Congratulations on your search to buy a new home! If this will be your first home, you might think that all you need to do is connect with a good real estate professional. If you’ve purchased a home before, you might think that you already have enough experience with the home-buying process to get the job done. Working with a real estate professional, or going through the process once before, is a great first step to finding your new home, but there’s so much more to it. Reading this book will make you a much more educated buyer.

Buying a home involves more than reading ads in the local newspaper or online, and going to open houses. It also involves understanding your budget and your current financial situation. Have you looked at your credit report recently? Do you know what you can afford? You also need to thoroughly understand your needs, your wants, your finances, and the current real estate market before you get started.

Even if you’ve bought a home before, have your needs changed since then? Is your family bigger or smaller? Has the real estate market or the economy changed since then, which might affect your purchase? You need to know many things so you don’t make mistakes or fall into traps and pitfalls.

This book guides you through all the steps to buying a home. It also provides tips and suggestions to make the task easier and less stressful. As a result, you’ll have an easier time finding your dream home. First, let’s focus on the basics, including why this is a perfect time to start looking, how to decide whether owning a home really is the right decision for you, and how to spot and avoid the most common home-buying mistakes. While you’re at it, don’t forget to investigate if a home you’re interested in has a workable floor plan for you, or the right number of various types of rooms that you need for your lifestyle. Let’s get started!

The time is ripe to explore the housing market. We currently are in a “buyer’s market,” which means prices of homes are lower than they’ve been in years—you’re bound to find homes more affordable. It’s like being able to buy a $500 brand-name suit for $375. Perhaps that pricey two-story colonial that you’ve adored from afar (you know, the one with the extra bedroom, bathroom, and home office) has now become much more affordable.

In addition, the lending industry has lowered mortgage interest rates. What does that mean to you, the buyer? It means that you save money. For example, a reduction in a mortgage interest rate of just a quarter percent can result in hundreds of dollars in savings on your monthly mortgage payment. That savings can make all the difference in the world when it comes to daydreaming about owning a home and actually owning one. A smaller mortgage payment may mean that you can now afford that beautiful brown-shingle period home that you’ve been eyeing since it went on the market a few months ago!

Along with providing a sense of stability for you and your family, a home is an investment that grows over time and offers several tax deductions, including mortgage interest, property taxes, and possibly closing costs, points paid, and loan application fees (you learn more about these later in the book). If you want to see how these tax breaks affect you personally, ask your financial advisor to go over the numbers with you. You can also visit the Internal Revenue Service’s website (www.irs.gov) for the latest information on tax breaks for buying a home.

First-time home buyers are also entitled to special tax credits. For example, a first-time home buyer tax credit was included in the American Recovery and Reinvestment Act, signed into law in early 2009. The bill offers a tax credit of up to $8,000 for the purchase of a home (which must be your principal residence) between January 1 and December 1, 2009. You can claim the credit on your tax return in order to reduce your tax liability.

Most important, as you repay your mortgage, your equity increases. You have no equity in a rental. Real estate is a great investment. Need proof? Consider that some of the largest fortunes in history are based on real estate—Donald Trump, the late Harry Helmsley (Leona’s husband), and billionaire Sam Zell.

Before you go through the process, it’s best to first ask yourself, “Is owning a home for me?” There are just as many responsibilities of owning a home as there are benefits. For example, these responsibilities include, but aren’t limited to, maintenance, upgrades, and remodeling; homeowners also pay additional expenses such as property taxes and homeowner association fees. Although home ownership is the so-called American dream, some people are truly not cut out for it and are better off renting.

For example, are you ready to deal with a furnace or electrical system that goes on the blink at 3 in the morning? Can you afford an unexpected, and costly, plumber’s or electrician’s bill? Or are you more comfortable calling your landlord and letting her deal with the aggravation and expense?

Consider another example: a huge storm carrying torrential rains and gale-force winds reveals leaks in your home and causes a tree to crash into your den. Can you deal with such upset and expense? If not, perhaps you’re not ready to own a home right now. It’s okay—this could change. You may be ready for home ownership after some time has passed. Only you can know for sure when you’re ready.

Also, if you think that your life circumstances might change within the next five years, think carefully about whether you should buy a home. Most homeowners of less than five years lose money or barely break even in typical markets. If you know you are probably going to be transferred, taking care of a parent or relative, or simply thinking that you’ll upgrade in a few years, slow down and carefully consider your purchase before moving ahead.

If you’re ready to enjoy all the benefits and handle all the responsibilities of owning a home, that’s great! Before we move on, let’s bust some of the most popular home-buying myths out there.

When you tell someone you’re buying a home, you’ll often hear one of their “bits of wisdom.” But that advice is often as substantial as the fertilizer you’ll be spreading around your lawn next spring. Remember, everybody’s experience is different, so don’t listen to the advice of other home buyers without checking it out to see if it’s true. We analyze a few of these nuggets, but remember that you also need to look into what others tell you so you can decipher truth from fiction. After all, it’s your home—make your own decisions.

However, when it comes to recommendations for realtors, mortgage brokers, home inspectors, and other professionals you’ll need to depend on to buy your home, advice from others can be worth its weight in gold.

In most cases, it does cost more to buy a home than to rent, but in the end, the financial advantages outweigh the expense of buying and keeping up the home. You do need much more money for a down payment and closing costs than you do for a security deposit. You also need money to keep the home maintained. When you’re renting, the landlord takes care of those items.

Although the real estate market over the last few years has significantly decreased in value, some markets are starting to see a turnaround. Later in the book, you’ll learn how to do your basic research so you can avoid buying in areas that are still falling in value. For the most part, if you buy a home in an area that is starting to see an increase in values, your home’s value should increase over time, too. This increases your overall net worth, something you can’t do by renting. As a result, buying a home may cost more money outright, but it typically saves you much more money in the end.

If you’ve never bought a home, you might think that all you do is call the agent who is listing the house you want to see. Like another house? Call that agent, right? Not quite. The traditional method of buying a home is to find one Realtor who is going to work for you—the buyer’s agent. Feel free to contact several agents and interview them before you select one to work with. When you’ve decided on an agent, that agent contacts the sellers’ agents for you and sets up your appointments. Agents frown upon buyers who call several agents and ask them to set up appointments; it’s a professional no-no. That’s why you have one agent to represent you.

Although over 85 percent of all buyers use the web to do their own research on buying a home (which is a great way to find some basic information and scope out the homes you like), you really need a real estate professional to help you close the deal.

A real estate professional can give you market and neighborhood information, do your research for you while you work and take care of your kids, and set up appointments on homes that fit your specifications. In addition, most sellers won’t even show their homes to a buyer unless the buyer is accompanied by a real estate professional.

The beauty of modern real estate practices in this country is that using an agent usually doesn’t cost you a dime. In the vast majority of cases, your agent will be paid from a commission of the sale through the seller. You have everything to gain and nothing to lose when you use an agent.

Looking at mortgage information can be overwhelming—having so many choices and trying to understand all the financial mumbo-jumbo can be a daunting task. Securing a mortgage doesn’t have to be difficult, though. Take advantage of the many experts in the lending industry. Talk to several lenders before making a decision. Talk to your friendly banker where you have your checking account, or interview experienced mortgage brokers and choose one who can explain all your options to you and sell you a mortgage loan. These professionals will do the “heavy lifting” and walk you through the approval process for your home loan. Along the way, they will explain the details to you in simple, easily understandable terms.

In most cases, the seller of the property pays the commissions for both the seller’s agent and the buyer’s agent. Exceptions to this are usually on an individual property basis.

Don’t believe that foreclosures—homes from owners who went into default on their mortgage loans—are necessarily a much better deal than a resale or even a new home you’re having built. They might sound like they are because the price of a foreclosed home is low, but there can be several problems with foreclosures.

The bank that owns and is selling the foreclosed property really has no knowledge about its history, including any serious defects. Since foreclosures are sold as is, you get what you get—problems and all—and you’ll need money to fix those problems. As a result, depending on the situation, you might be paying more money overall once you factor in closing costs, upgrades, and repairs. Make an informed decision before you buy a foreclosed property by getting inspections and finding out the cost of any needed repairs.

You may discover some of the repair issues from normal due diligence during the inspection process, but that’s a lot riskier than being able to talk with the individual who currently owns the property.

Approval for a mortgage application depends on a number of factors, bad debts being just one of them. If the bad debts are far enough in your past, many lenders may be willing to overlook them, particularly if your subsequent credit history shows that you pay your obligations now in full and on time.

Whether it was deciding where to go to college, what car to buy, or what profession to choose, you probably researched the subject, questioned many people, and consulted a variety of sources before making a final decision. Buying a home is no different. To buy a home that meets your needs, you have to do your homework.

Learn the real estate market, and carefully interview and select a financial professional and a mortgage lender to determine what size home you can afford. You also need to compare different types of loans and interest rates, and find out what the local ordinances and tax structures are. That’s a lot of homework, but doing it will help you avoid many of the potentially aggravating pitfalls that can come with buying a home.

Just like when you were in school, consequences arise when you don’t do your homework. Let’s look at some of the most important things you should do as you move through the home-buying process.

A serious error that too many buyers make is failing to read all the documents they’re signing. Let’s say that you aren’t the type of person who understands mortgages.

You’re being transferred to a new city, and when you talk to the mortgage lender that your human resources manager has recommended, he tells you about a great low-rate adjustable mortgage loan that is so cheap it will save you hundreds of dollars on your monthly mortgage payment. Since you don’t understand mortgages too well, you trust his judgment, don’t research further, and sign on the dotted line.

If you had taken time to read the fine print (or had a more trustworthy mortgage lender), you would have learned that after three years, the loan rate initially increases by 2 percent per annumand can further increase every year thereafter up to 1 percent annually, whether you can afford it or not. Let’s say you found out in the third year of a 30-year mortgage, so you wanted to refinance into another mortgage loan that was better suited to your needs. But since you didn’t read the fine print, you didn’t notice that there’s a prepayment penalty that you’re liable for if you want to pay off the loan within the first 10 years.

At the fast-paced closing, many people say that they don’t have enough time to read the many documents they have to sign. Unfortunately, you can’t use that excuse if you find something wrong after the fact. Instead, your mortgage lender should be supplying you with, and explaining, the papers beforehand. Also, your agent can—and should—provide you with a copy of any other documents you will be signing a few days in advance. You can read them carefully, take note of any items you don’t understand or don’t agree with, and ask your agent to explain or get additional information. A good agent always does this for his clients. It can save a great deal of aggravation later.

You’ve heard the old adage, “location, location, location.” It really means that the value of a property, both in absolute terms and in comparison with other properties, comes from where it’s located. There are reasons people refer to areas as “good neighborhoods” or “the wrong side of town.” Location in real estate is everything—if you don’t check out the area thoroughly, it could cause problems down the road.

For example, let’s assume you’re being transferred from New Hampshire to Oklahoma. You visit Oklahoma on a look-see trip, and while there, you drive past a new subdivision that is being built. If you choose to have your home built there, it will be ready a month before you move to Oklahoma for good. During your trip, you visit with the development’s on-site salespeople and, without any further research, you are impressed enough that you sign on the dotted line. You return home happy that you bought a home.

Unfortunately, a few months after you move in, you discover that the area traffic is horrible. You also learn that the city’s new multipurpose athletic center will be built a half mile down the road, both worsening the traffic situation and bringing crowd noise when the local team is playing a night game. The price might be a great deal, but just wait until it’s time to sell. Whatever negative factor existed when you bought the home will likely still be there when you sell.

You won’t be in the greatest situation if you buy a home that’s an architectural classic if it’s located in a center for gang activity, or if that great new ranch on a half-acre just north of downtown turns out to be on the site of a former manufacturer of toxic chemicals. (In such cases, the seller should inform you about information like this before you buy. If she doesn’t, you’ll likely have a good reason for legal action against her and her agent.)

Perhaps the area you’re moving to has just lost one or two of its largest employers. The increased unemployment that results from these closures may adversely affect many things in the community. If you didn’t do your homework ahead of time or read about it on the area’s town government or newspaper website before you purchased your home in this area, this area’s economic problems can affect the value and resale of your home. Again, your real estate agent should tell you about important information, but if she doesn’t, make sure youask. In fact, compile a list of such questions about the locale and any buying-related subjects to ask about. You may also want to ask local residents what they know about such things.

Remember, though, real estate agents are very limited with what they are allowed to say about areas for fear of discrimination and fair housing laws. Even if the agents know it has gang problems or is not a safe place to be, as agents they have to be careful as to how they describe the area.

Here’s another example. One of the things that attracts you to a particular house is the large open space behind what would be your lot. All that greenery is just beautiful, and you think, “No one would ever be allowed to build there.” But you don’t verify that with the local authorities. Bad move. If you had done so, you’d have learned that the new regional high school is due to start construction next year exactly on that spot. Yes, it’s something your agent should’ve told you, but it was overlooked.

Never, ever assume that the real estate agent will tell you everything. Although it’s her job to explain this information to you, your agent simply may not know the facts because she may not know everything about every area. It’s also your responsibility to ask important questions that will help you make the right decision. For example, your agent may not know details about crime statistics for a certain area. However, some police departments maintain websites that provide information of this nature. For example, Oakland’s police department has a website that allows you to input an address, then “draw” a radius around it and choose which crime you’re concerned about. Then, you hit “Enter,” and bingo—it all shows up on the map of the area you’ve chosen.

Your real estate professional will help you decide on a fair purchase price, but if you try to do this without an agent, you could pay way too much for a home. An agent will compare the home you’re interested in buying to what other homes are worth in that area. These comparisons, or “comps,” will give you a better picture of a fair bid; otherwise, you might bid too high. The result? The seller is happy and you’re out a nice chunk of cash.

Don’t fall into the trap of going over your budget because you’ve fallen madly in love with a house. You might think, “It’s only a few dollars more per month” or “It’ll be a bit tight, but I can make it work somehow.” Unfortunately, you’ll probably end up struggling financially. Richmond’s Rule:Never let a house own you!

Some people make the mistake of not obtaining enough home inspections or not following up when further inspections are recommended. For example, your termite inspector might find no active infestation during the routine examination, but he might recommend another in-depth inspection to be sure there’s nothing going on in a certain part of the house. You’re hesitant to spend the extra money and you’re trying to move quickly to closing, so you don’t heed the inspector’s advice. Two years later, you make the unfortunate discovery that there really was an active infestation exactly where he had recommended further inspection. Never skimp when spending a few dollars now can save you thousands of dollars later!

Yes, this book is about buying a home, but the entire time you’re looking at a home, you should be thinking about when the time comes to sell it. Yes, a sale might likely be years away, barring the unexpected, but failing to look at a house now in terms of possible future issues can cost you.

Ask your agent or the local authorities in the new area about any plans for development that could affect your home, both positively and negatively. For example, plans for a new mall, even a few miles from your home, could add extra noise and congestion on your now-quiet street. Being near good shopping is a plus when it comes to selling your home, but having all that new traffic and noise near you may not be. On the other hand, if you find out that the town is building a new manufacturing facility on the opposite side of town, it won’t add traffic and noise to your neighborhood, but it can lead to an increased demand for homes in your neighborhood. This is a good thing, because it improves the likelihood of selling your home in the future, possibly for a higher price.

You may also want to take a look at the current trends for new construction in your area. If you are in a city or town that has been doing a lot of building, how will your home compare if the builder wants to build near your neighborhood? Will your home sell if the buyer sees that there are brand-new homes available only one block over? You should know the future plans.

Get any verbal agreements with the seller in writing. Most states require that any agreements involving the sale of real estate be in writing. If you’ve got your heart set on that beautiful antique crystal chandelier and sconces in the dining room and the seller agrees, get it in writing and make sure both parties sign the agreement. If you fail to do so and notice that the items are missing when you’re moving in, you’ll probably be out of luck. To be sure everything you want is left, compile a list of these items as a reminder, and then cite them in your offer.

Another thing to do is get to know your neighbors. Take a stroll around the area and knock on a few doors. Introduce yourself as the potential neighbor, and ask if they mind answering a few questions you have about the area in general and the home in particular. Talk to local business owners to find out about the local economy, or take a trip over to the local government offices and find out about the neighborhood. It can add a great deal of information about where you’re thinking of buying.

Drive by any potential homes a few times during the day. Is there a lot of traffic to turn left onto your main street in the morning? What are typical commute times to and from the home? After school, are neighborhood kids outside playing and exercising? On Friday night, does the home across the street have 10 cars out front and loud music blaring from the backyard? Does the neighborhood feel scary or safe at night?

It might sound like you have to avoid many mistakes when buying a home. But don’t be afraid. We take you step-by-step through the entire process, and we give you tips and suggestions so you won’t let these situations happen to you.

It can be overwhelming and hard to stay focused and relaxed when you’re trying to buy a home. After all, you already have other things on your mind—your job, kids, housework, hobbies, and more. You have to go through houses, meet with lenders and real estate agents, do research, the list goes on …. It’s okay. Take it one step at a time and breathe. We’ll get through this together. Remember, this is an exciting time in your life!