Are you ready to buy your first home?

Gayle B. Ronan

For most young people, buying their first home can be a scary proposition. It not only represents the biggest purchase most people make, it is a decision they literally have to live with every day.

This is why experts advise taking the time to make the most informed decision possible — it can reduce costs, aggravation and regret. These days, it is advice more easily followed given the recent slowdown in home sales.

“Think about your plan for the next year, five years, even 10 years.  Look at what you hope to accomplish professionally, personally, as a couple and as a family and what kind of home and neighborhood will best serve those plans,” advises Tom Stevens, who recently stepped down as president of the National Association of Realtors.

He also advises buying real estate only for "real" reasons: “Don’t get caught up trying to pursue ‘hot’ markets. That is a good way to get burned.”  Similarly, avoiding "cold" markets can freeze one out of a well-priced purchase.

Know your score
“Usually first-time buyers are not thinking about how their credit histories impact their home buying options,” says James Raysbrook, a Realtor with Coldwell Banker Bain Associates in Seattle, who works with many young home buyers. Recent applications for multiple credit cards, a spotty record of late payments or even a lack of credit history can all hurt a  mortgage application by lowering credit scores. “We also have them check their credit reports to see if any corrections are required.” 

Portrait of a first-time home buyer — The percentage of first-time homebuyers fell in 2006 from 40 percent of all homes sold to 36 percent. — Median income was $58,300 in 2005. — Fifty-one percent were between the ages of 25 and 23. — Seventy-five percent were renters before they bought; 17 percent lived with their parents. — Seventy-three percent used their own savings to fund their down payment; 22 percent used a gift from a relative or friend. — Typical first-time buyers financed 98 percent of their purchase. — Sixty-seven percent used fixed-rate mortgages to finance their first homes. Source: National Association of Realtors

“Make sure your budget can handle a mortgage payment,” advises Curt Weil, a certified financial planner with Lasecke Weil Wealth Advisory Group in Palo Alto, Calif.  “In California, a mortgage payment can easily be two to three times as much as monthly rent was.” That can seriously strain cash flow even after factoring in the tax benefits.

“Realtors and mortgage lenders often assume buyers want the most house possible.  It is up to the buyer to decide how much they actually want to afford,” adds Weil.

He suggests sitting down with a financial planner, buying budgeting software, or going online to sites like Fannie Mae’s, the government-sponsored corporation that supplies a secondary market for mortgages, or Choose to Save, the financial literacy Web site to access calculators that answer the question: How much can I afford without choking? 

“Once you know what that number is, you can work backwards to determine the maximum amount you can borrow.  Add that number to your down payment, and that tells you what price home you can afford,” explains Weil.

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