Get Smart About Real Estate: Eric Tyson

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NOBODY LIKES TO be called a dummy. But the authors of "Home Buying for Dummies" would probably be the first to tell you it's better to admit when you're a little clueless about the real estate market than to later be saddled with debt because you bought a place you couldn't really afford.

"No one is born knowing how to buy a home," write Eric Tyson and Ray Brown, the co-authors of "Home Buying" ($22, Wiley), which was released in its fourth edition this spring. They encourage buyers — especially first-timers — to take a holistic approach to shopping for a new pad. Consider how buying real estate will impact every aspect of your life, from your weekly latte budget to your commute to work, the authors advise.

In light of the recent changes in the home-buying market, such as tightened rules for lenders and falling home values, a cautious approach seems particularly smart. But Tyson says he and Brown have been preaching patience all along.

"We're proud of the fact that since the first edition of the book, we've counseled people to save a decent down payment amount and not take on risky mortgages and loans," says Tyson, whose Web site, Erictyson.com, covers financial and housing news. "You've got to look at your overall personal financial situation, and get that in order first."

We asked Tyson to share more of his must-know tips for newbies.

» EXPRESS: Everyone's saying it's not as easy to buy a home today as it was in the past. Can you explain why?
» TYSON: There's certainly more of a supply of homes to choose from today. When people talk about the difficulty, they're referring to the financing end of it. If you don't have a high credit score and you don't have enough money saved for a down payment, you are going to have a tougher time finding affordable financing.
But people need to keep in perspective that despite the fact that real estate in most parts of country has declined in value by a fair amount, real estate is still a good long-term investment — that has not changed. Because prices have come down and interest rates are so low, housing is the most affordable it's been in a long time.

» EXPRESS: Are there people who shouldn't buy a home?
» TYSON: There are people who are better off renting. One example is someone who can't foresee staying put for several years. Maybe they've got an unstable job situation or they expect their family circumstances to change. They should see themselves staying put for at least three, and preferably five, years before they decide to buy a home.

It's a lifestyle thing. If you're at the point in your life where you don't want the hassles of keeping up a home, it might be better to rent.

» EXPRESS: How does a novice know what price range to shop within?
» TYSON: Historically, people have relied on mortgage people and real estate people to decide that for them. That's a mistake. We say in the book: Mortgage lenders and real estate agents can't tell you how much you can afford to borrow. They can only tell you the maximum. You've got to look at where you're spending your money and how much you're spending, and then how much that's going to change.

[You should say:] "Given my financial goals, how much should I be saving?" Maybe you're trying to save for your kids' college [education]. You've got to look at that whole picture before you decide how much you can afford to spend on a home.

The reason [lenders] don't [consider those other financial obligations] is that they'll ask you, "How much money are you earning?" And then they'll tell you, "You can afford to buy a $300,000 house." But what they're really telling you is, based on their lending criteria, that's the maximum amount you can borrow.

» EXPRESS: That seems like a potential pitfall for a lot of buyers.
» TYSON: It's common sense, but many people who are involved in real estate transactions have a vested interest [in your purchase].

» EXPRESS: What are the most important steps a first-timer should take before putting in a serious offer on a home?
» TYSON: Get your finances in order. We talk a lot in the book about getting pre-approved. Find a mortgage lender and have them pre-approve you to borrow a certain amount of money before you put in an offer. That will strengthen your position as a buyer because it will show the seller that you're serious and qualified.

You also want to do your homework and find good professionals to work with.

» EXPRESS: What's involved in finding a good real estate agent?
» TYSON: Some of it comes down to chemistry: You're comfortable with the [real estate agent] and they're comfortable with what they're telling you. Find out whether or not this person is an agent on a full-time or part-time basis. What is their experience or track record? When you're interviewing an agent, find out the transactions they've been involved in.

Ideally, you'd like to find an agent who has worked with a lot of people in similar situations to yours. If you're looking for a [mid-range] townhouse in a middle-income community, you probably aren't going to get good service from an agent who is used to selling million-dollar homes in a high-income community.

» EXPRESS: What are some common mistakes first-time buyers often encounter, and how can they avoid them?
» TYSON: People have a hard time thinking ahead three to five years. They want to buy a house now, based on their current circumstances. Of course, you can't buy a house today that's going to meet your needs forever. But it's useful to think ahead three to five years, and think of what's going to be important to you then.

Also, people don't do enough inspections. Considering how much money you're spending on a property, you want to make sure it's in good condition and in working order. Once you buy a property, it's yours. You want to know what you're getting yourself into.

» EXPRESS: So, you scrimped and saved to pay a down payment and the place is finally yours. What now?
» TYSON: Once you move in, you definitely want to make sure that you're staying on top of your finances. A lot of times, you'll get in and realize, "We need more furniture to fill up these rooms," or, "We need to work on the yard."
It's easy to spend money when you've just bought a home, but be careful you don't wrack up a huge amount of credit-card debt.

Photos by Saul Loeb/AFP/Getty Images, courtesy Dehart & Company