Eric Tyson is a personal finance writer, lecturer, and former management consultant to Fortune 500 financial service firms.
Ray Brown is a real estate professional with over four decades of hands-on experience and a public speaker on residential real estate topics.

Introduction 1

About This Book: The Eric Tyson/Ray Brown Difference 2

Icons Used in This Book 2

Beyond the Book 3

Where to Go from Here 4

Part 1: Getting Started With Buying A Home 5

Chapter 1: Deciding Whether to Buy 7

Weighing the Advantages of Owning versus Renting 8

Ownership advantages 9

Renting advantages 14

The Pitfalls of the Rent-versus-Buy Decision 16

Renting because it seems cheaper 16

Fretting too much over job security 16

Buying when you expect to move soon 17

Succumbing to pushy salespeople 17

Ignoring logistics 17

Overbuying 18

Underbuying 18

Buying because it’s a grown-up thing to do 19

Buying because you’re afraid that escalating prices will lock you out 19

Misunderstanding what you can afford 20

Chapter 2: Getting Your Financial House in Order 21

Surveying Your Spending 22

Gathering the data 22

Analyzing your spending numbers 27

Reckoning Your Savings Requirements 28

Setting some goals 28

Retirement-savings accounts and a dilemma 29

Other reasons to save 31

Protecting Yourself, Your Dependents, and Your Assets 32

Insuring yourself 33

Insuring your assets 34

Invest in Yourself 36

Chapter 3: What Can You Afford to Buy? 37

Lenders Can’t Tell You What You Can Afford 38

The Cost of Buying and Owning a Home 39

Mortgage payments 39

Property taxes 48

Insurance 49

Maintenance and other costs 50

The tax benefits of homeownership 51

Closing Costs 54

Accumulating the Down Payment 57

The 20 percent solution 57

Ways to buy with less money down 58

Where to invest the down payment 60

Chapter 4: Why Home Prices Rise and Fall 67

What Drives Real Estate Markets and Prices? 68

Jobs, glorious jobs 70

Available housing 71

Inventory of homes for sale and actual sales 72

The rental market 74

Tax rules and changes 75

How to Get a Good Buy in Any Market 76

Seek hidden opportunities to add value 77

Buy when others are scared to buy 78

Find a motivated seller 78

Buy during slow periods 79

Become a great negotiator 80

Buy in a good neighborhood 80

Part 2: Financing 101 81

Chapter 5: Understanding and Improving Your Credit Score 83

The Record You Can’t Ignore: Your Credit Report 84

What your credit history comprises 84

What goes into your credit report 85

Why you should check your credit report 85

The Most Popular Kid on the Block: FICO Scores 86

How scores work — the short version 87

How a FICO score assesses your credit history —the long version 88

What FICO scores ignore 95

Why your score is what it is 96

Getting Hold of Your Report and Score 96

Chapter 6: Selecting a Mortgage 99

Getting a Grasp on Mortgage Basics 99

Fixed or Adjustable? That Is the Interest(ing) Question 100

Distinguishing fixed-rate mortgages from adjustables 100

Looking at hybrid loans 102

Starting out risky: Interest-only mortgages 102

Making the fixed/adjustable decision 104

Deciding on your loan’s life: 15 years or 30? 109

Finding a Fixed-Rate Mortgage 111

The all-important interest rate 111

The finer points of points 112

Other lender fees 114

Arriving at the Absolute Best Adjustable 115

Where an ARM’s interest rate comes from 116

How often does the interest rate adjust? 118

Limits on interest-rate adjustments 118

Locating the Best, Lowest-Cost Lenders 120

Shopping on your own 120

Working with a mortgage broker 123

Chapter 7: Mortgage Quandaries, Conundrums, and Forms 129

Overcoming Common Mortgage Problems 129

Insufficient income 130

Debt and credit problems 130

Dealing with Appraisal Problems 133

You’ve overpaid 134

The appraiser doesn’t know your area 134

The appraiser/lender is sandbagging you 135

Those Darn Mortgage Forms 135

The laundry list of required documents 136

Permissions to inspect your finances 139

The Uniform Residential Loan Application 140

I Borrower information 142

II Financial information — Assets and liabilities 145

III Financial information — Real estate 147

IV Loan and property information 148

V Declarations 149

VI Acknowledgments and agreements 150

VII Demographic information 152

Other typical documents 152

Part 3: Property, Players, And Prices 155

Chapter 8: Where and What to Buy 157

Location, Location, Value 159

Characteristics of good neighborhoods 160

Selecting your best neighborhood 161

Fundamental Principles for Selecting Your Home 163

The principle of progression: Why to buy one of the cheaper homes on the block 163

The principle of regression: Why not to buy the most expensive house on the block 165

The principle of conformity: Why unusual is usually costly 166

Defining Home Sweet Home 167

Detached residences 167

Attached residences 173

Finding a Great Deal 183

Finding a fixer-upper 183

Taking over a foreclosure 187

Seeking a short sale 190

Pooling Your Resources: Ad Hoc Partnerships 193

Types of residential co-ownership 193

Structuring a successful co-ownership 195

Chapter 9: Assembling an All-Star Real Estate Team 197

The Team Concept 198

Lining up the players 198

Avoiding gratuitous advice 199

Reeling in a Real Estate Agent 200

Types of agent relationships 201

How agents get paid 204

Characteristics of good agents 205

Selecting your agent 207

Getting the most from your agent 215

Bagging a Broker 217

Landing a Lender 219

Procuring Property Inspectors 219

Electing an Escrow Officer 220

Finding (or Forgoing) Financial and Tax Advisors 221

Looking for Lawyers 223

Selecting your lawyer 224

Getting the most out of a lawyer 225

Chapter 10: What’s It Worth? 227

Preparing to Tour an Endless Parade of Homes 227

The Three Elusive Components of Worth 228

Value is a moving target 229

Cost is yesterday 229

Price is what it’s worth today 231

Fair Market Value 232

When fair market value isn’t fair — need-based pricing 232

Median home prices versus fair market value 234

Determining Fair Market Value: Comparable Market Analysis 235

The basics of a helpful CMA 236

The flaws of CMAs 240

Getting a Second Opinion: Appraisals versus CMAs 242

Why Buyers and Sellers Often Start Far Apart 243

Inept agents 245

Unrealistic sellers 246

Chapter 11: Tapping the Internet’s Best Resources 247

Finding Useful Information 248

Get your feet wet at Realtor.com 248

Discover more at these sites 248

Doing Some Preliminary Shopping 249

Surveying homes for sale 250

Watching out for sites promoting foreclosures 250

Sifting through school information 252

Perusing “best places” to live 252

Familiarizing yourself with financing options 253

The Drawbacks of Searching for Houses in Cyberspace 254

Conflicts of interest 254

Bankruptcies 254

Misleading home-valuation tools 255

Untrustworthy mortgage calculators 255

Part 4: Making The Deal 257

Chapter 12: Negotiating Your Best Deal 259

Understanding and Coping with Your Emotions 260

Examining the violent forces at work 260

Controlling yourself 261

The Art of Negotiating 263

Being realistic 264

Examining your negotiating style 265

Negotiating with finesse 267

The Negotiating Process 269

Making an offer to purchase 269

Leaving an escape hatch: Contingencies 271

Getting a counteroffer 272

The Finer Points of Negotiating 275

Negotiating when the playing field isn’t level 275

Spotting fake sellers 277

Lowballing 280

Negotiating credits in escrow 283

Chapter 13: Inspecting and Protecting Your Home 287

Conducting Thorough Inspections 288

All properties should be inspected 288

The two types of defects: Patent and latent 290

Patent defect red flags 290

Types of property inspections 291

Inspecting inspectors 293

Insuring Your Home 299

Homeowners insurance 300

Title insurance 302

Chapter 14: It Ain’t Over till the Weight-Challenged Escrow Officer Sings 309

An Escrow Is a Good Thing 310

Know thy escrow officer 310

Cover all the bases 311

’Tis the season: December escrows 315

Follow through 317

How You Take Title Is Vital 318

Joint tenancy 318

Community property 319

Tenants-in-common 319

Getting help drafting an agreement 319

Getting Possessive 320

Moving day 320

Final verification of condition 322

Coping with Buyer’s Remorse 322

Part 5: The Part Of Tens 325

Chapter 15: Ten Financial “To Do’s” After You Buy 327

Stay on Top of Your Spending and Saving 328

Consider Electronic Mortgage Payments 328

Rebuild Your Emergency Reserve 329

Ignore Solicitations for Mortgage Insurance 329

Ignore Solicitations for Faster Payoff 330

Consider Protesting Your Tax Assessment 331

Refinance if Interest Rates Fall 331

Keep Receipts for All Improvements 332

Ignore Solicitations to Homestead 333

Take Time to Smell the Roses 333

Chapter 16: Ten Things to Know When Investing in Real Estate 335

Real Estate Is a Solid Long-Term Investment 336

Real Estate Investing Isn’t for Everyone 336

REITs Are Good if You Loathe Being a Landlord 337

Don’t Invest in Limited Partnerships 337

Avoid Timeshare Condos and Vacation Homes 338

Residential Properties Are Your Best Investment Option 339

Consider Fixer-Upper Income Property 339

Consider Converting Small Apartment Buildings to Condos 340

Consider the Property’s Cash Flow 340

Your Rental Losses Are Limited for Tax Purposes 341

Chapter 17: Ten Things to Consider When Selling Your House 343

Why Are You Selling? 344

Can You Afford to Buy the Next Home? 344

What’s It Worth? 345

Have You Done Your Homework to Find a Good Real Estate Agent? 345

Do You Have the Skills to Sell the House Yourself? 346

Have You Properly Prepared the House for Sale? 347

Do You Understand the House’s Hot Buttons? 348

What Are the Financial Ramifications of Selling? 348

Do You Know the Rules for Capital-Gains Taxes

on the Sale of a House? 348

Part 6: Appendixes 351

Appendix A: Sample Real Estate Purchase Contract 353

Appendix B: Sample Short-Sale Addendum plus Short-Sale Information and Advisory 365

Appendix C: Example of a Good Inspection Report 373

Appendix D: Glossary 393

Index 411

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