Top 10 mistakes of first-time buyers

Buying a home may seem a daunting task, but a little preparation will ease the way. Check out these 10 common pitfalls of first-time homebuyers before starting your search.

By SmartMoney

The declining home values that are plaguing homeowners are just one of the factors creating an opportunity for prospective homebuyers.

Standard & Poor's latest Case-Shiller index, which tracks home prices across 20 major U.S. cities, reported that values dropped 19% in January from a year earlier.

Those depressed values, combined with near-record-low mortgage rates and government incentives (an $8,000 first-time homebuyers' tax credit included in the stimulus bill), are luring more first-time home buyers into the market. Indeed, a recent Century 21 Real Estate survey found that more than three-quarters (78%) of potential first-time homebuyers say now is a good time to buy.

If you agree, be aware that buying a home comes with plenty of potential missteps. Here are 10 all-too-common mistakes first-timers make.

1. Not knowing how much house you can afford.
Many novice homebuyers spend a lot of time researching homes — comparing kitchen layouts and backyard square footage — but very little time researching their financing options. One of the first things buyers should do is talk to a qualified lender and get preapproved for a mortgage, says Claire Clark, senior vice president of business development at Prudential California Realty. Without first figuring out how much house you can afford, you risk falling in love with one you can't.

2. Assuming foreclosures are great deals.
Just because the previous owner owed $450,000 on a house before the bank took it over doesn’t mean it’s worth that much now. Values have slipped significantly, says Jay Michael, partner at Estate Property Group, a Chicago real-estate brokerage, so you may not be getting the bargain you think with a foreclosure. Also, most homes owned by lenders or banks have been sitting vacant for months and may have been vandalized. That could require extensive renovation or repair. Weigh the costs of fixing up the property against the savings you’ll likely reap by buying a lower-priced foreclosed home.

3. Letting your true feelings show.
No matter how much you've fallen in love with a house, don’t let the seller’s agent in on it. Otherwise, he will gain the upper hand in negotiations.

4. Failing to find a good buyer's agent.
Landing a mortgage is tough these days. So buyers should rely heavily on knowledgeable agents to help them get their finances in order, says Michael. After all, buyer’s agents have a fiduciary responsibility to the buyer exclusively — and should be looking out for his best interests. Start your search at the National Association of Exclusive Buyer Agents, a nonprofit representing buyers. Or consider using an agent recommended by a relative or friend. Interview the candidates about their experience; ask if they’ve worked with first-time buyers before and what kind of service you’ll get from them.

5. Underestimating the costs of owning a home.
Whether it’s a rusty pipe or a leaky roof, things go wrong and need to be fixed. Many homebuyers don't anticipate the additional costs for repair and maintenance, or for an increase in utility costs, says Erin Baehr, a certified financial planner and president of Baehr Family Financial. Consider the age of your new home and how well it’s been treated by the previous owners in your budget. Be prepared to set aside a small percentage (1% at most) of the home’s purchase price annually for repairs and upkeep.

6. Failing to budget for property taxes.
Property taxes — and the likelihood that they’ll climb over the course of your time in the house — should be factored into any homebuying budget, says Baehr. To get an idea of how much you’ll be paying, call the local assessor’s office or talk to people in the neighborhood.

7. Assuming your first offer will get accepted.
As home prices get even more affordable, competition is bound to heat up. “You can’t assume you’ll walk in there, make the offer and get it,” says Clark. Try not to get discouraged if you lose out on the first — or second — house you make an offer on.

8. Skipping the inspection.
Before signing anything, hire a professional inspector, says Justin Lopatin, a mortgage planner with American Street Mortgage Co. The seller isn’t likely to tell you there’s mold in the basement or the walls are poorly insulated. Lopatin advises buyers to find and hire their own inspector — independently of the real-estate agent — to ensure there’s no conflict of interest. (You can find inspection companies in the phone book, or by doing a simple Web search with your ZIP code.)

9. Doing too much too fast.
Some buyers want to make the house their own right away, says Baehr. They overextend themselves on credit to do so, and assume the improvement will pay for itself by increasing the home's value. But that’s not always the case — especially in today's market. Instead, buyers need to exhibit patience and make changes over time.

10. Failing to include a contingency clause in the contract.
A mortgage financing contingency clause protects you if, say, you lose your job and the loan falls through or the appraisal price comes in over the purchase price. Should one of these events occur, the buyer gets back the money he used to secure the property. Without the clause, he can lose that money and still be obligated to buy the house, says Lopatin.

*Provided By Lisa Scherzer, SmartMoney

Pros and cons of paying down a mortgage

Q: I’m considering making extra payments on my mortgage. I like the idea of not being in debt. What do you think of this idea?

A: Paying off your mortgage quicker may make sense. This financial move isn’t as clear as paying off high-interest consumer debt because mortgage interest rates are generally lower and the interest is generally tax-deductible. When used properly, debt can help you accomplish your financial goals and make you more money in the long run.

Whether paying down debt sooner makes sense for you depends on a number of factors, including your other investment options and goals. Financially, what matters in deciding whether to pay down your mortgage faster is your mortgage interest rate versus your investments’ rates of return.

Suppose you have a fixed-rate mortgage at an interest rate of 6 percent. To come out ahead financially, if you’re making investments instead of paying down your mortgage more quickly, your investments need to produce an average annual rate of return before taxes of 6 percent.

While mortgage interest is usually tax-deductible, remember that you must also pay taxes on investments held outside retirement accounts. While you can purchase tax-free investments, such as municipal bonds, over the long haul, these investments won’t typically earn a higher rate of return than the cost of the mortgage.

And don’t assume that those mortgage interest deductions are that great. You automatically qualify for the so-called standard deduction on your federal tax return. If you have no mortgage interest deductions — or less than you used to — you may not be missing out on as much of a write-off as you think.

Paying off your mortgage faster has no tax benefit. Putting additional money into a retirement plan, however, can immediately reduce your federal and state income tax burden.

In order for you to have a reasonable chance of earning more on your investments than it’s costing you to borrow on a mortgage, you must be aggressive with your investments. Notwithstanding their horrendous slide in 2008-09, stocks have produced annual average rates of return of about 9 percent to 10 percent.

Paying down a mortgage ties up more of your capital, reducing your ability to make other attractive investments. Some people feel uncomfortable paying off debt more quickly if it diminishes their savings and investments. You probably don’t want to pay down debt if it depletes your financial safety cushion. Make sure that you have access — through a money-market fund or other sources, a family member, for example — to at least three months’ living expenses.

*Provided courtesy of Eric Tyson, author of "Let’s Get Real About Money!" and "Investing for Dummies''

Spring-Cleaning? 8 Major Hot Spots You Shouldn't Miss

Get a jump on spring-cleaning this year by focusing on these essentials.

Ready to give your home a top-to-bottom buffing? Start by focusing your efforts on the big pieces and on the places that make the most difference to you: furnishings, appliances, and carpeting. Once you've covered these major tasks, you'll have your home spring-cleaned in no time.

1. Make doormats welcoming. Shake 'em, wash 'em, swat 'em with a broom. Give them the toughest cleaning they can take. They're your front line against tracked-in dirt -- so keep them clean enough to function at peak efficiency.

2. Clean carpets and upholstery. Fabrics that have absorbed a winter's worth of dirt, body oil, and germs will need a deep cleaning to get them ready for another year of wear -- and for that close inspection by your relaxing guests.

When you're shampooing carpets or cleaning or cleaning upholstery with a rented carpet cleaner, practice first in an unobtrusive area to make sure you have the knack of the machine and that the treatment won't discolor fabrics or cause dyes to run. Save time by moving furniture just slightly -- not out of the room or against the wall, as the old rules dictated -- and place the legs of each piece back on top of small wax paper squares after shampooing. The wax paper will protect your carpet and keep the furniture legs from getting wet as the carpet dries. Open the windows to speed the drying process, which can take a day or more. If you're not the furniture-shifting and machine-renting type, make it easy on yourself. Call in a professional carpet and upholstery cleaner to do the work and take the morning off.

3. Finish your floors. To protect the floors in your kitchen from another year of wear and tear, wax or apply a sealer following label directions. The simplest method: Use a combination wash-and-wax floor cleaner. Don't feel guilty about saving time!No-wax floors don't need a polishing treatment, but an occasional makeover will keep them looking fresher -- and add a protective buffer that could help them last longer. Use a floor cleaner that cleans, shines, or both. It's best to follow label directions for proper use of each product. If you have wood floors, move furniture and rugs aside, then apply a wood cleaner and either liquid or paste polish to clean and add a new wax coating.

4. Wash walls, cabinets, baseboards, and woodwork. The walls may not look as if they need a bath -- after all, dust and soot fall to the floor, right? Most of it does, but just enough clings to vertical surfaces to warrant a seasonal or preholiday bath. Use a sponge and hand dishwashing detergent, washing the surface in sections. A sponge mop makes it easier to reach higher spots. Use two buckets: one for dishwashing detergent solution and another for wringing your sponge. Dry the walls and woodwork with a clean cloth.

5. Vacuum with intelligence. The old rules mandated that you go through the labor-intensive task of dragging every stick of furniture off the carpet, just so the vacuum cleaner could cover every nook and cranny. The new rules will save you time, and you'll still get the corner-to-corner cleaning done: Simply move those big items a little to the left or to the right. Vacuum the area previously occupied by the furniture and then move it back into place.

6. Clean ceiling fixtures. Remove dust and dirt from ceiling fans and air-conditioner vents with a cloth and a vacuum with a soft nozzle attachment.

7. Clean your light fixtures. A few minutes with a stepladder, all-purpose cleaner, a sponge, and a polish cloth will give new light to your life. If your home has skylights or tall ceilings, consider investing in a stepladder and extended-reach dust-and-dirt-removal tools, all of which are available at your local hardware store and at home -- and janitorial -- supply stores.

8. Check your coils. You should clean the refrigerator's condenser coil, usually found behind the toe grille, with a long-handled bottle brush and a vacuum cleaner with an attachment hose to remove dust and lint. Built-up dust can shut down the unit by causing it to overheat.

To remove dust from coils attached to the hard-to-reach back side of the fridge, carefully pull the refrigerator out several feet (newer models roll on casters) and vacuum thoroughly; finish by sweeping or vacuuming the floor area you've revealed. Expect to rediscover coins, bottle caps, and twist ties that you and the cat knocked over the past year.

*Provided courtesy of Reader'sDigest.com

Save Energy and Money Today

Did you know that the typical U.S. family spends about $1,900 a year on home utility bills? Unfortunately, a large portion of that energy is wasted. And each year, electricity generated by fossil fuels for a single home puts more carbon dioxide into the air than two average cars. And as for the road, transportation accounts for 67% of all U.S. oil consumption. The good news is that there is a lot you can do to save energy and money at home and in your car. Start making small changes today (see sidebar). To cut your energy use up to 25%, see the Long-Term Savings Tips throughout this booklet.


The key to achieving these savings in your home is a whole-house energy efficiency plan. To take a whole-house approach, view your home as an energy system with interdependent parts. For example, your heating system is not just a furnace—it's a heat-delivery system that starts at the furnace and delivers heat throughout your home using a network of ducts. Even a top-of-the-line, energy-efficient furnace will waste a lot of fuel if the ducts, walls, attic, windows, and doors are not properly sealed and insulated. Taking a whole-house approach to saving energy ensures that dollars you invest to save energy are spent wisely.


Energy-efficient improvements not only make your home more comfortable, they can yield long-term financial rewards. Reduced utility bills more than make up for the higher price of energy-efficient appliances and improvements over their lifetimes. In addition, your home could bring in a higher price when you sell.


Tips to Save Energy Today
Easy low-cost and no-cost ways to save energy.

• Install a programmable thermostat to keep your house comfortably warm in the winter and comfortably cool in the summer.
• Use compact fluorescent light bulbs with the ENERGY STAR® label.
• Air dry dishes instead of using your dishwasher's drying cycle.
• Turn off your computer and monitor when not in use.
• Plug home electronics, such as TVs and DVD players, into power strips; turn the power strips off when the equipment is not in use (TVs and DVDs in standby mode still use several watts of power).
• Lower the thermostat on your hot water heater to 120°F.
• Take short showers instead of baths.
• Wash only full loads of dishes and clothes.
• Drive sensibly. Aggressive driving (speeding, rapid acceleration and braking) wastes gasoline.
• Look for the ENERGY STAR label on home appliances and products. ENERGY STAR products meet strict efficiency guidelines set by the U.S. Department of Energy and the Environmental Protection Agency.
• Visit http://www.energysavers.gov/ for more energy-saving ideas.

Provided Courtesy of The U.S. Department of Energy

Five ways to cut heating costs

Inman News

If you're thinking it's time to do something about your cold house and your high heating bills, here are five win-win suggestions that will help you do both.

1. REPLACE YOUR FURNACE FILTER
A clogged filter makes your furnace work harder to deliver the same amount of heat, which wastes energy by keeping the furnace on for a longer period in order to bring the house up to the requested temperature.

If you have a central heating system (used for heat only), replace the filter once a year, at the start of the heating season. If you have a heat pump or a furnace with central air conditioning, replace it twice a year, at the start of the heating season and at the start of the cooling season. While replacing the filter, always use a shop vacuum to clean up as much dust and debris within the filter cavity as you can reach.

2. INSTALL A PROGRAMMABLE THERMOSTAT
Programmable thermostats work a whole lot better than your memory. They give you the ability to have a lot more control over your heating and cooling systems, and they will add both convenience and energy savings by raising and lowering the heat at preset times so you don't have to remember to do it.

A programmable thermostat will bring the system on and shut it off based not only on temperature, but on time as well. For example, the thermostat can be programmed to turn on the heat to a certain level at 6 a.m. when you get up, and turn it down again at 8 a.m. when you leave for work. It can also be set for different cycles on different days of the week, and can be overridden with the touch of a single button to temporarily raise or lower the heat.

3. INSULATE DUCTWORK
Since the ducts are running through an unheated space, whether in your attic, crawlspace, basement or garage, duct insulation is a huge part of the system's ability to retain heated air within the ducts until it gets delivered into the house. All of the ducts in unheated spaces should be completely wrapped without any gaps, and the insulation should be of sufficient thickness to provide good insulating value -- typically around R-8, which is approximately 2 1/2 inches of fiberglass.

4. CLEAN WALL AND BASEBOARD HEATERS
As with a central furnace, it's very important that wall heaters and baseboard heaters be cleaned at the start of every heating season. Before cleaning, however, first try to minimize the potential for dust buildup in the heaters. This might be done by rearranging furniture, increasing fresh air in the room, or increasing air flow in front of the heaters.

To clean baseboard heaters, first shut off the circuit breaker that supplies power to the heater. To be certain you have the correct breaker, turn the thermostat up to high for 30 seconds or so and make sure that the heater does not come on. Remove the front cover and use a vacuum to clean out the inside of the heater, being careful not to damage the aluminum fins inside the heater. If you notice that the fins are bent, you can use a fin comb, available through many heating contractors and other retailers of heating equipment, to straighten them out again.

For wall heaters, shut off the circuit breaker for the heater, and verify that it's off as described above. Remove the screws that hold the grill in place, and remove the grill. Wash the grill in hot soapy water, dry it, and set it aside. You can then clean the inside of the heater using a vacuum, taking care not to touch the heating elements, or you can blow out dust using the blower side of your shop vacuum.

Note: Be sure to refer to the instruction book that came with the heater, or check with the manufacturer's Web site for specific cleaning instructions and safety precautions.

5. COVER AND WEATHERSTRIP ROOM AIR CONDITIONERS
If you have a room air conditioner that sits in a window or mounts into an opening in the exterior wall, they have the potential to leak a lot of air. If the air conditioner is in a window and is easy to remove, your best bet is to remove it, clean it and then store it for next summer.

If it's not easily removed, then examine the unit carefully to see if there is any daylight coming in around it. You can use foam tape, expandable spray foam or other weatherstripping materials to close up the gaps around the case. Finally, buy or build a cover that will slip over the unit from the outside and prevent cold air from coming through it and into the house.

Provided courtesy of Inman News and Yahoo.com

7 tips for surviving the credit crunch

1. Verify the status quo"Step one is to make sure that you do, in fact, still have the same terms that you had originally," says Ulzheimer. Check not only the interest rate on your account, he says, but the credit limit and the grace period. Issuers sometimes shorten grace periods on accounts that aren't generating much revenue.


2. Avoid 'atypical' activity Consumers spend in patterns, so any atypical moves could cause a drop in your credit score and attract scrutiny from your issuer, Ulzheimer cautions. "You don't want to all of a sudden start revolving a balance just for the heck of it because you want to put more money toward your 401(k) or put more money toward other investments or stick more money in savings. If you have the ability to continue to pay in full, it's probably a good idea to continue to do so."
Ditto multiple balance transfers and credit application sprees. Like someone passing a police car, you don't want to do anything that looks suspicious.


3. Keep up the good payment history Always pay on time, keep balances low and pay them off every month, if possible. The higher your balances, the riskier you look.



4. Don't neglect other bills Utility companies and other service providers sometimes report payment information to the credit-reporting companies, says Steven Katz, director of consumer communications for TransUnion's TrueCredit.com. An unpaid medical bill, for example, could wind up as a derogatory item on your credit report, bringing down your credit score.


5. Check your credit reports Make sure your credit reports contain accurate information, because inaccurate, derogatory marks could damage your credit scores. Pull a different report every four months from one of the three major credit-reporting agencies by going to http://www.bankrate.com/msn/news/cc/www.annualcreditreport.com. You're entitled to a free credit report from each bureau every 12 months.


6. Plan ahead if missing a payment If you know you're going to miss a payment, don't wait for a collector to call about the delinquent debt. Contact your issuer in advance to see if you can work out a payment plan.
Hardekopf advises calling your issuer to explain why you're going to miss a payment. Emphasize your good payment history and say that while you don't want to see your interest rate skyrocket, you aren't trying to skip out on the bill. Ask if a payment plan could be arranged.


7. Read 'junk mail' from your issuers People who don't open correspondence from their issuers may get rude surprises. According to the Truth in Lending Act, an issuer has to give only 15 days' advance written notice before taking an adverse action -- an undesirable change to the terms of your card agreement.

**Information provided courtesy of Bankrate.com