7 traps for first-time home buyers

First-time home-buyers face an unfamiliar road and risk purchasing the wrong place at the wrong time. Here's a guide to the potholes.

Buying your first home is an exercise in faith. You don't really know what you're getting into, you're awash in unfamiliar terminology and everyone you meet seems to have strong (and utterly contradictory) ideas about which way the housing market is headed.

You may not be able to avoid every home-purchase mistake, but you can keep your regrets to a minimum by avoiding the following traps:

Blindly using your agent's inspector
Your agent may recommend a home inspector because he does a good job -- or because he keeps his mouth shut about problems that could torpedo the sale.

Yes, it's terrible to have to be so suspicious, but this is a big investment you're making. A good home inspection can keep you from buying a money pit. You can ask your agent for a recommendation, but get referrals from other recent buyers and try to interview at least three potential candidates before making your choice.

Few states regulate home inspectors closely, so real-estate columnist Ilyce Glink recommends you choose someone who belongs to the American Society of Home Inspectors, which requires its members to complete at least 250 inspections (or 750 if they don't have other licenses and experience). Ask about fees (which typically range from $300 to $700) and whether the inspector is licensed, bonded and insured, said Glink, author of "100 Questions Every First-Time Home Buyer Should Ask." Make sure you get a detailed, written report and, if at all possible, accompany the inspector so you can discuss the findings while they're still fresh.

Taking advice about what you can afford
Your agent, your broker and your lender don't know what you can afford. At best, they know the underwriting guidelines for various loans, which are designed to minimize the lenders' losses, not ensure that you'll maintain your financial health.

As I wrote in "8 big mortgage mistakes and how to avoid them," lenders know that you'll do whatever it takes to pay your mortgage, even if that means shortchanging your retirement, forgoing vacations and piling on credit card debt. You need to be the one to set limits on how much you want to borrow and how you borrow it. In general, limiting your housing costs -- including mortgage, property taxes and homeowner's insurance -- to 25% of your gross income will ensure you have enough money left over to cover other goals, like retirement savings.

Getting a 'temporary' loan
I'm hearing this potentially dangerous advice more often now that so many markets are spiraling out of the reach of first-time home-buyers: Get a mortgage with a low payment now, then refinance in a few years when your income is higher. This is the way some brokers and lenders are hawking adjustable-rate mortgages as well as their more exotic cousins, interest-only and flexible-payment loans.


There are a couple of problems with this advice. The first and most obvious is that no one can predict where interest rates will be five years from now. If they're substantially higher, you will have just passed up the opportunity to lock in rates when they were near generational lows. If your payment has been rising with those rates, you may not be able to afford your home even if your income is higher.

The other problem if you opt for one of the exotic mortgages is that you may not be building any equity in your home. If prices drop, you may owe more on your house than it's worth, which is going to make refinancing pretty tough unless you can come up with a ton of extra cash.

More experienced homeowners who are disciplined about money might be able to handle a trickier mortgage.

The better advice for first-time home-buyers may be to opt for a loan that will remain fixed at least as long as you plan to be in the home. If you plan to move after five years, for example, a good choice might be hybrid loan that remains fixed for five years before becoming an adjustable-rate mortgage. If you'll be in the home for a decade or more, or aren't sure how long you'll be there, you might want to opt for the security of a 30-year fixed-rate loan.

"You're locking in your housing costs for the next 30 years," said real-estate investor Gary W. Eldred, author of "The 106 Common Mistakes Homebuyers Make (and How to Avoid Them)." "If interest rates go up, your payment stays the same, and if they go down, you can refinance." Before you decide on a mortgage, spend some time in MSN Money's Home Financing Decision Center and educate yourself about the options.

Opening or closing credit accounts
Both can hurt your all-important credit score, the three-digit number lenders use to help gauge your credit-worthiness. That can result in your getting stuck with a higher interest rate or losing the loan you want all together. (Read more about credit scores at MSN Money's credit rating Decision Center.)

Real-estate columnist Tom Kelly knows how important credit scores are, but didn't think much about the ramifications when he applied for a new credit card while in the process of applying for a home-equity line of credit. That, plus his wife's closure of a few other accounts, shaved more than 30 points off the couple's credit score.

It was "really bad timing," Kelley said. "The lender for our proposed line of credit basically said, 'What have you guys been doing?' after our application had been filed and the new FICO scores had arrived."

Failing to investigate the neighborhood
"One common mistake is not looking at the property and the neighborhood at various times," said Dick LePre, senior loan consultant for RPM Mortgage in San Francisco and author of the RateWatch newsletter. "Look at it during the day, the late afternoon when kids tend to cluster, at night and on both weekdays and weekends."

This ongoing inspection can reveal good news, bad news or both. You may find your home is on a popular shortcut for commuters or near the gathering place for local kids, but only for a few hours a day.

"Something which you construe as a problem might only happen one day a week or at a certain time of the day," LePre said.

He also recommends quizzing a few neighbors about what they like and don't like, and about which direction the neighborhood seems to be going.

"Find out if there are any 'crazies' on the block," he said. "If there is empty space nearby, ascertain what the zoning is for that empty space. Is the next block over ... zoned commercial? Do you want a McDonald's as a neighbor?"

Buying when you're not ready
Buying a home is a great way for the average person to build wealth over the long run, but it's not for everyone in all circumstances.

If your finances are uncertain or your job prospects are up in the air, you might want to wait. Renting is also a better option if you're planning to move in a year or two.

Not buying when you are ready
All that said, you shouldn't let fear or uncertainty keep you on the sidelines if you're otherwise ready to buy a home.

Eldred notes in his book that the media have been decrying the high cost of housing and predicting price peaks at least since the 1940s. Although prices have fallen in various cities at various times, the overall trend has been upward.

Eldred recommends being cautious if your market is showing signs of weakening, such as:

Properties staying on the market longer.
A widening gap between the costs of owning and the costs of renting.

Even then, don't put off a purchase if you're able to stay put for several years -- long enough to ride out any downswings.

"In five or 10 years, prices will be higher than they are today," Eldred predicted.

It's a not a real estate bust, it's a residential real estate bust

the residential real estate market is in a world of pain, but commercial real estate isn't in any kind of trouble at all.

The reason is that commercial real estate had its meltdown in 2000 and 2001, as the dot-coms and related enterprises that drove demand for office space in the late 1990s suddenly began to go poof. So now we're in the relatively early up stages of what is usually a 15- or 16-year cycle. At least, that's what Glenn Mueller, University of Denver professor and real estate investment strategist for Dividend Capital Group, told me this morning, and I have no reason not to believe him.

This is part of a broader story about the 2001 recession and what stands ahead of us now. Corporate America went through one of its worst downturns ever in the early years of this decade. Consumers, meanwhile, used the availability of incredibly easy credit to keep on spending as if nothing had happened. Now the signs are many that American consumers are due for some kind of retrenchment. But corporations are doing grrrreat, with profits higher than ever.

The two sectors aren't disconnected: If consumers stop spending, corporations will feel the pain. But they'll be in far better shape to withstand it than if they too were at the tail end of a long boom cycle. This tendency for different parts of the U.S. economy to boom and bust at different times has been apparent since the late 1980s. And while it may have bred a certain complacency among investors that will eventually be punished, that doesn't make it any less of a real and healthy phenomenon. In real estate, for example, it means that some of the construction workers losing their jobs in the housing bust will be able to move over to commercial projects. And in general, it means that while the U.S. economy will probably face some tough times over the next year, it's not all headwinds ahead.

Real Estate Bank invests in IT

The Real Estate Bank, the government association that aims to facilitate real estate credit for UAE nationals, establishments, companies and cooperative societies, has selected Alpha Data to build a full IT infrastructure at its facilities.

Alpha Data, one of the UAE's largest IT and telecommunications solution providers, will install a complete integration of structured cabling, networking and telephony systems, consisting of LAN, WAN, servers, firewalls and IP telephones. The new infrastructure will allow the bank to ensure a consistent and secure link between its Abu Dhabi and Dubai offices, as well as offer connectivity to its disaster recovery site.

Abdul Aziz Al Zaabi, general manager of Real Estate Bank, said: "The board of directors of the bank has a strong belief that it is essential to have a well-built IT infrastructure. Their vision is to build a pioneering bank providing real estate banking services through the use of the best and most advanced technologies in accordance with the highest standards."
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Alpha Data worked with partners including Nortel Networks, Belden and Juniper Networks to customise the solution and optimise network performance.

Muamamr Maqam, banking and finance vertical manager, Alpha Data, said: "We have integrated state of the art technologies from our key partners to manage the entire set-up on behalf of the customer and ensure the highest level of performance. We have provided a comprehensive solution, keeping in mind the customer's requirement for an IT infrastructure that is highly available, adaptable and easily manageable."