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A Few Tips and Advice for First-time Buyers

Dear Marie: As a young couple, we want to own our own house. I wonder if we can afford it. Assuming we can afford to buy, how do we decide where and what house to buy?

Entering into this first MAJOR financial decision--one of the largest you'll ever make--is an awesome experience. You have already started the process with your discussions about the price. The three other things to consider are the location, the inside and the outside of the house.

The number one determining factor is usually PRICE. This includes the money you have on hand right now to pay closing costs and the down pay-ment, and also the monthly costs after you have bought the house. The wisest thing you can do is to get yourselves prequalified by a lending institution. This will a) tell you what price range you should consider, and b) enable you to act quickly to sew up a deal on your dream home.

Before you talk with an agent, make a budget. Decide how much of your monthly income you feel comfortable spending on your housing. This amount should include enough to repay the mortgage loan (principal and interest) and taxes and insurance. Your utility bills will increase since a house is bigger than an apartment.

The amount you can borrow is determined largely by your income and debts. Generally, lenders will allow up to 28 percent of your gross monthly income as long as you are not overly burdened with other debts (car payments, child support, high credit card balances, etc.). A real estate agent or a loan officer can help determine your maximum loan.

Banks and mortgage companies can also discuss with you the various financing options and requirements for FHA, VA and conventional loans. Unless you are a veteran, you will probably need a sizable down payment, 3% to 5% for FHA and 10% or more for conventional loans.

Keep in mind that you may not borrow the down payment; it must come from savings. It cannot come from your parents unless they sign a "gift letter" saying that it will not have to be repaid.

A real estate agent can help you determine required closing costs. These will include the appraisal cost, loan origination fees, title insurance and pre—paid items such as hazard insurance and property taxes. Like the down payment, the pre-paids can't be borrowed. But sometimes the sellers will help you buy their house by paying some of the closing costs.

Now the LOCATION: consider how long you want commute to work, where your friends live, proximity to schools, and the overall appearance of various subdivisions. Remember that part of the pleasure of owning your own home is feeling good every evening when you turn into your neighborhood.

The OUTSIDE includes the building and the yard, so decide how much yard work you want. What style of house is important - brick, frame, one or two story, ranch, colonial, etc.?

Finally, the INSIDE. This is where you and your wife will need to negotiate: What don't you like about your present apartment or house? What aspects do you like? What features would you like to have, and which ones are essential? Can you see yourself "fixing—up" a house in order to save money and using your own imagination and decorating skills?

By now you'll have a full notebook. Try to remember that rarely will one property have everything you want. By starting with a written list, you will have a solid basis to help make a final decision. Find a real estate agent with whom you feel comfortable, share your lists and get ready to start looking.

Marie S. Spodek, DREI, GRI is a highly regarded real estate educator and author. Her seminars have been attended by thousands throughout the U.S.

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