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Using gift money for your downpayment? Here's what you need to know!

10 tips for first-time homebuyers

First-time homebuyers are crucial to healthy housing markets because they enable existing homeowners to sell their current home and purchase another one. That means if you're a first-time buyer thinking about buying a home, you're important -- someone who owns a home can't sell it without you.

With that in mind, here are 10 tips to help you achieve your goal of homeownership:

No. 1: Get preapproved

Sellers typically won't accept your offer unless it's all cash or you have a lender's letter saying you can get the financing you need to close the deal. Consequently, being preapproved for a loan is crucial, says Matt Phipps, a Realtor at Phipps Real Estate in East Greenwich, Rhode Island.

"You don't want to lose the house of your dreams because you weren't preapproved for the mortgage," Phipps says.

HSH.com's preapproval guide: Everything you need to know about mortgage preapproval

No. 2: Target your territory

Every town has pros and cons, but casting too wide a net can make you crazy, Phipps says. Decide where you want to live and focus on those areas.

"Do some drive-bys and make sure you like the setting of the house before seeing the property," he suggests.

No. 3: Prioritize your preferences

Make a list of what's important to you and your family, whether it is location, condition, price or certain amenities, and be prepared to make sacrifices.

"You're not going to find the absolutely most perfect house," Phipps say. "If you get eight of 10 things you've prioritized, you've done very well."

No. 4: Know your budget

Rather than guessing how much you can borrow or how much your closing costs will be, discuss specific numbers with a reputable mortgage lender or broker.

"Meet with the lender and get an idea of exactly how much you're preapproved for," Phipps advises. "You want to have that conversation so you know where you stand."

No. 5: Be realistic

Shopping for a house that's more costly than your budget is likely to mean disappointment since most sellers receive multiple offers equal to or higher than their asking price, says Ken Pozek, a Realtor at Keller Williams Realty in Novi, Michigan. If you're preapproved for, say, $270,000, don't ask to see homes priced higher than that.

No. 6: Act fast

Homes are selling quickly in many areas due to limited inventory. That means you should check out any newly for-sale properties that interest you as soon as possible. If a house is listed Monday, don't wait until Saturday to see it, Pozek says. It could be sold by then.

No. 7: Don't play price games

Some first-time homebuyers try to sweeten their offer with a higher price, then recoup the money in seller-paid closing costs, repair credits or other concessions. Pozek says that's not smart because if the appraisal doesn't support that higher price, you won't be able to get your financing.

"It's hard to say, 'We'll give them more than asking, then ask for concessions,'" he explains.

No. 8: Pay closing costs

Asking the seller to pay your closing costs will weaken your offer and lessen your chances of success, says Jan Baron, a Realtor at Realty One Group in Temecula, California.

"All the sellers care about is their net. If you ask for 3 percent closing, that's 3 percent out of the seller's pocket," she says.

No. 9: Accept defects

The same logic applies to asking the seller to pay for repairs, unless you're applying for an FHA loan or VA loan.

"If it's an FHA or VA loan, you pretty much don't have a choice about asking for repairs if something is a safety concern, or if there are missing appliances, they have to have those replaced," says Baron. "But don't ask for the moon."

No. 10: Get educated

Being well-informed about the local housing market -- including knowing the prices of recently sold homes, taxes, the school district, etc. -- can give you an advantage over experienced buyers who are out of touch with the trends.

"First-time buyers are very savvy and sophisticated about what's going on," Baron says, "whereas someone who has been around a long time -- they think they know it all."

The bottom line is that purchasing a house today is "challenging," to use Pozek's word, for first-timers. But don't be discouraged. Follow these tips and you'll have a greater chance of securing the home you want.

More help from HSH.com

  • Home appraisal tips for sellers

    Both buyers and sellers have something at stake in the home appraisal process; see how sellers can be prepared to succeed.
  • Using gift money for your down payment

    If you're lucky enough to receive a gift for your down payment on a home, you'll need a mortgage gift letter to properly qualify for your mortgage loan.
  • Prepaid items vs. closing costs--what's the difference?

    Mortgage closing disclosures can be confusing. Having a better understanding of what the prepaid items are as compared to the closing costs can help ensure a smooth mortgage closing.
  • How to prepare for a closing on a house

    First-time homebuyers often approach their settlement date with both excitement and a flutter of nerves. Here's what to do and bring to smoothly reach the finish line of the homebuying process.
  • Preparing to buy a home: Saving for down payment

    To kick off the traditional home shopping season, HSH.com is presenting a series of articles entitled "Preparing to Buy." This is the first in the series and covers saving for the down payment on your home.

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