Tips make first-time home buyer less vulnerable

The extension and expansion of the popular first-time home buyer tax credit, home-price declines and low interest rates has drawn out qualified people seeking to sink their money into their first home. According to the U.S. News & World Report.

Mark Zandi, the chief economist at Moody's Economy.com, projects first-time home buyers will buy 1.84 million homes in 2010, up from 1.73 million in 2009.

For those who have never purchased a home before, here are some helpful tips from U.S. News & World Report to make sure you’re investing in a piece of financial security and not sinking into debt:

1. Check your credit report and score

Before you even think of checking out an open house, get a copy of your credit report. The cleaner your credit report and the higher your credit score, the more likely you are to be preapproved for a mortgage at a low interest rate. According to Keith Gumbinger of HSH.com, most home buyers will need a credit score of about 720 to obtain the most favorable mortgage rates.

If you review your credit report a few months before you start hunting for a house, you'll have time to make sur the facts are correct and dispute mistakes before a mortgage lender checks it. Access a free copy of your credit report at annualcreditreport.com once every 12 months.

2. Get preapproved

According to U.S. News & World Report, the second step to buying a home is establishing with a qualified lender how much you can afford. "First-time home buyers need to take the time to get an approval from their lender before looking at homes," advises Ray Boss Jr., a six-year licensed Realtor with RE/MAX Realty Group in Maryland. "This includes getting a credit check and giving their lender a copy of W-2s, pay stubs, and bank and brokerage statements."

Preapproval saves time because you’ll look at homes that you know you can afford instead of lusting after something out of your price range. It also will put you in a better position over another bidder with no preapproval.

3. Create a long-term budget

The housing crisis proved that mortgages were given to people who did not have the means to repay them. To avoid this mistake, home buyers should create a budget before even beginning their home search to determine just how much house they can really afford. A good measure is to devote no more than a third of your monthly household income to housing costs, which include mortgage principal, interest, taxes and insurance.

“A good number would be 30 percent,” Zandi says. “If you are over 35 percent, you are really pushing the envelope.” Several work sheets are available online to help calculate how your income, debts and expenses affect what you can afford each month for the next 15 or 30years.

4. Remember the hidden costs

If you don’t factor in the cost of taxes, insurance, utilities and fees, you may grossly underestimate what you can afford to pay each month. You need to consider paying closing costs, appraisal fees, escrow fees, homeowner's insurance fees, property taxes and even moving costs, as well as repairs and maintenance.

“When you’re renting and the furnace goes out, what do you do? You call the landlord,” says Tom Vanderwell, mortgage officer for Fifth Third Bank in Michigan. “When you own a house, what do you do? You have to fix it yourself.” You may find numerous “nickel and dime” expenses to account for that could add up to a significant chunk of money over time.

5. Use professional help

It is possible find and buy a home without the help of a professional real estate agent, but a good agent can save you much time and stress. For instance, Realtors have access to all the homes on the market through the multiple listing service, or MLS, plus all the ones that are under contract and have been sold. A specialist has time to sift through all of these listings, says Boss, and make the appointments to show you the houses, create comparative market analyses to determine proper pricing and meet with necessary inspectors. Real estate agents also can help buyers traverse a taxing, 70-page legal contract.

“I would want someone who is going to look out for my interests first and foremost,” says Boss. “Someone who knows the contracts, who has experience negotiating, and who can walk me through the entire process smoothly – step by step – and make sure I get the house that's right for me.”

Contact me for the entire list of tips for the first-time home buyer from U.S. News & World Report.

Like Boomers, 74 million-strong Gen Y will give housing market much-needed boost

After another foreclosure bubble from Alt-A loans and Option ARMs resetting in 2010 and 2011, and with unemployment rates still rising, a sustained, healthy stretch of increasing sales, values and homeownership rates will come, according to Dave Lininger, RE/MAX International chairman and co-founder. But this upswing won't be built on questionable lending practices, overextended buyers or insane debt-to-income ratios. Instead, a combination of pent-up demand and demographics – with the youngest group of adults, Generation Y, providing much of the spark – will serve as the foundation.

Lininger describes the generation born between 1980 and 1995 – also known as the "millennials" or "echo boomers" – like “a pig in a python.” Now aged 14 to 29, they comprise a block of 74 million potential buyers – nearly as many as the 80 million baby boomers born between 1946 and 1964. He says considering the influence the boomers have had on virtually every aspect of society over the past 40 years, including the housing industry, he finds it fascinating to anticipate the impact of another wave that's just as massive.

The oldest members of Gen Y are approaching the average age of first-time homebuyers – the National Association of Home Builders puts it at 33 – and many of them are already taking advantage of attractive buying conditions. They’re moving through the household formation years of 25-44 and will soon replace Generation X (the 48 million people born between 1965 and 1979) as the primary first-timer group between 29 and 33. They will do so in much greater number.

The children of boomers, Gen Y is on the verge of becoming the major consumer force, although they’re not as well off as their parents were at their age, Lininger says. Despite being burdened by steep college loans, higher prices for everyday goods and an uncertain job market, they’re extremely confident, mobile and positive about their futures. Many are marrying earlier, without large nest eggs, and others see moving back home as a prudent way to save some money and wait out the economic turbulence.

Their expectations in housing are different, too. Their lifestyles are active, urban and social, so they generally favor smaller homes near recreation, restaurants and friends. Many would just as soon live in a townhouse or condo as in a large single-family home, as mowing the yard is not what they want to be doing on a Saturday afternoon. And though some embrace the charm of older homes, most prefer newer buildings filled with the technology and modern amenities with which they grew up.

Despite the current lack of buyer interest, a reservoir of pent-up demand is building in every age group: Gen Y couples who are content with renting or living with parents until their careers get going and their incomes cover their lifestyle expenses with something left over; Gen X families who have outgrown their homes but are delaying moves because of employment concerns and the tough economic times; boomers who no longer need five bedrooms but are hunkered down and postponing their downsizing or relocation plans, Lininger says. Eventually – those of us at RE/MAX International think it will be in four years or so – they’ll all feel secure enough to take the next step. Sales will rise and our industry will return to normal, although it will be a new, different normal than before. Regardless, we still face many challenges before members of Gen Y fully flex their buying muscles and help put housing back on track.