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The home buying process can be overwhelming for a first time home buyer, giving you the feeling that your financial destiny is rapidly spinning out of control. When it comes to real estate, most people don't have a lot of experience and even less knowledge. Buying a foreclosure home can be even more confusing. The fact is, buying a home is actually a simple process. All you need to do is concentrate on the basics, and the following steps will fall together more easily. 1. You need to get preapproved for a mortgage prior to looking at any homes. This gives you the maximum possible time to understand all the complicated paperwork and terms of your mortgage. Preapproval also shows the seller that you are a serious qualified buyer. This gives you an edge in negotiations. Particularly when competing with other buyers for the best deals. Preapproval for your mortgage will also give you time to solve any approval problems. This can prevent wasting time looking and falling in love with homes before you are able to buy. 2. On the mortgage front, the next thing you should watch out for is to avoid prepayment penalties at all costs. A prepayment penalty means that if you buy the home then later want or need to sell it or refinance it before the prepayment penalty expires, you'll have to thousands extra. You can find a variety of great loans that don't include these types of penalties. If your loan officer proposes a loan that does include prepayment penalties, you should usually turn it down and look for another loan. There is one caveat to this rule. If you know beyond any doubt that you will not qualify for a better loan prior to the expiration of the prepayment penalty and thus won't be able to refinance, it is reasonable to accept what is known as a "soft" prepayment penalty in exchange for a lower interest rate. This means that you would have no penalty if you needed to sell the property 3. As the interest rate markets change over the next year or so, you should also be on the lookout for good adjustable rate mortgages. I know that you have heard many horror stories about adjustable rate mortgages, but there are some that have strict adjustment limits and easy refinancing terms and could save you thousands over a couple of years. An example of a good ARM would be an FHA adjustable rate mortgage. FHA ARM mortgages have strict adjustment limits, no negative amortization (your loan balance only goes down and never up), and a streamlined refinance process. 4. Before you purchase a home, you should always be aware of how much you can afford. You should always go over your budget and figure out how much money you can spend on a mortgage payment. If you manage your money intelligently and know your finances, this should take very little time at all. On the other hand, if you are not on top of your finances, this may take longer but you will be highly rewarded for the effort. Do not base your decision on whether or not you can afford a certain home based on whether the loan officer and real estate agent tell you that you qualify. They are able to qualify you for more than you can comfortably afford and both get paid more when you buy a more expensive home. They will not, however, help you with your payments later on. 5. After your finances are in order, you should look around and thoroughly familiarize yourself with the home prices in the area you wish to shop in. Go online and find out what people are asking for homes in the area. Be sure to check around for foreclosed homes to compare the difference. We are in an extreme buyer's market in real estate today. When you buy your first home, you gain much more benefit by choosing a property for investment value than trying to locate your dream home. Don't pay list price. Expect to pay at least 10 to 30 percent or more less than similar homes have been selling for. This puts you in the best position to avoid the risk of buying in a down market and gives you the best chance to profit when you are ready to move up. Do not ever pay full appraised value and rely on inflation to build your equity. Inflation will be raising the value of all houses, so the home you want to move up to will be going up at the same rate as your starter home. Stake out your advantage by buying at the best price possible. The items listed above are just a few basic tips and there is much more you will need to learn to get the best deal on your first home. It is crucial to educate yourself before you get into the market. Most first time homebuyers skip this step and severely handicap themselves right out of the gate. Many previous buyers are paying the price for that in today's real estate market. Don't be scared out of the market by their mistakes. Educate yourself and you can still come out ahead.
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