Home buyer resolutions for 2007

Time to get credit, finances, representation in order
By: Ilyce R. Glink: Inman News
As we get ready to say goodbye to 2006, it's worth looking back at the year that was for home buyers. With more than 8.5 million existing and new homes sold, and with 30-year mortgage interest rates still hovering at 6.5 percent, it's been a banner year for residential real estate.

In looking back on 2006, real estate observers say the winds changed this year. By the time the year is done, existing-home sales will have dropped 8.6 percent to just under 6.5 million, according to the National Association of Realtors (NAR).

New construction fared worse in 2006. Some builders announced that their new-home starts had dropped by nearly 50 percent - and watched their stocks tumble in the wake of the news. According to the National Association of Home Builders, new-home sales are continuing to trend downward, although levels are expected to stabilize next year. NAR believes that new-home sales will fall nearly another 10 percent to 957,000 next year.

While this news wasn't so great for developers and sellers, it is good for home buyers. Home prices began to moderate in 2006, with some sellers dropping their list price in order to make the sale.

What's coming up for 2007? Interest rates should continue at the current, historically low level although some mortgage industry observers are forecasting that the Federal Reserve Bank will lower the Federal Funds rate, and long-term interest rates will fall as well. There will be good deals on existing homes and perhaps even better deals on new construction.

In all, it should be a good year. If you're planning to buy a home in 2007, here's my annual list of New Year's resolutions you should consider making:

As a buyer, I resolve to:

Get my credit and finances in order.

Plenty of would-be buyers are paying off their credit cards, car loans, school loans and other forms of personal debt. While having personal debt doesn't mean you can't qualify for a loan, it can lower the amount of the mortgage a lender might be willing to give you.

If you keep one resolution this year, choose to clean up your credit. One of the best things you can do to prepare for buying a home is to make your monthly debt payments on time. Even if you have a lousy credit history, lenders will be more forgiving if they see you've gotten your act together in the last six to 12 months.

Federal law now requires each of the three main credit-reporting bureaus (Experian, Equifax and TransUnion) to give you a free copy of your credit history once a year.

To get yours, go to www.annualcreditreport.com. At the time, buy a copy of your credit score from Equifax. The cost is $6.95, which is still less than buying it through MyFico.com (that costs $14.95).

Get my credit in shape.

Put a lid on your spending, perform "plastic surgery" on your credit cards, and don't max out any one card or your credit score will suffer. If you're going to cancel an account, do it in writing, but you get bonus points on your credit score the longer you maintain a credit account. So a credit card account that you opened in 1984 is worth a lot more than one you opened last month.

Don't forget that good credit also means job stability. Most lenders require that you work for the same employer for at least a year, and maybe two, before they'll approve your home loan application. If you're self-employed, they'll want to see at least two years of tax returns before you'll qualify for a conventional loan. If you're offered a better job in your field, by all means take it. But if you want to buy a home, try not to jump from job to job within a relatively short period of time.

Know how much I can afford to spend before shopping for a home.

You have three options when it comes to figuring out how far your down payment and income will take you: You can guess; or you can pay a visit to your local lender, who will prequalify or preapprove you for a loan, or you can go online.

Your lender will look at your income, debt, assets and liabilities, and come up with the maximum amount you can spend on a home. Once you know how much you can afford to spend, you'll avoid making a common, heartbreaking, home buyer error: looking at homes you can't afford to buy.

Too busy to visit a lender? There are several Web sites that offer good mortgage information. Try Bankrate.com for a state-by-state look at current interest rates from lenders who work in your area, including online lenders. Every major mortgage lender has a Web site. And, don't forget to check the rates at your local credit union.

Know my neighborhood, and be comfortable with it, before I buy a home there.

Everyone wants to live on the best block in the best neighborhood. Unfortunately, that location may not be in your budget. You might be able to afford the smallest home on the best block, but that won't do you much good if you need four bedrooms and that home has only two. Balancing affordability with location means you may have to compromise. While you may be willing to compromise on how big a garden you have, you may not be willing to change your children's school districts.

Start looking at various neighborhoods and the amenities they offer. Is there a park? Shopping? Transportation? A house of worship? Do your friends and family live close by? Be careful not to limit your choice of neighborhoods too early on in the process. Explore new areas and the housing stock and amenities they offer.

Make sure you spend time during different parts of the day and night in the neighborhoods you like. Walk the streets, and go into local shops. Visit the neighborhood police department and local schools. Stop by the local park district offices and see what programs and classes are available. Drive the commute from prospective neighborhoods to your job during rush hour. Get to know the neighborhood and its residents inside and out before you buy.

Interview at least three brokers before hiring one.

There are traditional agents, buyer agents, exclusive buyer's agents (who never represent sellers) and discount agents. There are large brokerage firms and small neighborhood shops. You can even choose not to use a real estate agent, although as a buyer, you won't be out of pocket for the cost, so there's no reason not to use one.

Many buyers today opt to use buyer agents, or buyer brokers, who represent the interests of the buyer rather than the seller. One study showed that buyers using buyer agents or exclusive buyer's agents paid 5 percent less for their home than those who use traditional agents. That's $5,000 saved on every $100,000 spent.

Choosing which agent to use - or choosing not to use an agent - can be critical to your successful purchase. Look for an agent whose philosophy and mannerisms are compatible with yours. Look for someone you can trust, with whom you wouldn't mind spending a lot of time. Look for an agent who has ample experience, and who is knowledgeable about the neighborhoods you've selected for yourself.

Read and understand all documents before signing them.

So many folks don't even bother to read either their purchase contract or loan documents. That's unfortunate, given the enormous legal implications of a home purchase.

Take the time to read all documents thoroughly. Ask an attorney or broker to explain things that don't seem to make sense. It's important that you understand what promises have been made and what warranties have been granted, and what implications these documents have for your personal financial and emotional well-being.

If you don't understand the documents that you are being given and still don't understand them after the broker has explained them to you, seek help from someone you trust or hire an attorney to assist you in the process. If the broker explains something to you and seems to contradict the document, make sure the broker writes into the document what she told you.

Next week: If you're trading up, you've probably got a home to sell before you can buy. How can you sell in a slowing market? How can you compete against 10 other homes for sale in your neighborhood? Next week, we'll continue our look back on 2006 and I'll have your Home Seller Resolutions for the New Year.