Real Estate Investing

I have been obsessed with the new HGTV series “Property Virgins” ever since I saw the promo with host Sandra Rimonato dramatically exclaiming to novice homebuyers, “I can’t believe you fell for that!” The drama of stepping into the world of homeownership is nothing new to anyone who has already bought their first home (or those who simply live vicariously through the poor innocent souls featured on the real estate reality show). Below are some tips to help ease the process for first-time homebuyers.

Analyze Your Spending Limit: How much house can you afford? It’s a tough question to answer. SmartMoney’s interactive Home Buying Worksheet can assist in this process, with questions about such issues as mortgage ratios and lending limits. SmartMoney lists the general rule of mortgage payment, property taxes and homeowner’s insurance staying at 28 percent or less of gross income. The 25 percent figure has also been batted around by various analysts, and it does seem smarter to base the percentage on your take-home pay instead of gross income.

Pay off debt: This is where I think SmartMoney has it dead right; their advice makes perfect sense to me.

“First, credit card debt is expensive and limits your ability to save… Second, credit card debt will limit how much you can borrow. That’s because lenders often won’t allow your total monthly debt service — which includes payments for credit cards, student loans and car loans, as well as homeowner’s insurance, property taxes and a mortgage — to exceed roughly 40% of your gross income.”

Check Your Credit Report: The importance of checking your credit report before you even begin visiting properties cannot be underestimated. The last thing a nervous first-time homebuyer wants in the final days leading up to closing is a credit report surprise. This can affect the loan amount you can be approved for and could even cause any pending contracts to fall through.

Start Shopping: About 80 percent of home searches start on the Internet with MLS listings posted on sites like Realtor.com. Home shoppers may spend several months or even years browsing and comparing property listings, maybe even doing a few drive-by viewings. This provides a feel for the desired location, square footage, price, number of beds and baths, perks, school district, etc. Once a home shopper is actually ready to put down the computer mouse and hit the streets, it is a good idea to drive by the house at different points during the day. How is the neighborhood in the morning, on weekends and during late afternoons as people start arriving home from school and work?

Rate Inventory: About.com offers some really innovative ideas for property hunting. It involves note-taking and even photography to record your impressions as you go and help you stay organized throughout your search. The site recommends viewing top choices a second time. It also recommends going ahead and buying if you find that perfect home at the perfect price, instead of shopping around and coming back later. It might be gone!

Compare Loan Offers: There are tons of companies out there just waiting to loan you money! How to select the best one? Fannie Mae offers loans with no money down for qualified individuals. A smaller salary can make lenders shy away from approving a loan, but may be compensated for with a larger down payment. SmartMoney also points out that Washington Mutual offers programs with only 10 percent down. Bonus: the mortgage insurance normally tacked on to downpayments of less than 20 percent is done away with in this case. Well, technically it’s figured into the interest rate, which is tax deductible, unlike PMI payments. SmartMoney also points to HUD loans, FHA loans and Fannie Mae’s “expanded approval” program as options for low- to moderate-income families, first-time homebuyers and those with slightly marred credit.