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The home buying process can be overwhelming for a first time home buyer, giving you the feeling that your financial destiny is rapidly spinning out of control. When it comes to real estate, most people don’t have a lot of experience and even less knowledge. Buying a foreclosure home can be even more confusing. The fact is, buying a home is actually a simple process. All you need to do is concentrate on the basics, and the following steps will fall together more easily.

1. You’ll want to get preapproved for a mortgage as early in the process as possible. This gives you more time to understand your mortgage and all the complicated paperwork involved. This also lets the seller know that you are serious about buying, and will normally work in your favor to give you a negotiating edge - which is especially handy if there are several others interested in purchasing the home. Getting preapproved will also save you a lot of time as well. If you can’t get approved for a loan, you shouldn’t waste your time going through the process until you have your mortgage problems solved.

2. On the mortgage front, the next thing you should watch out for is to avoid prepayment penalties at all costs. A prepayment penalty means that if you buy the home then later want or need to sell it or refinance it before the prepayment penalty expires, you’ll have to thousands extra. You can find a variety of great loans that don’t include these types of penalties. If your loan officer proposes a loan that does include prepayment penalties, you should usually turn it down and look for another loan. There is one caveat to this rule. If you know beyond any doubt that you will not qualify for a better loan prior to the expiration of the prepayment penalty and thus won’t be able to refinance, it is reasonable to accept what is known as a “soft” prepayment penalty in exchange for a lower interest rate. This means that you would have no penalty if you needed to sell the property

3. Mortgage rates will probably fluctuate substantially over the next years. It would be wise to stay aware of good adjustable rate mortgages. I know that you have been told many horror stories about ARMs causing many people to lose their homes, but this is vastly overblown. Most foreclosures are occurring before borrowers’ rates adjust. If you obtain a good quality adjustable rate mortgage, you could save many thousands over just a couple of years. FHA adjustable rate mortgages are a perfect example of this. They have strict borrower friendly adjustment limits, are completely free of any possible negative amortization (your loan balance will never go up, only down as you make payments), and a simple streamlined refinance process requiring no requalification as long as your payments have been on time.

4. Before buying a home, make certain you know how much you can comfortably afford. Review the details of your family budget and determine how much you are realistically very comfortable paying on a home. If you already an efficient financial manager, this will be a quick process. It will surely take much longer if your finances are disorganized, but the effort will prove very rewarding. Your finances should be in order before buying a home anyway. At any rate, you should never rely on your loan officer and real estate agent to tell you how much qualify for. It is very easy for them to get you approved for a home you cannot comfortably afford. Both get paid more when you buy a higher priced home. However, they will not be there to help you make the payments later.

5. Once you have your financial house in order, take the time to become familiar with home prices in the area. Become an expert. Do research online to find out what sellers are asking and getting. Be sure to check for foreclosure homes. We are experiencing a very distinct buyer’s market in real estate now. You should choose your first home more for its investment value than its dream home qualities. Do not ever pay list price. Expect to pay a minimum of 10% through 30% or more less than similar homes in the area have sold for. The greater the discount the better. This creates the greatest possible potential of avoiding the risks of buying in a down market, and the greatest odds of profiting when it is time to move up to a larger home. Never, ever, pay the full appraised value for a home and wait for inflation to build your equity. This was a losing strategy even during the housing boom. Inflation raises the value of all property. The home you hope to move up to will be getting more expensive due to inflation as well. Make your profit when you buy the home by getting a good deal right out of the gate.

The items listed above are just a few basic tips and there is much more you will need to learn to get the best deal on your first home. It is crucial to educate yourself before you get into the market. Most first time homebuyers skip this step and severely handicap themselves right out of the gate. Many previous buyers are paying the price for that in today’s real estate market. Don’t be scared out of the market by their mistakes. Educate yourself and you can still come out ahead.

Last 5 posts by Brenda Puckett

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Tags: Mortgages