A who's who guide to buying your first home

From your real-estate agent to utility companies, many folks may be a part of your homebuying experience. Here's what they do — and why they do it.

If you want to buy a latte or a novel, you find the one you want, hand over some money and go on your way, interacting with one or two people along the way. But if you're buying a house, the process — and the number of people involved — is exponentially more complicated.

It can be overwhelming to keep all of the players and processes straight. Who does what? Do you really need all of these people? Why can't you just do it all yourself?

Without all those people, buying a house would take at least a year, You'd have to figure out all these things yourself, and it's a complex thing.

Each of the people involved in the homebuying process is an expert in that particular step. Just like a sports team, each player has a role and ability that helps the team come together to get the job done.

Here's a look at all the players and why — or if — they are essential to the process.

Real-estate agent
The real-estate agent is called the team captain. Your agent will be with you every step of the way and is the person with whom you'll spend the most time.

Most agents are found through word of mouth: A friend or neighbor had a good experience and passed along the name to you. You'll want to interview prospective agents to find out whether they specialize in the neighborhoods or property types you are looking for, whether they can answer your questions and whether you feel comfortable with them.

You should also check an agent's license by visiting the website of the Association of Real Estate License Law Officials. Many agents are also members of the National Association of Realtors and have the Realtor designation, which means they comply with NAR's ethics code and standards of practice.

An agent should be a local expert who understands the nuances of location. Agents can tell you if homes north of a certain street are better than homes south of it, for instance.

After helping you find the right home, your agent will manage the process of putting in an offer and negotiating the sale. The agent should explain the steps of the process from the beginning and keep in constant communication with you.

So, is an agent necessary? Considering that a buyers agent usually doesn't cost a cent, it doesn't make much sense to go without one. A buyers agent makes a commission that the seller pays, though this sometimes is worked into the final sale price. If you buy a home without an agent, you could save on the purchase price, but it's not a certainty.

Compared to what you give up in negotiating power, a good agent can earn back their commission and then some by finding ways to talk the price down, etc.

Aa buyer may not know which reports are necessary, which inspections to get, whom to contact, how to rank and address problems that come up, and whether something is a deal-breaker. An agent who spends every day entrenched in the homebuying process will be familiar with these things.

Mortgage broker or lender
The financing aspect of your home purchase may begin before you find an agent with a loan pre-approval. But the real work with a mortgage broker or lender starts once you've found a home and want to buy it.

A mortgage broker's job is to shop around to find you the best loan and lender to fit your needs.

Your local bank may offer home loans, but it may only have one or two options. A mortgage broker will be more aware of the dozens of other options out there.

This is all Lenders do for a living. Banks are also worried about their checking and savings. Lenders unlike a bank are dealing with mortgages all day long.

A mortgage broker can assess your financial needs and plans and find a loan to match. If you have a child heading to college in a few years, for instance, that may affect your desired monthly payment and the type of loan you want to get. You'll probably have daily contact with a mortgage broker for a couple of weeks while you're finding the right loan and filling out all the paperwork.

You can go straight to a lender for a loan, but you're going to need to do a lot of research on your own.

For the number-crunchers, that might be a way they're happy to spend their time, figuring out all the various comparisons to be made. But it seems like the average human being isn't excited to be doing that.

If you do go straight to a lender, you may interact with one person or several. A loan officer or mortgage banker will help you pick a product from the lender's offerings and help you apply but may have assistants during the approval process.

Appraiser
Before you can get a loan, the bank will have an appraiser look at the home and decide if it's really worth the money you're planning to spend.

An appraiser is an unbiased third party who can actually tell you the truth.

He has no vested interest in a sale or purchase and can give you a reasonable and reliable opinion of the value.

An appraiser isn't actually determining the exact value of the home but is mirroring the market using comparable sales and listings. An appraiser answers the question: What can people buy if they don't buy my home?

If someone is buying a home with cash, an appraisal isn't required, but it's not something you'd want to skip.

For the amount of money spent in the deal, the appraisal is probably the least costly but most important tool you can have in making that decision, it pays to be well-informed.

Property inspector
Before you buy a home, you should have it inspected to understand its condition.

A home inspector will evaluate all major systems and components of the home, documenting and explaining anything that is unsafe, inoperative or damaged.

The inspection can provide peace of mind, or the issues found can be reasons to not buy the house, ask for a reduction in price, (ask) for a monetary credit, (ask) that repairs be made prior to purchase, or to budget the repairs needed.

A home inspector is the first line of defense in terms of your knowledge base for the property you're going to buy.

In addition to the general home inspection, there are dozens of specialized inspections. A lender may require a pest inspection before you can get a loan. But you can also hire specialists to inspect the home's foundation, roof, electrical system, sewage system or chimney, for example. General home inspectors may recommend one of these detailed inspections based on something they find.

Some buyers will skip the inspection if a home is new, recently renovated or appears to be in good shape. But this can be dangerous because of all the hidden problems an inspection may uncover.

The inspection report is a great baseline for a homebuyer to have. It may tell you that the roof will need replacing in five years, for instance.

It's nice to get a written guide to what the systems in your house are that need watching and what to look back at.

Closing agent
A closing agent is a neutral third party who is in charge of all the details of your home-purchase agreement. This person also is called an escrow agent, escrow officer, closing officer or title agent. Depending on the state in which you are buying a home, this person will likely work for a title or escrow company.

This is a detail person who focuses on whether the money is where it should be and whether the deal is going to happen when it should.

A closing agent is part of the entire transaction but becomes a major player toward the end of the process. This person is "absolutely vital and important,".

Here are a few of the details a closing agent will handle:

• Perform a title search and arrange for title insurance.
• Coordinate with your lender and the seller's lender to make sure the money transfer is completed.
• Establish an escrow account for any deposit you make; this will be transferred to the seller when the deal closes.
• Record the deed that transfers the property to you.

By Leah L. Culler of MSN Real Estate

Modern Home Buyers also favor...

What Today's Modern Home Buyers Desire
Home buyers have high expectations for their purchases this year, the most critical of which may be a really great deal. In addition to more bang for the buck — and the bragging rights that go along with a superior bargain — today's house hunters also are looking for incentives, such as gift cards that they can use to decorate their new home or financial assistance at the settlement table.

Another important desire of buyers is that the property be well-maintained. "I'm not working with too many people who want a fixer-upper," says Pat Vredevoogd Combs, vice president of Coldwell Banker AJS Schmidt in Grand Rapids, Mich., and past president of the National Association of REALTORS®.

Current NAR President Ron Phipps agrees. More often than not, he explains, "buyers have limited amounts of cash. Even if they want to do a fixer-upper, they don't have the money to do it."

That is true even for buyers of bank-owned properties, says real estate broker Joan Pratt of RE/MAX Professionals in Castle Pines, Colo. "They want the short sales and the foreclosures, and they want them to look like they're owner-occupied," she says. "They don't want to paint. They don't want to put carpet in. They don't want to clean."

Modern buyers also favor open kitchens; open floor plans; and outdoor living components, such as screened porches, exterior kitchens, and two-way fireplaces. Additionally, the environment is increasingly important, with today's prospects seeking out elements such as triple-glazed windows and energy-efficient appliances.

Repurposed materials matter, too. "We're seeing lots of different materials and lots of reusable materials, which is interesting," Phipps notes. "Also a lot of unusual uses of hardwood — like pine flooring (reclaimed and) reused for counters," or terra cotta slabs for countertops. Buyers in 2011 are indicating a preference for smaller homes, but they like them nicely appointed. Luxurious elements such as coffee bars in the master bedroom are gaining popularity, as are expensive finishes in not-so-expensive homes.

Source: "Nine Items Homebuyers Desire in 2011," Bankrate.com, Dana Dratch (June 16, 2011)

Buyers Better Hurry: Rates Reach New Lows

For the sixth straight week, fixed mortgage rates inched down, reaching new lows for 2011. The 30-year fixed-rate mortgage averaged 4.60 percent this week while the 15-year mortgage averaged 3.78 percent, Freddie Mac reports in its weekly mortgage market survey.

Meanwhile, the National Association of Home Builders reported this week that home affordability reached its highest level in 20 years, making the purchasing power for home buyers even better during this traditionally prime buying season.

Here’s a closer look at mortgage rates:

• 30-year, fixed-rate mortgage: Averaging 4.60 percent this week, it was down slightly from last week’s 4.61 percent average. Last year at this time, 30-year rates averaged 4.84 percent. The 30-year fixed rate mortgage hasn’t been under this week’s 4.60 percent average since early December 2010 when it fell to 4.46 percent.
• 15-year, fixed-rate mortgage: Averaging 3.78 percent this week, it also was down from last week’s 3.80 percent average. Last year at this time, the 15-year fixed-rate mortgage averaged 4.21 percent. It has not been under this week’s 3.78 percent average since late November 2010 when it fell to 3.77 percent.
• 5-year adjustable-rate mortgage: Averaging 3.41 percent this week, it was down from last week’s 3.48 percent average. A year ago at this time, the 5-year ARM averaged 3.97 percent.

Source: “Fixed Mortgage Rates Continue to Find New Lows,” Freddie Mac (May 26, 2011)

Home Affordability Reaches Highest Level in 20 Years

Homes are more affordable to more families, according to the latest index for the first quarter of 2011 that shows affordability reaching its highest level in more than 20 years.

Nearly 75 percent of all new and existing homes sold in the first quarter of 2011 were affordable to families earning the national median income of $64,400, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index. The previous high was set in the fourth quarter of 2010 with 73.9 percent.

"With interest rates remaining at historically low levels, today's report indicates that home ownership is within reach of more households than it has been for more than two decades," says Bob Nielsen, chairman of the National Association of Home Builders.

Source: “Housing Affordability Rises to Record Level, Tight Financing Continues to Constrain Sales,”National Association of Home Builders (May 25, 2011)

New-Home Sales Get a Boost

More people bought new homes last month with new-home sales rising 7.3 percent, the Commerce Department reported on Tuesday. It was the second straight month that new-home sales were up.

New-home sales rose to a seasonally adjusted annual rate of 323,000 homes in April, which is its highest level since December.

However, overall sales for the year still remain well below what economists consider a 700,000 healthy pace for the new-home sector.

The new-home market for the last five years has faced declines. It continues to battle against a glut of foreclosures across the country at ultra-low prices that have made competing a challenge.

Builders are keeping inventories low: A record low of 175,000 new homes were available for sale last month.

Meanwhile, the median price of a new home rose more than 2 percent in April, compared to the previous month, to $217,900. New-home prices are more than 30 percent higher than the median price of existing homes.

Source: “New-home Sales Up 7.3 Pct. in April After Sluggish Start to Year,” The Associated Press (May 24, 2011) and “U.S. April New Home Sales at 4-Month High,” Reuters News (May 24, 2011)

Proposal to Raise FHA Loan Down Payment

Republicans on the House Financial Services Committee have drafted a bill to raise the minimum down payment for Federal Housing Administration-backed loans to 5 percent as well as cut FHA loan limits in many markets. FHA-backed loans are a main source of mortgages for first-time home buyers.

Currently, home owners who take out FHA-backed loans are required to have a minimum down payment of 3.5 percent; the GOP bill seeks to raise that to 5 percent. The GOP says it wants to protect home owners against default and improve FHA’s finances.

The bill has not yet been introduced but remains in draft form. However, the draft legislation is expected to be discussed on Wednesday by the subcommittee.

The draft legislation also calls for lowering FHA loan limits in several areas.

As of now, the maximum size of FHA-backed loans in expensive areas of the country is set to drop to $625,500 from $729,750 as of Oct. 1. In less expensive areas, the limit may drop to $271,050. The GOP draft bill wants to drop the limits even more to 125 percent of a county's median home price, Dow Jones reports.

"While we support reforms to strengthen the program, changes should not be made at consumers' expense by drastically impacting the affordability and availability of mortgage capital," Ron Phipps, the National Association of REALTORS®’ president, said in a statement.

Source: “House Republicans Aim to Raise Money Down for FHA Loans,” Dow Jones International News (May 23, 2011)

Have We Hit Bottom? Are Home Prices Really Up?

Analysts Say Housing Is on the Way Up
Analysts at both Standard & Poor's and Barclays Capital agree that the uptick in home resales last month is a favorable sign of things to come. Because pending home sales — an indicator of future activity — were up in February, S&P believes transaction volume will rise for April.

Barclays, meanwhile, says March's 3.7 percent gain in existing-home sales merely reinforces its position that the housing market actually hit bottom in late 2010.

Source: “Monday Morning Cup of Coffee,” Housing Wire, Jon Prior (04/25/11)

Rising Rents Make Rentals Less Appealing

Apartment bargains once dominated the housing market, but those bargains have slowly faded away. As vacancies decrease and rents rise, renters are finding fewer deals.

Analysts expect vacancies to decrease even more and rents to continue to rise through 2013, as the economy continues to improve.

Rental activity recorded its best start for the year since 1999, according to Reis Inc. Vacancy rates have fallen to mid-2008 levels and rents have increased for the past five quarters, now averaging $991 per month nationwide.

Renters are finding the fewest deals along the coasts, such as New York, Washington, D.C., Boston, Los Angeles, San Francisco, Seattle, and San Jose, Calif. These cities are experiencing low vacancy rates. Also, a boost in these cities’ economies is sending rents higher. New York City alone has seen double rent increases compared to the national average and has the lowest vacancy rate in the nation.

The best rental deals can be found in Las Vegas, Tucson, Ariz., Phoenix, and several cities in Florida--all cities where unemployment and foreclosures remain high. According to Reis, Las Vegas was the only city to see rents fall last year.

However, analysts say that bargains across the country are getting fewer, and renters should expect to see an increase in rents over the next three years.

View the Top 6 Cities Where Buying Is Better Than Renting.

Source: “Rental Market Swings Back in Favor of Landlords,” MSNBC.com (April 12, 2011)

4 Mistakes to Avoid When Buying a Foreclosure

Foreclosures continue to flood real estate markets across the country, and buyers are looking to cash in on what they view as some of the best real estate deals. But experts say that while some foreclosures are a great purchase, buyers need to be cautious before jumping in to make sure they really are getting a bargain.

Dan Steward, president of Pillar to Post Professional Home Inspections, advises buyers considering a foreclosure to avoid the following:

1. Don’t judge a house by looks alone. A $2 million mansion may look fabulous but have mold hiding beneath the walls or need numerous, costly repairs. A fixer upper, on the other hand, may look rundown but have excellent bones and can be repaired at a reasonable cost. A home inspection prior to purchasing a property can help buyers determine if they might be getting in over their head, Steward says. He cautions buyers to not just rely on previous inspections, however, since vacant homes can deteriorate rapidly.

2. Don’t focus on price alone. Buyers may focus on the ultra-low price so much that they forget to factor in other qualities, such as the home's school district, view, location, and crime rate. Steward cautions buyers to not assume that financial problems of the previous owner are the main reason for every foreclosure.

3. Don’t be tempted to “flip.” Purchasing a home at bargain price, updating it, and then trying to sell it for a lot more may seem tempting, but Steward warns buyers to be cautious. Unless the buyers are pros at house flipping, they’ll likely run into several novice mistakes in trying to make fast money on flipping a foreclosure. Steward recommends buyers consult a real estate professional, home inspector, and contractors before considering a flip.

4. Don’t go over budget. Foreclosures often require some fixes so buyers need to make sure they have the money to afford needed repairs. Steward recommends that buyers have at least half of the money in cash for needed repairs. He says that buyers will want to avoid taking more loans than needed, particularly private loans, because the interest on them will slowly chip away at their initial foreclosure bargain.

Source: “What to Watch Out for When Buying a Foreclosure: Help Your Clients Know Which to Buy ... and Which to Walk By,” RISMedia (April 7, 2011)

Mortgage Rates Continue to Inch Upward

The 30-year fixed-rate mortgage continued to rise slightly for the third straight week, but still remains low by historical standards, reports Freddie Mac in its weekly mortgage market survey. The 30-year rate averaged 4.87 percent this week, but continues to be well-below its average of 5.21 percent a year ago.

The 15-year fixed-rate mortgage this week averaged 4.1 percent, up slightly from last week’s 4.09 percent.

The 5-year adjustable-rate mortgage also is inching up slightly, averaging 3.72 percent this week from 3.7 percent last week.

Overall, "mortgage rates were little changed after an encouraging employment report from the Bureau of Labor Statistics,” says Frank Nothaft, the chief economist at Freddie Mac. The improved job picture could soon provide a boost to housing. The unemployment rate fell for the fifth consecutive month in March to 8.8 percent--the lowest rate in two years, Nothaft notes.

But despite the improving job picture and low interest rates, the tightening of credit standards continue to keep some buyers out. KB Home this week reported a 32 percent drop in new home orders for the December through February quarter. Lennar Corp. said that its new homes also have fallen 12 percent in that same time period.

Source: “Mortgage Rates Change Little Amid Positive Employment Report,” Freddie Mac (April 7, 2011) and “Rate on 30-Year Mortgage Still Below 5 Percent But Housing Market Remains in Doldrums,” The Associated Press (April 7, 2011)

Urban Areas See Jump in Young Buyers

Living downtown is becoming increasingly appealing to college-educated 20- and 30-somethings.

In two-thirds of the country's 51 largest cities, the college-educated population in the past decade has grown twice as fast within 3 miles of urban centers when compared to the rest of the metro area, the USA Today reports. That is a jump of 26 percent, on average, compared with 13 percent in other parts.

Young adults with higher education, in particular, seem to be showing a preference for urban living. Young adults with a four-year degree are about 94 percent more likely to live near urban neighborhoods than less-educated young professionals. (In 2000, that number was about 61 percent.)

Even floundering downtowns are attracting more young people. For example, Detroit, which has faced a 25 percent drop in its population since 2000, has added 59 percent (or 2,000) young and educated residents during that time, according to Impresa Inc., an economic consulting firm.

Looking to keep the young vibe going strong, Detroit even has recently launched a campaign — ”15 by 15” — to bring 15,000 young, educated professionals to live in the downtown by 2015. To do that, they are offering cash incentives: A $25,000 forgivable loan to buy a home in downtown and stay there for at least five years or $3,500 on a two-year lease.

In Cleveland — another hard-hit metro area that has lost 17 percent of its population — young professionals are also re-emerging. Cleveland has increased its number of college-educated professionals between ages 25 to 34 who live downtown by 49 percent (or 1,300).

"Clearly, the next generation of Americans is looking for different kinds of lifestyles — walkable, art, culture, entertainment," Carol Coletta, who heads CEOs for Cities, told USA Today.

Source: “Young and Educated Show Preference for Urban Living; Even Shrinking Cities See More Moving Downtown,” USA Today (April 1, 2011)

More Banks Pay to Fix Up Foreclosures for Resale

More banks are investing thousands of dollars to fix up foreclosures in trying to spur sales and appeal to a broader buying pool. Banks have inherited plenty of foreclosed homes that have everything from water damage, mold, broken windows, and missing plumbing fixtures.

But while banks used to be hesitant to invest much money in fixing up these homes, more real estate pros say that banks are heeding their suggestions for repairs and seeing the benefits of how a little investment can make these properties more sellable. As such, they are paying for new paint and carpet, refinishing damaged floors, replacing old windows, and repairing leaky roofs.

They hope to extend the foreclosed homes’ appeal past traditional investors and professional rehabbers. For example, home buyer would have trouble securing a mortgage on homes that lenders deem “uninhabitable” because of needed repairs.

The banks interest in fixing up these properties also can help the overall real estate market because the foreclosed properties can sell at a higher price.

Real estate agents say they are making more suggestions to banks on how to spruce up the properties. First, they identify the target customer for a property. For example, if the home will likely appeal to owner-occupant, agents may recommend fixes such as paint to $25,000 kitchen remodel.

Source: “Banks Fixing Up Foreclosures to Spur Sales; Strategy Aims to Give Them Broader Appeal, Reduce Big Inventory,” The Chicago Tribune (March 13, 2011)