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Top 10 Critical Rules Every First-Time Home Buyer Needs to Follow

For most people, buying their first home quickly changes from excitement to fear with daunting new terminology to learn, contracts to sign and obligations that may last 30 years or more. Many decide it's too much and take what I call the ostrich approach: they more or less bury their heads in the sand, taking the path of least resistance, often spending less than an hour examining a property before making an offer.

Almost always, they realize they've made avoidable mistakes costing thousands of dollars or more. For a typical buyer, it's well worth spending an extra 20 hours of time to save more than $10,000.

If you follow these ten critical rules of buying a first home, you'll put yourself in a position to avoid many of the common (and often expensive) traps. You'll also have the satisfaction of knowing you're in the minority that bought a home the smart way.

One caveat before beginning: I saved the most important and easiest rule for last so you'll remember it. These are the rules professional real estate buyers use that you should also follow.

10. Shop Around -- On Interest Rates And Beyond

For most homeowners, the most expensive component of a home is the interest expense on a mortgage. Before you begin shopping for a home, your first step is shopping for a mortgage. A natural first place to begin is your current bank that you already have a relationship with, but it certainly shouldn't be your last.

Make sure to check and other online resources to compare rates. A $500,000 home with a $400,000 30-year fixed rate mortgage at 4.5% interest rate will cost about $329,600 in interest payments. By saving just a quarter of 1% and sourcing a loan with the same conditions at 4.25%, the total interest cost declines nearly $22,000.

Many buyers fail to realize how much interest they can avoid paying with a little extra effort. While variable interest mortgage rates start out lower than a fixed rate mortgage, I recommend first-time buyers pick a fixed rate unless they intend to sell within a few years. The fear of losing your home because of rising mortgage payments is an added stress most beginning families don't need.

Depending on your situation, you may qualify for a government loan program. Never assume you can't qualify before inquiring. Many lenders don't participate in special financing and have little or no incentive to tell you about them. When it comes to finding the best loan for you, surfing the Internet is your best bet in finding the information homebuyers need.

While not as drastic as the total amount of interest payments, make sure you understand the total costs you will have to pay at closing. Also, know that many, if not all, closing costs are negotiable. In many states, buyers can select any title insurance company they want, although they rarely request a title company other than what their bank selects. Shopping for title insurance isn't glamorous, but is often worthwhile.

9. Do Your Research and Homework

Perform your homework before you start looking at homes you may actually purchase. Fortunately, most buyers follow this step to a limited degree but often not as much as hindsight dictates is wise. Some homework is not only easy; it's fun. Netflix and HGTV have many shows dedicated to home buying and improvement.

If you do nothing else than watch Netflix and HGTV real estate shows, you'll learn how easy it is to go over budget on improvement projects. You'll also gain insight on the sometimes emotional roller coaster ride real estate brings. By watching others in your same situation, you'll help to reduce the mystery of the process. Netflix is especially useful, because the streaming channel allows viewers to watch one episode after another; you can learn a considerable amount in a short period. All while enjoying popcorn.

8. Check Your Emotions At the Door

Leave your emotions behind or at least for last. A potentially expensive mistake is falling in love with a property and ignoring red flags. The emotional influence is often underrated and not discussed, but it's rare to find a buyer that isn't excited at the closing table. 

To minimize getting swept-up in the moment, calculate your total maximum price and monthly payment remembering that total isn't the same as the home price. You have to add in insurance, taxes, maintenance and planned upgrades. After you find a loan officer you're comfortable with, he can help you determine the appropriate amounts.

Take a friend when visiting homes and have him point out things he thinks you won't enjoy after you move in.

7. Get an Outside Professional Inspector

Hire a qualified, insured/bonded, and licensed home inspector. Don't think for a minute that a half-hour walk-through is sufficient to find every possible defect a typical home inspector can find.

Most states require various levels of seller disclosure, but treat those with extreme skepticism. Even sellers who aren't intentionally trying to hide defects may inadvertently do so.

Homes less than 20 years old are up to code in most situations. If you're planning on making alterations, improvements, or changes, newer home projects usually cost less for any given improvement, especially if it includes plumbing, electrical, or climate control.

Also, during the 2000 to 2008 housing boom, homes were often "slapped together" as quickly as possible by relatively inexperienced crews. If the house you're viewing is a "housing boom" property, treat it the same as an older home. Until proven otherwise, I always view homes built from 2005 to 2008 with additional suspicion.

All else being equal; newer homes are less expensive to insure, heat, cool and initially maintain. For first-time homebuyers that may not fully understand the ongoing costs of owning a home, keeping expenses manageable is often the difference between having the home serve you or having you be a servant to it.

Many first-time buyers only contact the same agent their parents use. Failing to shop for the best insurance value typically results in paying at least a few hundred dollars more per year, especially compared to "big name" insurance companies with large advertising budgets.

For your best value, contact at least three agents and make sure at least two of them are independent agents representing multiple insurance companies. Talk to them in detail about coverages so you're able to determine the best coverage for your needs.

Independent agents usually price compare several insurance carriers to find the best value. If you buy your homeowner's and auto policy from the same company, expect to save an additional 10% to 15%

6. Consider the Costs and Burdens of Renovations

Few buyers find the perfect home they would build. For the rest of us, unless you're building brand new, it's unlikely that you'll find the perfect place that you don't want to make changes to.

If the home you're considering buying is older, particularly over 50 years old, you can count on the local building inspector requiring electrical and mechanical systems be brought up to code during improvements. Before buying a home with a desire to make what appears to be a simple update, first find out what the worst case scenario is by a licensed and bonded contractor.

Even real estate remodeling professionals get caught in regulatory quagmires at times due to previous out-of-code improvements and original equipment. It seems the "Rehab Addict" star Nicole Curtis stubs her toe at least once per project. She's a professional, so you can imagine how easy it is for a new home buyer to get caught in a home improvement trap.

Avoid or expect to update homes with galvanized plumbing, knob and tube wiring, old fuse boxes/panels and circuit breakers less than 100 amps, standard shingle roofs over 20 years old (regardless of warranty) and old oil furnaces. Also, homes with any of these characteristics will cost considerably more to insure.

5. Lead Me Not Into Taxation

Not all homes are taxed the same. Lake and other special taxing districts can cost homeowners more than the local municipal taxes. Just because a home doesn't have water access, doesn't mean it's not part of a lake district. In my county, many homes near lakes have special tax assessments the same as the properties adjacent to the water.

Because most property information sheets only include a total, buyers should check with the local tax collecting authority to find out what is included to arrive at a total tax bill. Recently passed referendums, and special assessments, may not show up in previous taxes as well. Be sure to determine if a tax increase is expected to avoid a surprise.

Condominium owners have found they can get stuck for repairs that other members should pay. For example, when a condominium building needs repairs and one or more members is in foreclosure, the other owners may have to pay the share of the owner in foreclosure.

Condominium expenses typically including taxes, lawn care, common area costs and more. If you're considering the purchase of a condo, make sure you know who you're partners are because condominium owners truly are partners.

Easements are a cause of frustration with many newly minted home owners. What may appear on paper as a simple easement can turn into a nightmare if the homeowner doesn't get along with the owner with an easement. Make sure you meet and evaluate landowners (including kids) with an easement on your property.

4. Look Past Your Nose

Your nose knows. If you visit enough open houses and home tours, you'll inevitably run across homes with the sweet enticing aroma of baked cookies or apple pie. When entering a home that has a pleasant smell, take note that if this home is otherwise desirable, another visit is required.

Also, take an especially close look at the pipes, drains, and the basement level for signs of moisture. Most advanced sellers will have a smell of baked goods in the air before an open house to help market the home. However, sometimes, the motivation is more nefarious, and the seller is attempting to mask a musty or otherwise unpleasant odor. Another warning sign is if the windows are open or the temperature is different than it should be based on the thermostat.

3. Be Neighborly

Meet your neighbors. Many buyers are uncomfortable knocking on a stranger's door, but they may not be strangers for long. Do the neighbors have teenagers in a band that practice every Friday night? Do the neighbors own or rent? Do they have dogs that may bark every day at 5 a.m.?

Neighbors will often let you know about problems the seller has "forgotten" and which other neighbors in the area you may not want to live near.

Remember, like it or not, the neighbors come with the house as a package.

If you still can't bring yourself to talking to the neighbors, ask your real estate agent to do it for you. 

2. Get Intimate with the Bylaws

Find out what local laws, restrictive covenants, and regulations you're subject to. Don't assume if you have or want to buy a fishing boat, company truck, or travel trailer camper that you can park it in the driveway. Just because there are doing so on the other side of the street that you can too. 

Make sure you know if the garden, fire pit or shed you want to add to the backyard is allowed beforehand. In some locations, the color of paint, the type of mailbox and style of outside lighting is limited.

Your home-based business you're planning on having at your new home may not be allowed. If your buying a larger house so you don't have to drive into an office everyday, this may turn into a problem, especially if your business requires customers to visit.

Installing a satellite dish is not allowed in many areas, and in some locations that allow a dish, there are strict rules for placement and appearance.  

1. Use a Buyer's Representative

The last and most important rule for first-time homebuyers is using a buyer's representative instead of the typical real estate agent that owes his fiduciary duty to the seller.

One of the secrets in the real estate profession that I'm sharing with you is that when you call and talk to the typical real estate agent, he represents the seller, not you. You may go to many home viewings and spend time with your agent, but unless you have a written contract, he almost always works for the seller.

A buyer's representative, on the other hand, owes you the buyer a fiduciary duty and is obligated to help you negotiate the best possible price. You can expect a buyer's representative to point out and highlight negatives on any given property that a typical agent never will.

A buyer's representative will not only help find your dream home, but will tell you how to buy it as cheaply as possible. If you can already see the advantages of using a buyer's rep, but are wondering what the catch is, then I have especially great news for you.

Usually, a buyer's representative gets paid the same way as a standard agent - through the listing agent's commission sharing agreement, so it doesn't cost you anything extra. In fact, many people who act as a buyer's representative (when allowed by state law) will rebate some of their commission back to the buyer. In fairness, many selling agents will rebate part of their commission too.

To find a local buyer's representative agent, look for an agent with the ABR (Accredited Buyer's Representative) designation. Agents with the ABR designation have special training to assist homebuyers.

Homebuyers that follow this one simple rule will gain a valuable edge that over 90% of others fail to take advantage of.

--Written by Robert Weinstein for MainStreet

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