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First-time Homebuyers Tips and Advice

January 8, 2010

By: Jim Oosterman
Melrose Bank

Home, Sweet Home

Buying your first home is exciting, as well as a life-altering experience with many long-term benefits. Here are some tried-and-true tips and timely advice which could help you along your journey toward becoming a homeowner.

Consider Tax Advantages
Some benefits of homeownership could include deducting the cost of your mortgage loan interest from your federal income taxes and if applicable, your state taxes as well. First-time homebuyers have a special advantage this year, as a tax credit of up to $8,000 may be authorized to those who close on mortgage financing before December 1, 2009. Consult with a tax-professional to find which tax advantages may be best for you to pursue. For additional information, visit www.irs.gov.

Take Care of Your Debt
Before you purchase your first home, it may be wise to pay off as much of your existing debt as possible. Use the money you have saved for a house down payment to eliminate credit card and other high-interest debt, even if this means that you put less money down on a home.

The average interest rate for a credit card is around 15 percent, or more than double the national average for a 30-year fixed mortgage. Credit card payments and other installment loan debt will limit how much money you can borrow, as lenders often will not allow your monthly total debt to exceed approximately 40 percent of your gross income.

Set a Budget and Plan Ahead
Determining how much house you can afford, is another important step in the home buying process. Often, first-time homebuyers will assume that they can afford more house than they actually can.

Make sure you budget an extra 3 to 5 percent of additional money to pay for closing and other incidental costs that may arise. You will also need to calculate property taxes, insurance, maintenance, and condo association fees if they apply.

Get Pre-Approved
Many real estate agents encourage potential buyers to get pre-approved before shopping for homes. Sellers respond best to a first-time homebuyer who has a pre-approval letter in hand and is willing to close within 30 to 60 days. A pre-approval letter makes sellers much more confident in your ability to complete the home buying transaction.

A pre-approval letter provides a maximum amount that your lender will provide, based upon your income and expenses. This avoids wasting time in looking at what many real estate agents refer to as "too much house". Any qualified lender will be happy to walk you through the pre-approval process in person, over the telephone, or online. As a general rule, your total monthly expenditure for housing, which includes your mortgage payment, real estate taxes and homeownerÍs insurance, should not exceed 28 to 33 percent of your gross monthly income.

Have a Firm Idea of What You Want Then Go Shopping
Once you have gone through the pre-approval process and you know how much house you can afford, the next important step is to choose the type of home you want, i.e. single family, multi-family, or condo. Condos are generally a good option for the first-time homebuyer, but they are not for everyone. Multi-family homes might provide some additional rental income to offset your mortgage payments, but being a landlord is not for everyone. Be sure to fully explore all options to determine the best property for your individual needs and circumstances.

Prepare to Make an Offer
You've found a home that you like and all of the previous tips mentioned lead up to the moment when you're ready to make an offer. But, consider the following: Is the asking price in line with the prices of similar homes in that area? What is the condition of the home? How long has the house been on the market, and how much mortgage is going to be required? You want to make sure that you can afford the home in its entirety.

If there is interest from other buyers in the same house that you want to make an offer on, you may need to offer even more than the asking price. Be confident in your bid and decision on which house and property is best for you. Avoid buyer's remorse at all costs, because chances are this will be your largest investment to date.

Working with a reputable real estate agent as your "buyer's representative" will give you access to professional advice to guide you through the complicated and daunting process of making an intelligent offer and negotiating a purchase and sales agreement that protects your best interests.

Choose the Right Lender for Your Needs
The process of getting your offer approved and finally closing on your mortgage loan financing can be tedious and long. However, choosing the right lender can help speed the process along and get you moved in! Consider choosing a local lender, especially if you are hoping to take advantage of some of the more time-sensitive tax benefits such as closing on a first-time mortgage before December 1, 2009. Local lenders are often able to make decisions faster than other larger institutions, while still being attentive to your needs as a first-time homebuyer. When seeking a lender, seek out one who will take the time to fully explain all of the loan programs and the features and benefits of each one. Get references from friends and family for a reputable and trusted lender in your community.

Follow these tips and guidelines as they apply to your situation and hopefully your first home buying experience will reward you with many years of happiness ahead. You could enjoy something that is all yours, making your home a true reflection of your personality and personal style. Careful planning and the guidance of knowledgeable professionals can help make the purchase of your first home a dream-come-true.

James Oosterman is the Vice President of Melrose Bank. He can be reached by telephone 781-665-2500, online at melrosebank.com or on Facebook at facebook.com/MelroseBank.


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