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First-time buyers should act quickly to get tax credit

October 30, 2009

If you are a wannabe first-time home buyer with a relatively modest salary who could take advantage of the federal income tax credit of up to $8,000 for people in your position, then you'll need to act promptly before the window on this home-buying incentive closes on Dec. 1.

"In terms of home-buying, Dec. 1 is just around the corner and this is a tough corner to get around," said Merrill Ottwein, a real estate broker and former president of the National Association of Exclusive Buyer Agents (www.naeba.org).

He says prospective buyers should recognize that mortgages are harder to come by than before the recession began because lenders are now more cautious when processing mortgage applications.

For first-timers, as with all home buyers, the quest should be for a home that gives you the most for your money. This should be a place that not only suits your lifestyle, but also represents a solid investment for the future.

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"All buyers want the maximum bang for their buck. This is all the more important now with the real estate market going through a major period of transition. After all, you can't count on inflation to bail you out anymore," Ottwein said.

Here are several pointers for home buyers:

o Look to mortgage pre-approval as a timesaver.

Given the complexities of the current mortgage market, it's important that prospective home buyers make their first stop the office of a reputable lender. There they can gain mortgage "pre-approval," meaning the lender will give them a letter indicating the extent of their borrowing capacity.

Pre-approval is especially important because home buyers will need extra time to get their mortgage through before the federal tax credit is gone. For more information on this program, visit the Internal Revenue Service (www.irs.gov.)

Gaining mortgage pre-approval also helps ensure that you won't waste precious time visiting properties that are way over your affordability range, said Monte Helme, a former Century 21 executive and consultant to HouseHunt Inc. www.househunt.com

o Seek out the most popular neighborhood in your price range.

For home buyers with limited financial resources, the good news is that recession-era pricing has brought many prime neighborhoods within their reach. Therefore, Ottwein suggests you check out these communities first.

Even if you can capture an extremely low price, buying in a weak neighborhood could be the equivalent of buying false gold, according to Ottwein.

o Watch for "red flags" indicating an area could be in descent.

Obviously, strong public schools and attractive recreational amenities make a neighborhood more attractive. But other signs of strength may be more subtle.

When searching for what the real estate industry calls a "cherry neighborhood," scratch from your list communities that lack access to good public transit. Also, avoid areas with lots of cut-through traffic or ones located alongside major highways.

Ottwein also cautions against communities that are framed by buildings that look blighted. For example, you wouldn't want to invest your scarce resources in a home near stores that have gone under.

o Concentrate on the selection of the best possible home for the money.

Once you've zeroed in on the choicest neighborhood you can afford, it's time to pinpoint the ideal home within that community.

Buying with the prospect of future appreciation in mind isn't necessarily about choosing the most sumptuous home in the neighborhood. In fact, you're probably better off buying a small to average-sized house in a coveted community, according to Ottwein.

As Ottwein said, it should have an easy-to-navigate floor plan and an eat-in kitchen. Also, if feasible, it should also have a minimum of three bedrooms and a garage suitable for one to two cars.

He said the property doesn't need a fourth bedroom or high-end "professional" appliances in the kitchen. Also, you won't need an extra-large lot.

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