them,” Gipner says. “What are the chances everything you own is going to break or not work anymore?”

Yes, something might break within the relatively slim service window—but the money you’ll spend fixing one thing will be far less than the extended warranties on all the things. Your average warranty costs about $123 for major appliances, according to Consumer Reports, and a single repair costs not much more (and might not even be covered). Just risk it—you’ll come out ahead in the long run.

Yard maintenance

Having your own yard is definitely exciting, and while it’s important to keep it healthy and watered, you don’t need to go overboard. Resist the pressure to hire additional help for your yard—even if you’ve lucked into an HOA that covers it.

“You can still be part of an HOA and cut your own grass,” Gipner says. “You don’t have to pay someone an exorbitant amount of money to come out and cut your grass.”

Don’t be tempted by the sales pitches you’ll inevitably receive after your purchase goes through. A gorgeous lawn is achievable—and it can be done all on your own. Really.

Shared from:  http://www.realtor.com/advice/buy/six-things-new-homeowners-waste-money-on/

If you decide NOT to sell...

I Hired a Friend as My Broker, Got Offers, Then Decided Not to Sell. What Now?

An anonymous realtor.com reader asks:

Not long ago, I hired a friend as the broker to sell my house. She did a great job getting it photographed and listed, arranging open houses, and handling potential buyers. I got multiple offers above asking price—then, before accepting any of them, decided not to sell after all. What do I do now?

This is a situation I know well. Back when I was a Chicago real estate broker, I was hired by friends to sell their home, a typical newer construction five-bedroom, 3.5-bathroom house in the Ukrainian Village neighborhood. I listed it for about $949,000. Several open houses and lots of showings later, a buyer made an offer, and we negotiated until we were $15,000 under list price. This was 2011—the bottom of the market, when few homes were selling and even fewer were attracting buyers who could, as these could, put 50% down. Yet my friends declined the offer, and canceled the listing.

This kind of thing happens all the time—and how it plays out depends on the nature of your contract with the broker, and your relationship with your agent. At the heart of the issue is the commission. Does a seller still owe a commission after canceling the listing? Sometimes, the answer is yes. Other times, well, let’s look at some clauses from an actual contract to get a sense:

Commission shall be paid at the time of closing of the sale of the property or, in the event a real estate agreement is entered into and Owner defaults, at the time of the default.

This is the wording from my Chicago listing agreement. If my clients had signed an offer then canceled, they would have owed me a commission. But they never entered into a contract with a buyer.

If, during the term of this Agreement, Broker obtains an offer to purchase the property at the marketing price, or if Owner enters into a agreement for the sale or exchange of the property at any price and upon terms to which Owner consents, Owner shall pay Broker a commission of 6% of the total purchase price of the sale…

So, if I’d gotten my clients an offer at or above asking, they would have owed me a commission. Alas, the best offer was $15,000 under. But the second part of that clause is where it gets sticky: While the owners have the right to change their minds and decide not to sell their house, they are still bound by the contract for its duration (12 months), even though I took the house off the market.

To make things even more complicated, every state has different listing agreement guidelines. While in Chicago the protection period can last up to a year, in other areas it might be as short as 60 to 90 days. It’s important to read the entire contract to know your rights and the contract terms.

And even though you might hire a friend as a broker, remember: This is a contract with intent to sell. Getting cold feet does not nullify it.

Still, even if your contract doesn’t require you to pay a commission on a home you’re no longer selling, your broker—your friend—is now not going to make thousands of dollars on the sale. That deserves at least a nice thank-you/I’m-sorry dinner out. You’re keeping the home—you should keep the friendship, too.

This was not exactly what my friends with the Ukrainian Village house did. First, they tried to sell again. Then, exactly a year after we signed our listing agreement, they relisted it with another agent (and paid my brokerage a cancellation fee of $350). And just as they canceled with me, they canceled with him.

Me, I missed out on two commissions. And worse, I lost two friends who distanced themselves after the transaction was canceled. So before you hire your friend as your agent, be sure to discuss not just what will happen when the house sells, but also what could happen if it doesn’t. And maybe you should make those reservations at Alinea today—it’ll work for commiseration or, we hope, celebration.

Shared from:  http://www.realtor.com/advice/sell/do-you-owe-a-commission-after-canceling-the-listing/

Buying a Second Home in Seven Steps

Thinking about buying a second home? Whether you're looking for an investment property, a getaway, or a place to eventually retire, plan to take these seven important steps.

One: Decide Whether a Second Home Makes Financial Sense

Whether or not you consider yourself an investor, you no doubt want your second house purchase to be a sound financial move. Yet many second-home owners complain that the house -- including not just the purchase price, but ongoing expenses -- ended up costing more than they'd ever imagined. You'll want to tally up your likely expenses, factoring in any extra costs based on the fact that you won't be there every day (such as hiring a management company and the relatively high cost of hazard insurance). Then you'll need to build up your cash reserve, and, if you plan on renting out the property, determine how much you can expect from rental income (it's often not enough to cover your monthly costs).

Two: Decide Where, and What Type of Home You'll Buy

A home in a badly chosen location won't serve anyone's goals -- an investor can't resell or rent it, a vacationer won't enjoy it, and a future retiree may have to pick up and move again. You'll need to rely on both market research and your own personal preferences. Look into factors like the strength of the local economy, trends in house resale values, convenience and amenities, property tax rates, the quality of local schools and medical care, and more.

The type of home you buy is similarly important. The costs and demands of owning a single-family home are different from those of owning a condominium, townhouse, or co-op. Which type serves you best will depend on factors such as cost, location, and upkeep. For example, condos, townhouses, and co-ops typically require less maintenance, since the areas of the property outside your unit are governed and maintained by a community association (of which you'll be a member). However, you'll pay for that maintenance in the form of monthly fees and special assessments.

Three: Look into the Tax Implications

Second-home owners need to worry about both property taxes (which vary by state and locality) and, if renting out the place, income tax. Though taxes are inevitably a burden, a little advance planning during the house-hunting process can save you thousands of dollars a year. For example, sometimes buying a home just over a town's border can significantly trim your annual property tax bill. And if you're renting out a vacation property, the amount of days you yourself spend there can make a difference in how much you'll owe in income tax.

Four: Come up With Short-Term Cash and Long-Term Financing

Most people pay for their home with a combination of a down payment and a loan for the remaining amount. The higher your down payment, the lower the loan, and the more house you can therefore afford. In order to come up with down payment cash (which should be at least 20% of the purchase price), you may need to get creative. Using the equity in your primary home, borrowing against a life insurance policy, or refinancing your car are among the possibilities.

Most buyers will also need to get a home loan to help with the rest of the financing. Shop around: By reviewing the various mortgage options and sample payment schedules and factoring in your own short- and long-term goals, you should be able to find a mortgage that suits you.

Five: Consider Nontraditional Financing Methods

One unique way to help finance your second home is to tap the "Bank of Family and Friends." Borrowing from parents, siblings, or close friends lets you keep the tens of thousands of dollars in interest you'll pay over the life of your mortgage loan within your circle, rather than handing it over to a bank.

Another money-saving approach is to partner with another purchaser; for example; sharing a vacation home in the sun. Shared ownership is a growing trend -- but not one to rush into lightly. You'll want to start by determining whether co-ownership with a particular person is likely to work. Then draft a written agreement to spell out how ongoing costs will be split and deal with other potential sources of contention, such as what happens if one of you wants out after a few years or if one of you dies.

Six: If You'll Be a Landlord, Be Prepared

Some second-home owners plan to rent out their properties long-term with the idea of eventually turning a profit (rental properties usually take some years to make money). Others just want to rent out their property periodically as a means to offset expenses. Either way, you're taking on the role of a landlord, which means more than just following your instincts. Finding good tenants or trustworthy vacation renters, understanding and preparing leases or short-term agreements, and dealing with ongoing management and repairs are just a few of the practical and legal issues involved. Also, the obligations of managing a long-term rental are quite different from those of a periodic rental.

For more on becoming a landlord, see First-Time Landlord; Renting Out a Single-Family Home, by Janet Portman, Marcia Stewart, and Michael Molinski.

Seven: Take Steps to Protect Your Second Home

Protecting your property starts before you buy and continues long afterwards. For example, you'll want to get a proper home inspection prior to purchasing, so as to deal with some repair issues up front and get a sense of what other repairs may be looming.

You may need to purchase title insurance -- typically required by the lender -- in case problems such as past ownership or debt claims on the property surface after the purchase.

Your lender will also require that you carry hazard insurance, to protect your property against damage from such causes as theft, fire, flooding, or windstorms. The cost of insurance for second homes is usually higher than for first homes, since you won't be there as much. You will probably want to add liability insurance, covering you and members of your household for accidental injuries to your visitors. (Together, hazard plus liability insurance add up to the standard homeowners' insurance package.) Taking these protective steps will guard not only your home, but your peace of mind.

Shared from:  http://www.nolo.com/legal-encyclopedia/buying-second-home-seven-steps-30010.html

Six Basic Mortgage Rules To Follow

Whether this is your first home or fourth, really understanding your mortgage and how it works is crucial. After all, it’ll probably be the biggest loan of your life!

What IS A Mortgage?

In the most basic sense a mortgage is a loan to buy a property. The process of securing a mortgage means lender approval based on your income, credit rating and other debt.

Understand Your Fixed Costs

Before you decide what you can—or should—spend on a mortgage it’s important to take stock of your habits and your true fixed costs. Be honest with yourself when putting together your household budget, if you’re going to be miserable without your daily premium cup of coffee, then along with your student debt and car payments, consider that a fixed cost.

Be PITH Safe

According to the CHMC (Canadian Housing & Mortgage Corporation), your monthly housing costs should be less than 32% of your gross monthly income. These are considered your PITH or Principle and Interest (of your mortgage payments), Property Tax, and Heating bills.

Get A Mortgage You Can Afford

If you pass the PITH test, the second test of what you can afford mortgage-wise is that your entire monthly debt load (car payments, credit card debt, student loans, etc) should be less than 40% of your gross monthly income. The CMHC even has a handy Mortgage Affordability Calculator on their site: cmhc.ca.

Paying Off Your Mortgage

Once you’re approved for a mortgage and buy your home (congratulations!), now you have to actually start paying off the loan. There are several factors involved in this like your interest rate, payment schedule (monthly, twice a month, every two weeks, or weekly) and your amortization period, which is the amount of time you’ve selected to pay back the mortgage (usually ranging from 15-25 years).

Picking The Right Interest RateThe interest rate at which you select to pay off your mortgage varies from “fixed”—whereby the rate will NOT change for the term of the mortgage, and is generally a bit higher but considered more stable, or “variable” whereby the interest rate can fluctuate with the current state of the market.

Finally, owning a home can truly be an amazing thing. Thankfully there are many resources out there to help make the process a smooth one like mortgage brokers and financial advisors, so remember, you’re never alone through this daunting process!

Shared from:  http://www.hgtv.ca/realestate/article/mortgage-rules/

How to Get Your Home Ready for an Open House: Security Edition

Holding an open house is an act of faith. You clean, declutter, and prepare your home to look its best, hoping at least one of the visitors will fall in love enough to make an offer, preferably all-cash. At the same time, open houses are invitations to strangers to walk among your most prized possessions, often with only a single real estate agent present—and so there are very real security concerns, for agents and homeowners alike.

At least 40% of the agents surveyed by the National Association of Realtors® for its 2015 Member Safety Report say they have experienced a situation that made them fear for their personal safety: Vacant houses, model homes, properties in remote areas, and open houses all caused trepidation. The study found that many now carry weapons for self-defense—no wonder when agents have been killed in the past.

For homeowners, however, self-defense takes place long before strangers show up at the door—and start looking in the refrigerator, the cabinets, the pantry. (A Maryland woman recently went to jail for stealing jewelry from open houses.) You probably know to lock up or take away valuables, but here are a few more things to remember:

Say ‘No’ to drugs

Remove all prescription drugs from your medicine cabinet, even the ones you think are harmless. There are so many tales of open house visitors rifling through medicine cabinets and taking a few pills, or even whole bottles. In comments on our site, a user calling himself Larry Kean described this very thing, saying people are looking for “abusable” drugs. Likewise, another user, Rose Eneri, wrote that her friend “found a guy looking through her medicine cabinet” at an open house: “Easy pickings for a drug addict or dealer.”

Control your remotes

Most people don’t think about the extra garage remote they leave dangling from a hook near the back door. It’s small and easy to slip into a pocket, so take it with you when you leave for the open house. One commenter wrote that an open house visitor may have taken the garage remote, then returned later to steal the homeowner’s Lexus! All keys, remotes, and fobs should either be locked away or in your pocket.

File this under ‘Lock & Key’

There’s a trend in home office decor to make file cabinets pretty and portable—but portability and security are not always compatible. Buy a heavy, nonrolling commercial-grade filing cabinet that locks—and into it put your important documents: birth and marriage certificates, financial statements, basically any legal, medical, or personal information you wouldn’t want falling into someone else’s hands. Identity theft is real and should be taken seriously.

What about my 50-inch flat-screen?

While it’s unlikely that anyone could walk out of your open house with your TV or other large electronics, they could come back for it. That’s why the next item is so important:

It ain’t over till you check your doors & windows

While agents will go through to make sure all lights are off and the house is in good condition after an open house, they might not check the doors. Unscrupulous people have been known to unlock a window or basement door with the thought of returning later. After the open house, walk through your house and check every window (even on the second floor), gate, and door to be certain that they’re all locked.

Reposted from:  http://www.realtor.com/advice/open-house-security-homeowners/

Selling Deceased Parent's Home

Chris Freitag moving furniture to a trash bin as he cleared out a home in Ridgefield whose owner had died.

After Dwight Trainor's mother died unexpectedly earlier this year, he and his sister decided to sell her Leonia home, which had been in his family since the 1930s. But first, they had to clean it out — a task that took seven days of their time, plus the services of an estate sale company and a junk-removal team.

"There was four generations' worth of stuff squeezed into every corner," said Trainor, a geologist who lives in Texas.

As Trainor discovered, selling a home after a death isn't like other real estate transactions. Not only are the homes often overstuffed with decades' worth of belongings; they're also often poorly maintained.

In addition, heirs sometimes disagree over pricing and marketing the house. And sellers are not only dealing with the house sale, they're mourning their loss and figuring out how to handle an estate — often while living in another part of the country, as in Trainor's case.

"There's an emotional component to this," said Wendy Dessanti, a Weichert agent in Tenafly. "People can be going through a hard time. They miss their parent, and they have to be making smart decisions. Sometimes it takes people a long time to deal with."

Nonetheless, John Kopp, an attorney in Clifton, said that it's a good idea to sell as quickly as possible.

"Acting on an estate property sooner rather than later is always better, because you have carrying charges," said Kopp, who has been dealing with the home sales of his recently deceased mother and mother-in-law. Property taxes and maintenance costs add up, and if a property is empty, the owners have to pay for special vacant-home insurance.

To move the process along, Kopp said, heirs can start doing the preliminary work toward a sale — such as interviewing real estate agents and making repairs — while they're waiting for the will to be probated and the executor to be officially named. And Dessanti recommends that heirs work with a lawyer familiar with both estate and real estate law, if possible.

Because elderly homeowners can't always keep up with maintenance, heirs often find headaches like faulty plumbing and heating, ratty carpets and obsolete septic systems. In the case of Trainor's family home, for example, a contract to sell the house fell apart when an inspection turned up a leaking underground oil tank, which had to be remediated.

And even houses that are in decent repair are often filled with a lifetime's worth of stuff.

"They've been in the homes 40 or 50 years, and they've hung on to things," said Barbara Ostroth, a Coldwell Banker agent in Oradell.

Agents say clearing out the house is usually a multistage process. First, families need to find and remove the important papers, heirlooms and expensive items — a process than can take days. Then, a tag-sale or auction company can be called in to sell anything that has any value, for fees that average around 25 to 30 percent of the sale amount. Items not sold can then be donated to charity. Finally, a cleanout company can haul away what's left, at a cost of roughly $600 to $1,800, depending on the size and contents of the house.

All in all, it's much tougher than a typical move, in part because it takes time to figure out who should get what, said Emilia Freitag, an agent with Rand Realty Better Homes and Gardens in Ridgefield.

Often, the late parent's treasures have little worth, because tastes have changed.

"Collections of Hummels — you can't give them away," Kopp said, referring to the series of porcelain figurines.

Joanne Randazzo of Brick said clearing out her father's belongings was the hardest part of selling his New Milford split-level after his death at age 92 in 2011. He had lived in the home for almost half a century, and it was full of souvenirs from his frequent travels, as well as books, records, a stamp collection and more.

She didn't want any of the furniture, but she couldn't interest charities or a dealer. "I was panicking," she said. "I didn't want to put it on the street." In the end, a family friend who had just bought a second home took the furniture.

But no one wanted the Ellery Queen books and the encyclopedias, which went to the recycling center. And the stamp collection is sitting in her daughter's dining room in plastic bins. "That was so precious to him, but she's not interested in stamps, and neither am I," Randazzo said. "It doesn't mean anything to anybody else — that's sad."

Another complicating factor in estate sales is that there are often a number of heirs.

"When there are four, five or six people involved — typically siblings — with an interest in the estate, it turns into four, five and six different opinions as to what the price should be, how much should a price reduction be if necessary, what price should we accept, what should we give on a home inspection and what attorney should we use," said Rick Bandazian, a Coldwell Banker agent in Upper Saddle River.

"Each has their own idea of value. I've seen four siblings turn down an offer because they wanted $10,000 more," said Terri Golden, a Coldwell Banker agent in Fort Lee. "That's $2,500 per person. In the end, they sold for less and had to pay taxes and maintain the property for longer than necessary."

Ostroth told of a family where the adult children — all living out of state — didn't trust each other to clean out the house unless they were all there to see what everyone took. It took over a year to get the property ready for sale.

Some of the family conflict can be avoided if the executor keeps the other heirs informed.

"The executor should be transparent in their dealings with the property," Kopp said. "Every effort should be made to include the beneficiaries in the process."

Heirs living out of state often lean heavily on real estate agents, asking the agents to check on the house and hire auction and cleanout companies, as well as painters and contractors, to get the house ready for sale.

Lisa Tannenbaum, a Coldwell Banker agent in Allendale, recently worked with out-of-state heirs when she sold an estate house in Oakland. She couldn't find any local charities to take all the furniture, but she did find a charity from the South that took it. She also helped the out-of-state heirs find a contractor to upgrade the cesspool to a modern septic system.

"There's a lot of hand-holding on estate sales," said Chuck Martini of Friedberg Properties in Tenafly.

Agents say it's not necessary to spend a lot of money on major renovations — such as a new kitchen — when selling an estate property. But most say it's crucial to brighten up the space by clearing clutter, having the house and windows professionally cleaned, painting the walls and removing old carpet, especially if there are hardwood floors underneath.

Tannenbaum said she got a good price — more than $300,000 — for the Oakland property, a two-bedroom ranch, because all the interiors were repainted and the floors refinished.

"Whether it's an $800,000 house or a $300,000 house, buyers tend to not want to do a lot of work," she said. "Sprucing up really brought in the money."

Reposted from:  http://www.northjersey.com/real-estate/selling-a-home-when-a-parent-dies-1.671483?page=all

WHEN IS THE BEST TIME TO BUY OR SELL A HOME?

Is it better or worse to buy or sell a home in the fall/winter months verses the spring/summer months? Home sellers and buyers ask us this question often, and the answer isn't so simple.

WHAT ARE CONSIDERED THE FALL/WINTER AND SPRING/SUMMER MONTHS?

Let's define exactly when these time periods are. The Fall and Winter months are between September 1st and February 28 and the Spring and Summer months are between March 1st and August 31st.

DIFFERENCE IN HOME SALES & INVENTORY BETWEEN THESE TIME PERIODS

We pulled the actual data of sales and inventory during those time frames to see if there is actually a difference. We looked at two different towns, Andover, MA and Haverhill, MA. What we found was Andover experiences an increase of about 48% more inventory in the spring/summer and about a 52% increase in unit sales during spring/summer. Haverhill experiences an increase of 13% in inventory during the spring/summer and about a 25% increase in unit sales during spring/summer. So, we've now confirmed there is a difference between unit sales and inventory in spring/summer versus fall/winter. But, does this make a difference in your buying or selling decisions? Let's look at it from the seller & buyer point of views.

SELLING YOUR HOME

If you're home seller, you might consider it to be more beneficial, given your property type, to be on the market when there is less competition since consumers shop by comparison. If there are less homes to compare yours too, it may make more sense for you to sell in the winter instead of the spring/summer when there's a dramatic increase in inventory.

BUYING A HOME

If you're a home buyer, you might think looking for a home during the spring/summer is best since there are a larger selection of homes available at that time. However, the spring/summer has an increase in competition from buyers. So, one could argue that buying a home in the winter makes more sense as a buyer since there is less competition with other buyers allowing you to work more strongly with sellers to get something done.

CONCLUSION

Motivation is the driving force for buying and selling in the winter months. If you're out looking for a home in the winter months, you are a much more serious buyer. When you're selling your home in the winter months, you're a more motivated seller. Deals tend to stick together tighter in the winter months because the participants much more motivated to get something done. Remember, whatever you decide is right for you is when the time is right. So, don't put too much focus on what time of year is the right time. If the time is right for you to buy or sell your home right now, then it makes sense to do it now.

Reposted from:  http://primepropertyteam.realtytimes.com/advicefromagents1/item/32003-when-is-the-best-time-to-buy-or-sell-a-home

What to Know Before Buying Your First Home

Buying a home is the most important purchase you’re likely to make. You want to get it right.

Life is full of exciting firsts. Your first steps. Your first day of school. Your first love. Your first job. Your first place.

Whether you want to move out of your parents’ home for the first time, own a home after rentingfor years or buy a place with a spouse or partner, purchasing your first property is a big step. It takes a lot of preparation when you’re in this stage of your life, and a little luck never hurts.

Brittany Frey, 24, may be a little younger than the typical first-time homebuyer, but she probably speaks for most of them when she talks about why she bought a house.

“I’ve been working at the same professional job for the past three years and feel like I’m ready,” says Frey, who lives in Buffalo, N.Y. “My rent has ranged from $600 to $800 per month, and that’s a lot of money to just throw away. And,” she adds, “I think I was just sick of renting.”

Frey is one of the lucky ones. With no house to worry about selling and it being a buyer’s market, Frey could afford to take her time looking -- and then pounce. After looking at 40 houses andcondos, that’s exactly what she did, and she is very pleased with her purchase.

Renting instead of buying a home may seem like the most convenient or most affordable way to go. It pays to do some simple research to understand the pros and cons of buying versus renting. You may find that owning a home is actually your best option.

HOW YOU KNOW IT’S TIME TO BUY YOUR FIRST HOME

When you learn to drive, most states allow you to get a learner’s permit at age 15. Any teenager thinking of joining the military knows you can’t enlist until you’re 18, or 17, with parental consent. And every teenager knows that it’s not legal to drink until you’re 21. Most folks know that no matter how ambitious you are, you can’t be elected president until you’re 35.

But buying a house? There is no age restriction. Some might argue you can’t buy a house until you’re 18, because a bank won’t let a minor sign a contract, but theoretically, if you had the cash and your parents were cool with it, you could be a toddler. Or you could be a senior citizen; this writer’s grandmother bought her first house at the age of 77 and is still enjoying it, almost eight years later.

It’s safe to say you’re going to be somewhere in between those ages -- and you’re going to hear a little voice, just as Frey did, that says, “It’s time.”

That’s largely how Heather Clark, 27, general manager for Chicago Sailing, and her boyfriend, John Honkala, 32, a Web design business owner and part-time bartender, came to buy their house.

“We were planning on moving in together and expected to just rent an apartment,” says Clark, but she and her boyfriend changed their minds when they realized how inexpensive houses were becoming. But even without the lure of the financial incentives, it felt like it was the right time.

Clark says that they were both sick of moving, of dealing with landlords and of living in dated quarters. “My old apartment has been described as '80s Florida chic,” quips Clark, referring, in part, to her “plastic vertical Venetian blinds.”

WHAT TO CONSIDER BEFORE BUYING YOUR FIRST HOME

THE QUESTIONS TO ASK YOURSELF

Regardless of how ideal the market may seem, it’s still a good idea to sit down with your real estate agent and think about how you see your life in three or five years and ask yourself some pointed questions, suggests Althea Smock, a real estate agent with ZAPA Realty in Denver.

Can I afford it?

Buying a house will have a significant impact on your finances, so make sure you can handle it.

Housing is more affordable than ever and incentives like low interest rates and the new expanded tax credit are enticing buyers to enter the market. But purchasing property involves a lot of upfront costs: closing costs, down payment, new furniture, moving expenses. Do you have enough cash?

Create a budget for the monthly mortgage payment and homeownership costs, such as general maintenance if you buy a single-family home or homeowners association fees if you buy a condo.

Am I mortgage-worthy?

Say you saved enough cash, but what about your credit? It’s not a secret that getting a mortgage these days is harder than it used to be. Lenders are looking closely at all documentation of your income, debts, assets and liabilities, to make sure you don’t exceed the maximum debt-to-income ratio. And when it comes to credit scores, the most competitive interest rates (the 5 percent you may have heard about) only go to buyers with credit scores above 700.

The key is to review your financial situation before you check out open houses. Use our affordability calculator to see what kind of monthly mortgage payment you can comfortably afford.

Do I plan to live here for at least five years?

Most personal finance experts say that unless you plan to live in a home for at least five years, you likely won’t recoup any of the expenses associated with buying and later selling the house.

Plus, your first few years of mortgage payments primarily pay off interest, not your principal, so you will not have built up a lot of equity in your home. You may be better off renting if you expect to move in the next couple of years. Just because you live in a buyer’s market doesn’t mean the time is right for you to buy.

If I buy with another person, how will this affect me?

Buying real estate with another person has its perks, if you both have stable financial situations. By combining cash and resources, you're likely to get a bigger, better place than you each would as individual buyers. Plus, when you're starting out, it helps to share the financial burden with someone else.

But before you start house hunting together, sit down, lay all your cards on the table and get the answers to these important questions. Whether you're buying with a spouse, domestic partner, relative or friend, setting the ground rules first will save you both a lot of headaches in the future.

Is it worth the money?

Frey admits that she’s spending slightly more than she wanted to, but, in the end, she decided it was worth it because “the appliances stay, the kitchen is remodeled and it’s a house that I won’t outgrow in a few years.”

In other words, the place in which you live is an investment and the money will always be relevant, but that old-fashioned moniker “home sweet home” is decidedly modern these days. People aren’t buying houses anymore; they’re buying homes.

THE COST TO YOU

In today’s housing market, we’re seeing monthly mortgage payments rival monthly rents in some cities. While this may be the case in your area, keep in mind that securing the “start-up” costs of homeownership is the biggest challenge.

Do I have enough cash?

Buying property requires a large amount of cash upfront to cover closing costs and a down payment, which ranges from 3 percent for a government loan from the Federal Housing Administration to 20 percent for a conventional loan. That’s a lot of cash to fork up. Can you handle it? Will you have enough cash on reserve for emergencies, like an accident or job loss?

How much will I spend on a monthly basis?

Your monthly payment will consist of PITI: principal and interest (determined by the home’s purchase price and your interest rate), property taxes and home insurance. Your monthly homeownership budget should also include utilities, cable/TV/Internet and general maintenance costs.

When buying a condo or townhome, factor in the homeowners association fees and any special assessments.

Will buying a fixer-upper save me money?

If you’re young and driven, you may not mind if your house is a fixer-upper. And if credit is an issue, that may be about all you can afford. But keep in mind that repairs and home improvements still require money, so prioritize your projects and create a budget.

THE HOUSE FOR YOU

The house you buy should at least fit into your five-year vision for yourself. Why spend the time and money on something you’ll outgrow in a couple years?

“I've talked with a few younger people that have taken advantage of the tax credit and the buying market over the past year,” says Smock, the agent in Denver. “The overriding theme with all of them now that they've owned for a year or two is that their lifestyle has changed -- of their own doing -- and the place they bought no longer works for them.”

So look for a house that doesn’t just fit this stage of your life, but would also work for the next one. A mistake that many first-time homebuyers made in previous years was looking at their house mostly as an investment and not a place to live and grow old. It was all too easy to say, “Well, if this small yard drives us crazy, we’ll get a bigger one at the next house.”

And it may, indeed, turn out to be easy -- the housing slump won’t last forever -- or it may be harder than you think. You don’t want to box yourself in and limit yourself before you even move in.

“It all seems like common sense,” concedes Smock, “but people who are used to apartment living and changing houses like outfits will find themselves in a bind when they finally buy, because the house no longer fits their needs a year later.”

And be wary of buying a home because of a low price tag -- it won’t be a deal if it doesn’t fit your lifestyle. Ask yourself these questions:

How often will I be at home?

If you work long hours or travel a lot, it doesn’t make sense to buy a large home that requires extensive maintenance. That 3-bed, 2-bath short sale with a yard may be priced right, but who will take care of it? A one-bed condo, on the other hand, requires minimal upkeep.

Likewise, home styles like Victorians and Craftsmans are beautiful but need attention. Would a lower-maintenance contemporary home work better for you?

Who will live in the house and will that change soon?

The home should accommodate the current and intended household. But this doesn’t mean you should buy a house that’s more than you can afford.

• If you’re single, but hoping to meet someone special and settle down soon, perhaps a one bedroom isn’t enough.
• If you’re newly married and plan to have kids, a two bedroom may not be enough room. Especially, Smock adds, if you were planning to use one of the rooms as a home office.
• If you’re a childless couple and plan to stay that way, you still might want to buy a home with a guest room -- just in case.
• If you have a dog or several pets, a single-family house may work better than a condo in a high-rise building.
• If you’re a 60-something buying a first home and feel that you won’t be one of those “active seniors,” you may want to opt for a ranch house instead of a two-story house with a lot of steps.

What about a foreclosure?

Foreclosures are attractive because of the perceived bargain they offer, but don’t be fooled. Not all foreclosures are deals. You’re also competing with savvy investors who have years of experience buying distressed properties, so as a first-time buyer, it’s essential you work with a real estate professional who knows the market.

Your best bet as a first-time buyer is an REO (real estate owned), a property that has been through the foreclosure process and is now owned by a bank. You work with the lender or lender’s broker, rather than a distressed homeowner.

But if you’re a buyer in a hurry, buying a foreclosure may not work. Foreclosure deals are known to take as long as 90 days or more to close, if they close at all.

What about a fixer-upper?

A fixer-upper is another appealing option for bargain-hunting buyers. Clark and Honkala from Chicago, for instance, bought a fixer-upper and took advantage of the FHA 203KS rehab loan program, which allows borrowers to finance improvements and upgrades up to $35,000 at the time of the purchase, provided the work financed is done by licensed contractors.

“When we’re done with the rehab,” Clark says, “we will have altered all but one room on the first floor and changed everything on the second floor. In prior years, the house had been split into multiple units. We’ve gutted all three kitchens and are only planning on putting one back. But even though it has been a lot of work, it’s definitely worth it.”

With the rehab loan, Clark’s mortgage is for $180,000. The bank appraiser estimates the house will be worth $230,000 when the rehab is finished -- not a shabby purchase, even if the home was initially shabby, and a solid investment to boot.

A fixer-upper also gives you the flexibility to “mold” a modest home into your dream home. Clark says she and Honkala are “both into cooking and hate apartment kitchens with their lack of counter space and sub-par appliances. About 35 percent of our rehab budget has gone straight into our kitchen, and we can't wait to host large dinner parties.”

THE NEIGHBORHOODS AND AREAS FOR YOU

Many first-time buyers tend to be young professionals or young families who want convenient access to arts, culture, good food, shopping, nightlife and recreational activities. For this reason, pedestrian-friendly neighborhoods are great for those starting out, in revitalized downtown areas or up-and-coming communities with history and character.

If you’re a first-time buyer on a budget, you may need to make some compromises when it comes to your first place. You may not be able to afford your ideal neighborhood or dream home, but you can get as close as you can to them. Buy a fixer-upper in the best neighborhood in the city, or buy new construction in an up-and-coming part of town. Just be mindful that your purchase price reflects the home’s market value.

Look at the price of your house and the comparables, advises Gregor Watson, managing partner at McKinley Capital Partners, in Oakland, Calif. Research the neighborhood and school districts. For instance, if you buy a house that’s inexpensive but surrounded by pricey McMansions, your property tax might be much higher than you would think.

Or if you’re going to live in the nicest house in a transition area, that, too, could adversely affect how much your house is worth -- which may not matter to you if you plan to live in the place for years to come and see it as a place to live and not an investment.

If you’re focused on buying a foreclosure, take Watson’s advice: “Once you think you know the area and smell a good deal, don’t waste your time trying to buy an REO home or a short sale. You can’t compete with all the cash buyers. The best way to find a deal is to partner with a broker or a group of investors that are buying direct from banks or on the courthouse steps.”

Whatever you’re looking for, work with a real estate professional that specializes in it, whether it be urban homes downtown, small houses or green living. There are even reputable real estate agencies and government programs that focus on selling houses to people with poor credit histories. Some real estate companies, like Performance Realty, Inc., in Indianapolis, offer programs specifically designed for first-home buyers.

As you search for financing and the right house, “stay patient,” Watson says. “Yes, the government is handing out money through first-time buyer tax incentives, and, yes, interest rates are low. But do your homework and really get to know the areas you want to live in and look for.”

Reposted from:  http://www.frontdoor.com/real-estate/what-to-know-before-buying-your-first-home