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Tips for a First-Timer

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Posted On: 12/10/2008

Q:I'm a recent college graduate just starting in my profession. I'd like to buy a house in a few years, and from what I read it seems likely that I should be planning for this big purchase as soon as possible. What is it that I actually need to do?

A: Buying a first house is a really a by-product of good financial planning. In general terms, you need to take these steps.

• Pay all bills on time and in full. This way you can pump up your credit score and qualify for less expensive financing. By the way, I really do mean ALL bills - no exceptions, no excuses. Organize your affairs so you know when bills are likely to come in and pay them early. By paying early you also will avoid late fees, a waste of money.

• A 2007 study by the National Association of Realtors said that "nearly three-quarters of first time buyers rely on savings for their down payment." Whatever it is that you earn other people make less. You don't need to spend everything or live paycheck to paycheck. Make a point of putting money into a savings account, look for bargains and discounts, use coupons and remember that the old expression is really right: the best things in life are free. With savings, you're OK if a check doesn't come in or you face surprise auto repairs or dental work.

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• Read the this section of the newspaper every week. Clip articles regarding financing, neighborhood trends (where new schools are being built, where roads are headed, etc.) and real-estate news. Have a few folders to keep such articles. Take a local class to qualify for the real-estate sales exam; by passing the exam you will be qualified to act as a real-estate agent. More importantly, you can learn a lot from such classes even if you have no interest in entering real estate. Real-estate classes tend to be inexpensive, and in some areas are offered by brokerages and private schools.

• Forget about the financing seen in the past few years. Expect to need down-payment money, plus cash for closing, moving and other expenses. Look into conventional fixed-rate mortgages (with private mortgage insurance), the VA loan program (for those with military and other federal service) and the FHA program (basically 3.5 percent down). Also, see if there are state programs for first-time buyers - usually someone who has not owned a home in the past three years.

• Look for expertise. Visit open houses in your area. Speak with salespeople. See who is good at representing their seller clients - and then think of them in the future when you need a buyer broker to represent you. Speak with lenders and attend seminars for first-time buyers.

• Check your credit regularly and without cost by going to AnnualCreditReport.com. This is the site where the major credit-report providers give free access to your credit report - not your credit score, your credit report. On this site there is no need to buy anything to see your report or to print out a copy. You are allowed to get one free credit report from each of the three major credit-report providers every 12 months, thus you can get one free report every four months by rotating requests.

• Read your credit report with care. Does it show items that are out of date (generally more than seven years old) or factually incorrect? If yes, send a written request for a change to the credit-reporting agency with copies (not originals) of your evidence (say a bill marked as "paid"). Send your letter by certified mail with a return receipt requested - this way you will know when the letter was received.

• You'll hear a lot about buying with no money down, loan applications where your income is not checked and using mortgages that start with low payments - but have huge monthly cost increases in the future and often growing loan balances. Stay away from such loans - they're at the heart of the current mortgage mess.

Q: I'm interested in buying foreclosed properties and short-sales. Who pays such things as past-due taxes, homeowner association fees and similar costs?

A: Several brokers in my community with whom I spoke said that lenders and home sellers normally pay such fees. However, this may be a regional practice. To see what goes on in your area speak with local brokers and lenders. As well, you could make an offer on a property that requires the seller or lender to pay such costs.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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