Buying Your First Home? Here's what you need to know.

First-time homebuyers stand to be the biggest group of winners in the current Phoenix housing market. They can essentially deduct $8,000 off the price tag for whatever home they choose to buy, in which the prices are already incredible, resulting in a tax credit from the government. They can even amend their 2008 return and get that money back right away.

In addition, prices are incredible and interest rates are very low. As a first-time buyer you typically don't have any contingencies either, such as selling your current home, making your offer much more likely to be accepted.

If you think you'll be in the same place for awhile, have steady income, and some money in savings for a down payment, now may be the time to consider buying.

Here are some frequently asked questions:

When should I talk to a mortgage loan officer?

Right away, before you even look at homes. Find out what you can not only afford, but qualify for. Go through the loan pre-approval process and obtain a Loan Status Report (LSR), which is required in the purchase contract to make an offer. It lets you know your max pricepoint and interest rate.

What info will the lender need?

2 years tax returns, one month pay stubs, several months of bank statements, and statements from any investment accounts you might own. You should also know info about your liabilities, student loans, credit cards, etc, mainly the balances and payments.

What kind of down payment am I looking at? Expect 3.5% for FHA financing.

How much cash do I need?

At the time of offer you will need to provide an earnest money deposit, typically 1% of the purchase price. It shows the seller you are a serious buyer. The earnest money is deducted from the closing costs and down payment due at closing. Closing costs tend to hover around 3% of the purchase price, but can range anywhere from about 2-5%. It's common to ask the seller to pay part of all of your closing costs, but there is no guarantee they will agree. Your home inspection will run about $250-350, and consider how much it will take to move, set up your new utilities, and whether you still owe rent on your current lease.

What is included in the mortgage payment?

Property taxes, mortgage insurance, principal and interest payment, and hazard/homeowner's insurance. The principal and interest goes towards the mortgage loan.

Do I need a real estate agent?

Yes. Agents can walk you through every step of the process. Buying a home is very complex, and you do not want to go through most likely the biggest purchase of your life alone. Agents can help you save time and energy by focusing your search based on your search parameters. They will help you understand the home inspection report, ask for repairs from the seller, and make sure the process is going smoothly. You should feel comfortable working with your agent, and never pressured. They should be able and willing to answer all of your questions and be straightforward when working with you all the way up to closing.

Do I pay them - if so, how?

Generally, your agent is compensated by the seller of the property, to the tune of 3% of the purchase price of the home. You usually do not have any out-of-pocket expense here.

What about using the agent that listed the property?

Strongly consider using a different agent. That agent primarily represents the seller and has an obligation to look after the seller's best interests, not that they wouldn't treat you fairly. Some buyers look for a discount in this arrangement, as the listing agent doesn't have to share the commission with a buyer's agent.

How do I know if I found the right home?

Go with your gut feeling and buy in a desirable location. Shoot for your non-negotiable items, and then go with your "wants" in a home. Think about your lifestyle and what areas would be conducive to a happy living environment for you.

What about short sales and foreclosures?

Can represent great bargains. Short sales take a longer than usual time to close on, typically several months in the works, assuming you can get it for the price you have offered. Bank-owned foreclosures are sold in "as-is" condition and require a degree of repairs.

What should I find out before buying?

Crime rates, school information, property values in the area. Talk to neighbors and get a feel for the area at different times of day.

What about a home inspection?

Get one. It's like insurance - you want to know everything about what you are buying before you buy, so there are no surprises after you close and it's too late. You have 10 calendar days to conduct a thorough home inspection. If there are significant issues you can cancel the contract and receive your full earnest deposit back, or ask the seller to repair the issues.

So the inspection period ends. Now what?

The focus shifts from the property condition & inspections to your loan. Finalize the mortgage paperwork with your lender to move towards full loan approval. Make sure you have funds available to easily make your down payment. If the seller agreed to repairs make sure they have been done during your final walk-through. Arrange to get utilities in your name, and be sure to line up homeowner's insurance.

What about delays?

Delays are becoming more common, as underwriters are taking longer to approve files, and are asking for more and more information from borrowers. Just when you think you're done, you'll be asked more questions and have to produce additional paperwork. It's frustrating - but those are the times we are in.

Closing day?

You'll go to the title company (a neutral party to your transaction) to sign a large number of documents. Bring your driver's license and plan for 1 hour. After the title company receives your down payment (must be certified funds, i.e. a wire transfer or cashier's check), closing costs, and funds from your lender, the deed is then recorded in your name and you own the home. At this point your agent will deliver the keys to you.

Buyers Pursue Cheap Foreclosures in Droves

Price levels are incredible, what other word can be used to describe what is happening? Lenders who have an abundance of inventory are selling homes at prices not seen in a decade. Investors, first-time buyers, retirees, and move-up buyers are taking full advantage. Deals can be found everywhere - from newer built homes on the valley's fringes to fixer-uppers in central Phoenix to Scottsdale luxury homes to old condos in Mesa.

Keep in mind foreclosures have their own set of issues: bidding wars (yes, they are back!), financing issues, repair costs. On the flip side the prices we are seeing were unthinkable just a few short years ago.

About half of available inventory is bank-owned homes or homes banks are fixing to take back. The number is expected to increase in the upcoming months.

How do you find foreclosures? Through a real estate agent and on most internet sites.

Before you buy, check out the neighborhood, especially the street the home sits on. How well is your desired home priced against the competition? Are there alot of empty homes? Check out the schools and road. Buy the ugliest home on the block.

A very hot segment of the market is in homes under $100,000, mainly found in the west valley, south Phoenix, and in Pinal County, areas that have been clobbered by the downturn..

Homes with the most physical damage and highest foreclosure rates with provide the most opportunity. Banks are not in the business of owning real estate, and they certainly don't want to pay for repairs, therefore they are going to discount the home accordingly.

Condition of foreclosures vary: every once in a while they are completely turnkey and ready to move in, but that is the exception rather than the rule. Some have been stripped of appliances, light fixtures, and even bathroom vanities.

For best results when dealing on the buying side, it's best to write "clean" offers without alot of contingencies or demands, i.e. that you must sell your home before you can buy this one. Banks would rather wait for another buyer to come along without holdups, and they are certainly drawing them out.

More and more buyers are using cash, as the ability to obtain financing has become immensely more difficult. 30% if sales in January were cash, up from 19% a year ago. For buyers that plan on occupying the home, FHA loans are available with 3.5% down payment. The program limit is currently $346,000. The house must be considered "livable", which means there cannot be broken windows, peeling paint, missing flooring, or mold, among other things. These loans typically do not provide for renovations, although there is a 203(k) loan which can accomplish this. With this type of loan the renovation expense is added onto the purchase price of the home.

Other financing help may be on its way. Arizona is supposed to receive $121 million next month, a portion of which will help buyers purchase foreclosure homes. This aid is coming from the Neighborhood Stabilization program through the federal government. The city of Phoenix plans to use a portion to give qualifying buyers $15,000 to cover down payment or closing cost assistance on buying a foreclosed home.

Investors have reentered the market in a big way. If bought right a home can be fixed up in 4-6 weeks and ready to resell as a profit. Be sure to keep an eye on other foreclosures, that you are not undercut.

Foreclosure prices have been a blessing for first-time buyers, who have previously been priced out of the market.

Last month, foreclosure sales climbed to about 70% of all valley resales, a figure that may alarm current homeowners.

The good news is that these homes must be fixed-up and resold, so better days lie ahead for everyone, as the market moves forward to recovery

Market update - March

Sales in February were up 16% over January, but the really big news is the number of pending sales: from February 1 to March 11 they went from 7,344 to 10,180. We are now seeing a continuing trend upward to pending sales in the valley. We are starting to see evidence of demand not seen since 2005.

This is a very positive development that recovery may be on the way. The vast majority of this demand is for bank-owned foreclosures, which are priced incredibly well in this market. Sellers of non-distressed properties and new home builders are seeing very little of this increased demand.

As in January a remarkable 68% of the homes sold through ARMLS in February were lender owned properties and another 10% were pre-foreclosures and/or short sales. The good news is that these percentages didn’t grow further, as they have done for many months. We seem to have reached a plateau in distressed sales volume.

Among active listings: 53% are normal, 24% are in pre-foreclosure and/or short sales, and 23% are already owned by a lender. This shows another movement away from lender owned properties and an increase in pre-foreclosure properties. This is mainly due to lender owned properties spending comparatively short times active, rather than a lack of lender owned properties hitting the market.

On a $/SF basis we are at an average of about $89 across the valley based on February’s ARMLS sales, which is down 53% from the peak of $189 reached in May 2006. Prices have fallen much less in those areas with few foreclosures and much more in some with higher than average foreclosures. The pricing of pending listings suggests a further average $/SF price reduction for sales in March of 4% to 7%.

The median sales price dropped from $130,000 in January to $125,000 in February. This was a much smaller decline than we saw in January. The lowest median prices are still to be found in West and Southwest Phoenix.

The increased demand is primarily for single family detached homes. Year to date sales of these are up 81% compared with 2008,