Nolo's essential guide to buying your first home.

by Ilona Bray.

Acknowledgments.

We didn't really write this book.

Well, we did, just not by ourselves. This book was a 100% team effort and couldn't have been written without the advice, stories, and ideas of real estate experts and homebuyers from around the United States. First and foremost, we thank the members of our advisory board, who spent countless hours reviewing chapters, explaining local practices, and sharing the best and worst memories from their professional experiences. Special thanks to Broderick Perkins, Broderick Perkins, a real estate journalist based in San Jose, California, and founder and Executive Editor of DeadlineNews.Com ( a real estate journalist based in San Jose, California, and founder and Executive Editor of DeadlineNews.Com (www.deadlinenews.com), who reviewed and contributed to every chapter.

Our other invaluable sages included: * Asheesh Advani, Asheesh Advani, President of Virgin Money USA, ( President of Virgin Money USA, (www.virginmoneyus. com), and an expert in alternative forms of home financing* Nancy Atwood, Nancy Atwood, Designated Broker with ZipRealty in Framingham, Massachusetts ( Designated Broker with ZipRealty in Framingham, Massachusetts (www.ziprealty.com)* Steve Elias, Steve Elias, attorney, author, and community radio programmer in Lakeport, California. He writes blogs on bankruptcy and foreclosure law, and books on a variety of subjects, all of which can be accessed through the Nolo website at attorney, author, and community radio programmer in Lakeport, California. He writes blogs on bankruptcy and foreclosure law, and books on a variety of subjects, all of which can be accessed through the Nolo website at www.nolo.com.* Stephen Fishman, Stephen Fishman, Bay Area attorney, tax expert, and author (many of his books are available from Bay Area attorney, tax expert, and author (many of his books are available from www.nolo.com)* Sandy Gadow, Sandy Gadow, expert on real estate closing and escrow, and best-selling author of expert on real estate closing and escrow, and best-selling author of The Complete Guide to Your Real Estate Closing The Complete Guide to Your Real Estate Closing ( (www.escrowhelp.com)* Paul Grucza, Paul Grucza, author, TV show host, and faculty member of the Community Associations Institute (CAI), ( author, TV show host, and faculty member of the Community Associations Institute (CAI), (www.caionline.org)* Mary I. Husk, Mary I. Husk, Director of Faculty Development for The National Alliance for Insurance Education & Research in Austin, Texas ( Director of Faculty Development for The National Alliance for Insurance Education & Research in Austin, Texas (www.scic.com)* Richard Leshnower, Richard Leshnower, New York-based real estate attorney New York-based real estate attorney* Mark Nash, Mark Nash, Associate Broker with Coldwell Banker, who serves the Chicago, Evanston, Skokie, and Wilmette areas of Illinois ( Associate Broker with Coldwell Banker, who serves the Chicago, Evanston, Skokie, and Wilmette areas of Illinois (www.marknashrealtor.com), and author of 1001 Tips for Buying 1001 Tips for Buying & & Selling a Home Selling a Home * * Paul A. Rude, Paul A. Rude, professional inspector and owner of Summer Street Inspections, in Berkeley, California ( professional inspector and owner of Summer Street Inspections, in Berkeley, California (www.summerinspect.com)* Bert Sperling, Bert Sperling, city and neighborhood expert and author in Portland, Oregon, and founder of city and neighborhood expert and author in Portland, Oregon, and founder of www.bestplaces.net * * Fred Steingold, Fred Steingold, attorney and author in Ann Arbor, Michigan (many of his books on small business and other legal matters can be found on attorney and author in Ann Arbor, Michigan (many of his books on small business and other legal matters can be found on www.nolo.com)* Russell Straub, Russell Straub, founder, President, and Chief Executive Officer of LoanBright, a mortgage intermediary service based in Evergreen, Colorado (see founder, President, and Chief Executive Officer of LoanBright, a mortgage intermediary service based in Evergreen, Colorado (see www.loanbright.com and and www.compareinterestrates.com).

A number of other experts provided additional advice-you'll see many of them quoted in this book. They include Neil Binder, New York real estate investment expert (www.bellmarc.com); Elisabeth DeMarse, CEO, Creditcards.com, former CEO of Bankrate.com, and New York-based real estate industry expert (www.demarseco.com); Kartar Diamond (www.fengshuisolutions.net); Debbie Essex, child and family therapist based in Berkeley, California; Joanna Hirsch, real estate agent with Pacific Union in Oakland, California (jhirsch@pacunion.com); Joel Kinney, attorney with Goldstein & Herndon, LLP, in Chestnut Hill, Massachusetts (www.brooklinelaw.com); Annemarie Devine Kurpinsky, associate with George Devine, Realtor (www.georgedevinerealtor.com); Pat Lashinsky, President, ZipRealty (www.ziprealty.com); Jeff Lipes, President of Family Choice Mortgage in South Yarmouth, Massachusetts (www.familychoicemortgage. com); Maxine Mackle, Connecticut Realtor (www.country-living.com); Paul MacLean, retired home inspector in Austin, Texas; Carol Neil, retired Realtor; Fiore Pignataro, Realtor with Windermere Realty in Seattle, Washington (www.windermere.com); Lorri Lee Ragan, of the American Land Title Association (www.alta.org); Mary Randolph, attorney and author at Nolo (www.nolo.com); Frank Rathbun, Vice President of Communications, Community Associations Institute (www.caionline.org); Ira Serkes, Berkeley RE/MAX Realtor (www.berkeleyhomes.com, www.berkeleyblogcast.com); Debbie Stevens, Oregon real estate agent (www.ramsayrealty.com); Rich Stim, attorney and Nolo author (www.nolo.com); and Craig Venezia, real estate author (www.craigvenezia.com).

No amount of advice can substitute for a personal story, so we'd also like to thank the many homebuyers who shared the good, the bad, and the ugly of their own experiences or told us what they'd like from this book, including Amy Blumenberg, Laurie Briggs, Dave and Danielle Burge, Karen Cabot, Linda Chou, Jennifer Cleary, Jaleh Doane, Phil Esra, Lisa Guerin, Gabrielle Hecht, Pat Jenkins, Ellie Kania, Justin and Tamara Kennerly, Chris and Libby Kurz, Talia Leyva, Willow Liroff, Meggan O'Connell, Evan and Tammy Ohs, Leny and Frank Riebli, Leah Scheibe, Diane Sherman, Bruce Sievers, Luan Stauss, Tom and Heather Tewksbury, Josh and Gillian Viers, Julie and Malachi Weng-Gutierrez, and Kyung Yu.

Within Nolo, we got huge amounts of help from our talented colleagues. Special thanks to Lexi Elmore, who gave us a 20-something, Internet-savvy perspective-and a lot of stellar research and writing help. Rich Stim did an excellent job with the audio interviews on the CD-ROM. Other colleagues who lent a hand, researching everything from 50-state legal matters to fun facts, included Cathy Caputo, Stan Jacobsen, Terry McGinley, Leah Tuisavalalo, and Joe Warner. Sandy Coury and Sigrid Metson helped line up advisory board members.

Big thanks go to our colleagues in the editorial department, who supported us through the (long) process of writing this comprehensive (and yet fun!) text. Kudos to Susan Putney in Nolo's Production Department who took a challenging compilation of information and turned it into a beautifully designed book. And to Ellen Bitter in Nolo's Application Development Department for helping put together the capital Homebuyer's Toolkit on the CD-ROM.

Thanks also to Nolo founder Jake Warner, who championed this book idea for many years.

Our basements may be cluttered, our gardens may need weeding, and our floors may need a good scrubbing-but we love our homes. Thanks to the people who helped us get there-professionals (some who taught us what to do, others who taught us what not to do!) and our families, who share the joy of homeownership with us.

About the Authors

Ilona Bray is an attorney, author, and legal editor at Nolo. Her other real estate books include is an attorney, author, and legal editor at Nolo. Her other real estate books include The Essential Guide for First-Time Homeowners The Essential Guide for First-Time Homeowners and and Selling your House in a Tough Market Selling your House in a Tough Market, both co-authored with Alayna Schroeder. Her working background includes solo practice, nonprofit, and corporate stints. She recently celebrated her own house's 90th birthday-it's a 1917 Arts and Crafts bungalow, with the original woodwork and leaded glass intact. Her fantasy house would be a Greene & Greene mansion of the same style (like the Gamble House in Pasadena), with a large sun porch and lots of surrounding trees.

Alayna Schroeder is a member of Nolo's editorial staff whose legal career has taken her from corporate law firm to consulting to a stint in the Peace Corps. According to is a member of Nolo's editorial staff whose legal career has taken her from corporate law firm to consulting to a stint in the Peace Corps. According to Sacramento Magazine Sacramento Magazine, the home she shares with her husband and Bolivian-born dog, Luna, is in one of the Sacramento area's ten Great Neighborhoods-a fact Alayna tries to remember as she redoes the aging plaster and labors over the new patio. Alayna's idea of a fantasy house is always changing, but she'd settle for an A-frame in the woods with a lake view, big deck, and gourmet kitchen.

Marcia Stewart is the author or editor of many Nolo real estate books, including the best-selling is the author or editor of many Nolo real estate books, including the best-selling Every Landlord's Legal Guide Every Landlord's Legal Guide. Years ago, she found the perfect "starter" house in one of her favorite neighborhoods. As her family started to grow, so did the house, with a new second story and deck. Someday, Marcia may even get around to remodelling her 1950s kitchen-if she doesn't give it up for her fantasy house first. That would be a Queen Anne Victorian on a tropical beach, with a sunny kitchen, home theater, and a detached cottage office.

Your Homebuying Companion

Buying a house may be one of the first certifiably grown-up things you ever do. And no matter how ready you feel, taking a major step like this-particularly one where there are so many zeros on the price tag-can make you want to just close your eyes and get it over with get it over with.

But if you're going to invest your time and money, you want to make sure you don't find just any house-you find the right right house, at the house, at the right right price, with the price, with the right right loan. A house you're happy to stay in for a long time, no matter what the market does. To do that, you need a lot of information. loan. A house you're happy to stay in for a long time, no matter what the market does. To do that, you need a lot of information.

This book is full of nuts-and-bolts information about the homebuying process. But it's also got anecdotes and advice that we hope will remind you to enjoy this exciting, if sometimes frustrating or nervewracking process. Keep in mind what you're aiming for: your own home, where you're free to pound nails in the wall, get a cat, or paint your bedroom any color you want, without asking the landlord!

By the time you've read the key information here (don't worry, you won't have to read every chapter or every section), you'll truly be ready. We'll show you how to: * choose the right house in the right neighborhood, whether it's an old bungalow on a tree-lined street, a condo in the city center, or a custom-built home in a new development* narrow in on a realistic price range based on your budget, and strategize ways to afford more* select from a variety of financing options, from a 30-year fixed rate mortgage (like the one Mom and Dad got) to a private loan from a relative or friend* pick a great real estate agent, mortgage broker, home inspector, and other professionals* negotiate and sign an agreement to buy a house (find out what's important in all that fine print)* wrap up your financing, get inspections, and take care of other last tasks, and finally* close the deal, arrange your move, and settle into your new home.

You're going to benefit from the expertise of a number of different people, not just one author. We put together a team of 14 advisers from around the country who have reviewed this book and added the kinds of insights you usually get only in personal conversations. For instance, you'll meet a mortgage broker who explains why you should avoid oral loan preapprovals; a real estate agent who cautions against dressing too well at open houses (it can hurt your negotiating position); a closing expert with straightforward advice on why you should care about things like "easements" and title insurance; and a lawyer who suggests how to save on attorney's fees.

The CD-ROM that comes with this book includes a Homebuyer's Toolkit-over two dozen forms, checklists, and letters to help keep you organized and on track during every stage of the process. Whether it's a "Dream List" that prompts you to set out your priorities, checklists to carry when you tour a house or condo, or a set of interview questions for potential real estate agents, you'll find it there. And as a bonus, it includes MP3s with interviews of several of our advisers, plus this book's authors, who share their insider insights.

Navigating the path to YOUR FIRST HOME YOUR FIRST HOME

The three authors of this book, Ilona, Alayna, and Marcia, bring not only years of legal and real estate expertise, but also different first-time homebuying perspectives of our own. One of us bought with a 15-year mortgage that's paid off and is now paying her daughter's college tuition. Another bought with the help of family members and now has probably the lowest mortgage payment on the block in one of the city's up-and-coming neighborhoods. And the third bought a modest starter home with a hybrid adjustable rate mortgage just a few years ago and has been fixing it up with the hope of selling in a few years.

Our varied experiences help us understand that everyone has different objectives when buying and special challenges when buying for the first time. You may just be looking for a place-any place-to get started, you may want the challenge of a fixer-upper, or you might need the convenience of a low-maintenance condo. We know that you might be doing this alone, with your spouse or partner, or even with a friend. No matter who you are or what your goals and objectives may be, we hope you recognize yourself in some of the stories and experiences reflected in this book.

So hang on tight-to this book, that is. It will be your companion, providing advice, information, and inspiration all along the path to your new front door.

CHAPTER 1.

What's So Great About Buying a House? Why You Can and Should Do It

Meet Your Adviser Broderick Perkins, an award-winning real estate journalist based in San Jose, California, and founder and Executive Editor of DeadlineNews.Com, which provides real-estate related editorial content for online and print publications.

What he doesBroderick tirelessly follows real estate and consumer news and trends nationwide, having been a journalist specializing in these areas for more than 30 years. His website, DeadlineNews.com, provides in-depth articles, analysis, and breaking news. He has provided real estate news stories for The Wall Street Journal The Wall Street Journal, Move.com, Better Homes & Gardens Better Homes & Gardens, and RealtyTimes.com, among other publications. In his former life as a journalist with the San Jose Mercury News San Jose Mercury News, Broderick participated in Pulitzer Prize-winning coverage of the 1989 Loma Prieta earthquake. Today, he focuses on residential real estate topics from the consumers perspective, everything from appraisals to zoning. He says, I try to tell consumers not just what the current news is, but what it means to them as a buyer, seller, owner, or renter.

First houseDespite being a real estate journalist, I hadnt even thought about buying a place yet, when the owner of my apartment said shed need to either raise the rent or sell. It was a one-bedroom, 750-square-foot condo in a historic part of San Jose. Rents were going up-this was just before the big tech boom. I felt like, this is it, its time. We arranged for me to buy it, and without an agent. Since I was already familiar with how real estate worked, and was on good terms with the owner, all went smoothly. We didnt even have to get a home inspection, since I knew the place inside and out. It was funny that while I was writing about defects with condos, mine was in great shape! I bought it for $134,000, and sold it for $354,000 after five years.

Fantasy houseA loft on the beach. Any beach on the West Coast, maybe in a warm spot like San Diego or Malibu. I like the openness of lofts, the high ceilings and big windows-I have one now. My ideal would be brick or stone masonry, but now were really talking fantasy, because no one would put masonry on top of soft sand, especially in earthquake country. That would need some serious engineering.

Likes best about his workAside from the fact that I dont have to go into an office every day, I appreciate the learning aspect of it. I used to get kidded a lot at the San Jose Mercury News San Jose Mercury News when I didnt own a home and was working on a real estate story-people from the realty industry would say, How can you write about home ownership when you dont even own a home? Id say, Do I have to rob a bank to write about crime? Now that Ive been writing about real estate for years, I realize theres no end of stuff to learn-details of mortgages, appraisals, the physical structure of homes, unique homebuying experiences, and more. I figure this learning aspect will help prevent my brain from turning to mush as I get older! when I didnt own a home and was working on a real estate story-people from the realty industry would say, How can you write about home ownership when you dont even own a home? Id say, Do I have to rob a bank to write about crime? Now that Ive been writing about real estate for years, I realize theres no end of stuff to learn-details of mortgages, appraisals, the physical structure of homes, unique homebuying experiences, and more. I figure this learning aspect will help prevent my brain from turning to mush as I get older!

Top tip for first-time homebuyersCheck out your finances with a professional even before you think youre ready to buy. Most people who dont own a home dont think they can. They think they wont qualify. The biggest thing that stops them is that they havent sat down with a mortgage person or financial planner. Like me: Id been renting for five years and was writing about real estate, and still didnt think it was possible, until I was forced to take a closer look. (I got in with $10,000 down-money I borrowed from a friend!) Even if youre not yet thinking about buying, sit down with a pro to find out what steps you can take now to get ready.

Picking up a book on homebuying for some light reading? We're guessing not. If you're reading this, you're probably seriously interested in buying a house. But before we launch into how, let's explore why-just in case you've got any lingering doubts about whether it's a good idea. This chapter will preview some of the primary financial and personal benefits to buying a home (and you'll find details on many of the subjects covered, such as tax benefits, in later chapters). Then we'll talk about some common myths and fears, and how to get over them.

Buy my first home. Although Leah was happy with her rental place, she says, "I wanted a place that I could call my own, with a backyard for my cats, and space for an office so I could work at home full time. After three weeks of looking, I found it! And after a year, some of the best parts of homeownership are things I wasn't even expecting-like having already gotten to know more neighbors than I did during a whole six years in my apartment. Plus, although I've never thought of myself as domestic, I've had a surge of interest in decorating-I put up Roman blinds, have been picking out paint colors, and just bought my first Christmas tree!" Although Leah was happy with her rental place, she says, "I wanted a place that I could call my own, with a backyard for my cats, and space for an office so I could work at home full time. After three weeks of looking, I found it! And after a year, some of the best parts of homeownership are things I wasn't even expecting-like having already gotten to know more neighbors than I did during a whole six years in my apartment. Plus, although I've never thought of myself as domestic, I've had a surge of interest in decorating-I put up Roman blinds, have been picking out paint colors, and just bought my first Christmas tree!"

Investment Value: Get What You Pay For ... And Then Some

You've probably heard people talk about real estate as a great investment. But what exactly do you get out of the deal? Well, a few things: You'll build equity instead of spending cash on rent, you gain immediate benefits (a place to live!), and you'll eventually have full ownership of an appreciating asset.

Equity, Baby

Over time, as you patiently pay your mortgage, two things may start happening-your principal loan balance will go down, and the house's market value may go up. Both of these mean that you're accruing equity equity. Equity is the difference between the market value of a house (what it's currently worth) and the claims against it (what you have left to pay on any mortgages or loans you've taken out against it). You'd be hard-pressed to find another investment where you can borrow a large amount of money, pay a modest interest rate, and reap every bit of the gain yourself.

EXAMPLE: Hugo buys a home for $300,000 with a $30,000 down payment and a $270,000 mortgage. If the market value of the house is $300,000, Hugo's current equity in the home is $30,000 (market value minus mortgage debt). A few years later, Hugo has reduced the principal on the mortgage by $5,000, to $265,000. Meanwhile, the house's value has risen to $310,000. Hugo now has $45,000 in equity: ($310,000 minus $265,000). That's $15,000 more than he originally invested. Hugo buys a home for $300,000 with a $30,000 down payment and a $270,000 mortgage. If the market value of the house is $300,000, Hugo's current equity in the home is $30,000 (market value minus mortgage debt). A few years later, Hugo has reduced the principal on the mortgage by $5,000, to $265,000. Meanwhile, the house's value has risen to $310,000. Hugo now has $45,000 in equity: ($310,000 minus $265,000). That's $15,000 more than he originally invested.

Of course, sometimes the value of a property doesn't increase: It can even decrease. Fortunately, history shows that houses rarely drop in value permanently. In fact, median existing U.S. home prices increased an average of 6.5% every year between 1972 and 2005, according to the National Association of Realtors.

It Beats Paying Rent

A good chunk of the money you'll use to finance your home is money you're already spending anyway, on rent. When you buy a house, that cash is actually going into your investment.

You Can Live in Your Investment

Some people like to call a mortgage a forced savings plan, because it makes you sock a little cash away every month in the form of a mortgage payment-money you'll probably get back when you sell the place. On the other hand, we like to call it a smart investment plan, because it gives you both a roof over your head and and a way to convert your cash into a potentially appreciating asset. a way to convert your cash into a potentially appreciating asset.

That House Is Yours Yours

One benefit to buying a house is kind of obvious ... you're becoming a homeowner, and when the loan is paid off, you won't have to pay for a place to live. You could keep renting the same place you're in now for 50 years, and at the end of that time you'll still have to pay monthly rent checks to your landlord.

Tax Breaks: Benefits From Uncle Sam

As if buying a home weren't already financially beneficial, you'll get to claim various federal tax deductions and credits for home-related expenses. These can add up to some serious savings.

Tax Deductions Versus Tax Credits Be careful not to confuse a tax deduction with its more valuable cousin, a tax credit. A tax deduction is an amount you subtract from your gross income (all the money you earned during the year) to figure out how much of your income is subject to tax. For example, if your gross income is $80,000, and you have a $2,000 tax deduction, your taxable income is reduced to $78,000.A tax credit, by contrast, is a dollar-for-dollar reduction in your tax liability. If your taxable income is $80,000, and you qualify for a $2,000 tax credit, your taxable income is still $80,000, but you get to reduce the amount of tax you ultimately owe by $2,000.

Tax Credits

As a new homeowner, you may be entitled to certain tax credits.