Publication Date: Wednesday, April 7, 2004

Find a home or freak out?
First-time home buyers have a lot to learn

by Elizabeth White

Brent and Michelle James weren't sure they could afford to buy a home. But at the urging of a family member, they found they were pre-approved for more money than they had anticipated and that the interest rates were at the right level: low.

The market decided for them.

"The whole thing kind of surprised us," Michelle James said. "We really thought it wasn't possible to buy a home."

Married just over two years, the couple rented in Redwood City before they moved near Castro Street in Mountain View to their new condominium last August. Both work at the Menlo Park Presbyterian Church, and they looked as far north as San Mateo and as far south as Mountain View. At one point, they visited 16 condos in one day.

"I think it was right on the brink of overwhelming," said Brent James. "It's always a scary thing when you make a certain amount and you're taking a look at basically signing your life away."

Compounding the anxiety surrounding a house purchase is the fact that most people, especially those going through it for the first time, don't know even the basics of financing a home with loans and mortgages, said Kristen Emery, of Princeton Capital Residential Mortgages, which specializes in residential financing.

"People do reading, but it's hard for them to pull the information together," she said. "What I find is people don't know where to start.

"You need to make sure you understand the risks and be comfortable with the monthly payments," she said. "People don't usually get scared off, but sometimes as we go through it they may decide it's not the right time for them."

Despite facing such a daunting situation, the Jameses decided the timing couldn't be better.

"The whole world of buying a home is like a whole other language," Michelle said. "But (Emery) spent a lot of time letting us ask questions. It was a matter of understanding all the different costs."

If the couple had locked in their interest rates one week later than they did, they might not have been able to buy at all. The week after they settled on the condo, interest rates went up .25 percent, Michelle said, a figure that would have added significantly to the couple's monthly payments.

"I think the thing is really taking a look at your budget and your finances because things constantly are changing," she said. "You don't want to later be having to visit somebody and be giving the house back. It is an exciting thing; it's just also scary."

But the fear that comes with buying a house is worth it, Brent said.

Emery holds twice-monthly free home-buying seminars to take potential home buyers through the ins and outs of financing a home purchase. "It's like any subject -- they have to keep being exposed to it," she said.

The finances are indeed one of the most challenging aspects to understand. Most people Emery meets, for example, don't know they'll likely have two different loans with two different interest rates and that they'll have to factor in Homeowner's Association dues each month.

Many also don't know there is a tax advantage to buying instead of renting -- because by buying homeowners can deduct the interest on the loans and their property taxes from their tax returns, Emery said. It is these complex issues Emery says may keep people from buying a house when they actually have the means and opportunity to do so.

The first step to buying is to get pre-qualified for a loan to set parameters on what a couple can and cannot afford. Once a house is found, likely with the help of an experienced real estate agent, then the financial officer, agent and the buyers coordinate activity with the sellers to transfer the funds and property. This process includes getting an appraisal, giving loan documents to escrow officers and setting up the actual transfer of the property from one party to another.

"They have to get comfortable with the money; that's the biggest thing," she said. "One thing is not to expect that they'll understand everything. Always ask questions, even it it's the same question over and over."

Elizabeth White may be reached at lwhite@paweekly.com.