Advice for First-Time Homebuyers

With a current real estate market that's unpredictable, what's in store for would-be buyers or those thinking about selling? The Post's special feature, Property Values: The Market & You, helps forecast what to expect in the coming months.

Ilona Bray, Alayna Schroeder and Marcia Stewart, authors of "NOLO's Essential Guide to Buying Your First Home" (NOLO Press, 2007), offer advice to those looking to purchase a first home.

Bray is an attorney, author and legal editor at NOLO, who specializes in real estate, immigration law and nonprofit fundraising. She has a law degree and a master's degree in East Asian studies from the University of Washington. Schroeder is an editor at NOLO and specializes in real estate and employment law. She has a law degree from the University of California, Hastings College of Law. Stewart is the author of several other NOLO real estate books, including "Every Landlord's Legal Guide" and "Every Tenant's Legal Guide."

For more on local real estate, visit washingtonpost.com's Real Estate section.

The transcript follows.

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Alexandria, Va.: There's a condo conversion in my neighborhood that's having a closeout auction at the end of the month to sell the last 30 units. I had it on my list to check out, but I don't know what to think of the auction. I think the condo has about 350-400 units overall, and it looks like the min. auction price is about $100,000 below the latest tax assessments. How common are these auctions? Is this a good opportunity for a novice buyer?

Ilona Bray: Greetings -- I take it you're the potential novice buyer? Looking around your own neighborhood for opportunities is a great way to get into the market, because you already know the pluses and minuses of the area, and -- I hope -- that you want to live there.

As for the condo conversion, auctions are becoming a more common way for sellers to attract buyers. Everyone loves a bargain! The fact that they're calling this a closeout and setting low minimum bids is a pretty clear sign that they're having trouble selling and are willing to settle for less than they'd originally hoped for, just to reduce their carrying costs.

Of course, you'll want to find out why the units haven't sold yet. Yes, the real estate market has softened nationwide, but some local areas remain in high demand, so you can't necessarily chalk slow sales up to the nationwide situation.

Find out things like the condition of the building, how many of the other buyers plan to live there as opposed to rent (buildings with many renters tend to be less well maintained, how much similar condos in your area sell for now, and whether condos in your area have appreciated in price at a healthy rate in recent years (a real estate agent can help you with this information, or go to www.zillow.com to check prices).

Also make sure to read the community rules, which will be in a document often called the Covenants, Conditions, and Restrictions, or CC&Rs. These can limit your freedom to do everything from keeping a pet to putting up a laundry line -- and if you can't live with the rules, the place is no bargain at any price. Best of luck!

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Southern Maryland: We purchased our home years ago.

BUT BEFORE WE WERE READY TO BUY. I read the Real Estate Section in the Post for months. I went to open houses in a lot of neighborhoods and looked at the utilities bills. I checked out books on homebuying from the library. I talked to and found a real estate agent I trusted and liked her work ethic. I talked to homeowners about the maintenance costs of a house. We figured out deal breakers for us, e.g. sidewalks. I drove thru neighborhoods I liked for months to see how the homeowners lived and maintained homes. We got rid of credit card debt. We saved money for a downpayment. We found a home inspector. We looked at homes as a place we wanted to stay, live and grow for 10 years not an investment.

One year later, when we were ready to buy a home, we were educated homebuyers and knew exactly where we wanted to live. We did not buy the most house we could afford and we got a fixed rate mortgage. Good thing we did because the heat pump went out 18 months later. Stuff happens.

Homeownership is great, but so are the responsiblities.

Marcia Stewart: Congratulations! You sound like an incredibly educated homebuyer. Yes, stuff happens and probably a lot more would have happened to your house, your mortgage, and your santity (bad neighbors!) had you been less diligent before you bought. Many homebuyers can avoid problems by following your lead. Checking out the physical condition of the house is especially important (although an inspector still might not be able to predict that your heat pump would go out a year and a half later). When you're figuring out much house you can afford and choosing a mortgage, be sure to factor in some costs for unexpected repairs such as a heat pump. And there's a lot of legwork you can do yourself and doesn't involve hiring a professional. Getting to know the neighborhood and neighbors is always useful: Does the major street leading to the neighborhood become a noisy parking lot during rush hours? How long have people lived in the neighborhood? Are the schools really as good as you've heard? What's the neighborhood like at night? Doing your homework can make a tremendous difference between a great home and a terrible one.

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Olney, Md.: Last year I tried to purchase my first home and became so incredibly frustrated by sellers their aversion for telling the truth about their properties, lenders who wanted to empty my bank account, and real estate agents trying to play both sides of the fence that I gave up and decided to rent for two years.

How does a new homebuyer protect themselves from the vipers? I would be perfectly content to rent the rest of my life if this is the climate that first time buyers like me will have to deal with ... and now that the market has cooled, is it saner for first timers like me?

Marcia Stewart: Don't give up! You can protect yourself by taking your time and choosing the right housebuying team to support your efforts. Your real estate agent is the most important member of your team. Interview three or four real estate agents (start with recommendations from friends and relatives. Look for someone who will focus on your needs, knows the neighborhood and types of properties that interest you, understands your financing needs, and has the time and experience to handle all the day-to-day tasks involved with buying a home. Do your homework, too, when shopping mortgages--whether you work with a mortgage broker or go directly to a bank or other commercial lender. And a top-notch property inspector is crucial to help make sure you get what you pay--namely, that a house is as good a condition as it appears to be. Our book (Nolo's Essential Guide to Buying Your First Home) has detailed advice and interview questions for hiring and working with real estate agents, mortgage brokers, property agents, and other professionals such as real estate attorneys and closing agents. It's also very encouraging and should help with all aspects of your first-time homebuying experience.

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As-is sales: What if I'm willing to walk away with less cash (I bought before the big boom, so am likely to make a profit) just to avoid making a whole bunch of improvements? Or, rather, in this environment, is the only way to get a sale staging the property, etc.? FYI: It's not in bad shape (new rook, new windows, new systems, great curb appeal), I'm just all sweated out on the sweat equity.

Marcia Stewart: There's a lot you can do to add value that won't break the bank (or your back). Painting is relatively cheap (especially if you do it yourself). Check out similar homes for sale for creative ideas, especially for the kitchen and bathrooms. If you don't want to pay a professional stager, get help from a friend whose taste you admire or check out some of the many books on the subject of staging. If you do end up hiring a stager, be sure to check references and the stager's experience with homes like yours. Someone who's great with an older Georgetown home might not be as skilled staging your new Fairfax condo. And depending on the market, there are many reasonably-priced improvements that make the house more accessible for seniors (called universal design) that can pay off even more than staging. The AARP website (http://www.aarp.org/families/home_design/rate_home) has some useful checklists to help you figure out whether your bathroom, kitchen, and other areas of a house make the grade. Good luck!

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Silver Spring, Md.: I just started working for the federal government and my salary is just under $34,000. Would I be able to afford anything decent on such a low salary?

Alayna Schroeder: A lot of buyers are asking that same question, and it's a tough one. You're really in the planning stages, but try to think about the opportunities and not just the challenges. You may be able to start with something small, help pay your mortgage by renting a room out, buy with someone else in the same financial boat, borrow from a family member, or buy for less in a transitional neighborhood or a little further from the city center. Do see where I'm going with this? There are options, but you may have to be a little creative.

Also, get to know your budget. You may have heard that most lenders will allow you to spend about 36% of your gross income on debt payments; usually, about 28% is for housing debt (principal, interest, taxes, and insurance) alone. I don't know what your other debts are, though, so if you have more debts you might have less to spend monthly, and if you have fewer debts, you might have more to spend. There are other important factors affecting how much you can borrow, like your credit history and the size of your down payment. Of course, you'll want to take your lifestyle into account-for some people, the trade off isn't worth the cost. And remember, things change-your salary will likely go up, your priorities might be different in a few years. It may be that now isn't the right time to buy, but it doesn't mean you'll never be able to afford a place.

Finally, find out what selling prices are in the neighborhoods you're interested in. You can get this online (on the Washington Post website, search for "Property Values and Recent Sales"). With more information about yourself and the price of housing in the market you're interested in, you'll have a better sense of whether you can afford something "decent." Of course, decent is relative.

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Arlington, Va.: My home inspection found some window problems: one missing window pane; a few missing storm windows; a couple cracked panes. Perhaps more serious, two double hung windows that are very old (the original 1925 windows), not in great shape, and will most likely have to be replaced. Can you give me some guidance on how much money I should ask from the seller to fix and/or replace the windows?

Marcia Stewart: You're lucky if the windows are the only problem (although I know how expensive it is to replace older windows. It's definitely worth asking for the seller to cover the costs of window repairs or replacements--but get some price quotes first. How firmly you want to stick to your request depends on many factors, such as how much you've offered (relative to the asking price), the competition for the house, how motivated the seller is to sell, what other repairs you're negotiating, and your general sense of how willing the seller is to negotiate. Your real estate agent can help you balance these various considerations.

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Alayna Schroeder: Hi Everyone! Sorry we skipped our introduction--we're just so anxious to answer as many questions as we can! So far, we're seeing that many of you have great questions about what to do in the current real estate market. With all three of us furiously typing, we hope to get to most of your inquiries today.

"Three of you?" Yep, that's right: three cooks in the kitchen. Together, we're authors of Nolo's Essential Guide to Buying Your First Home. Hopefully, that means you'll get three different--but helpful--perspectives!

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Arlington, Va.: I'm in my late-20s making a decent salary but have only recently begun aggresively saving for a downpayment. With Arlington condo prices as high as they are it will probably be another three to four years before I've saved enough. I feel like the media/peers are telling me that I'm financially doomed because I don't already own a house. It's OK to do this the old-fashioned way and rent/save for several years until you can actually afford to buy without a crazy teaser mortgage right?

Alayna Schroeder: It does seem like people are looking for quicker alternatives than the traditional 20% down, 80% financing strategy that used to be pretty common. It's prudent to set money aside for a down payment, and with tightening lending criteria, it also makes it more likely that you'll get a loan. Pat yourself on the back for even thinking about it-you're way ahead of many of your peers.

I can't promise you, though, that you'll be able to afford a home in 3 or 4 years, so I'm going to explain the rationale from the other side. (I'm going to simplify the numbers for ease.) Let's say you're looking at a condo that costs $100,000 now. You decide to save 20% for a downpayment, or $20,000. Four years later, the condo is worth $200,000. Your $20,000 down payment is now only 10% of the purchase price, and you've lost out on the appreciation in the meantime. You'll have to qualify for a bigger mortgage, too.

I'm not saying this is where home values will go, or that you should buy now. But I do think it's worth your while to understand what's available, what level of risk you're comfortable with, and what your budget allows. Keep in mind that there are many options beyond "crazy teaser mortgages" that aren't 30 year, fixed-rate mortgages. I think if you educate yourself about these different options and understand values in the market you're in, you'll be able to make a more informed choice about the right time to buy.

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Bethesda, Md.: Thinking about buying a townhouse or a small house after eight years of renting a small effiency. Most experts have said to wait a year until the market adjusts itself. I know the area that I want to buy in, should I wait? How much of a downpayment should I save?

Alayna Schroeder: I think many experts will agree that timing the market is a tough thing to do. It's hard to know where prices will go. Are you hoping to wait for rock bottom? You'll only know what that when you see it in your rearview mirror. There are certainly indicators that most markets in the U.S. are going to remain sluggish for awhile, but there are no guarantees.

Also, your house isn't just an investment, it's also a home. If you're planning on staying in it for awhile-and it sounds like you have staying power-you're likely to see prices rise eventually. In the meantime, the advantage of a slow market is motivated sellers and lots of properties to choose from, so it may be something you want to at least explore. At very least, there's no harm in seeing what's out there, or looking for professionals to help you with the process if you decide to go for it.

Your question about the down payment suggests that you don't plan on buying right away, though. There are no rules about how much you should save, though it's now much harder to get 100% financing than it once was (though not impossible). The more you have set aside, the lower your monthly mortgage payment will be. Alternatively, you can use a bigger down payment to increase your buying power.

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The American "Dream": I always laugh when someone says that home ownership is living the American "Dream." I bought a home as a single 30 year old. It was miserable. I was so broke since I had to repair many things, my wonderful boyfriend (and now my hubbie) spent every weekend renovating it with me and I had to mow the lawn when he was not there.

The tax advantages, while "nice" are not even remotely worth the payout. My husband spent close to $10,000 on interest one year on his home and he got 3500k back. So what?

The only advantage for me was ego related in that people were generally impressed that I was not living in an apartment and were impressed by my zip code. I knew better. I had alot more savings while I lived in my apartment.

My advice -- if you are a single woman -- don't bother unless you dont want to marry or live an alternative lifestyle.

Alayna Schroeder: I think your experience is a good reminder: homeownership isn't for everyone, and you should know what you're getting into before you do it. Sounds like you and your husband are much happier without the hassle of a high maintenance place.

I'm not sure what you mean by "alternative lifestyle," but I will say that considering different options makes homeownership workable for many people who don't want to mow lawns or spend time on repairs, including single women (a very fast-growing segment of the homebuying population). For some, the "American Dream" isn't a white picket fence anymore; it might be a condo in a brand new high rise.

I also understand the limited value of the interest deduction, but keep in mind the money spent on paying interest would otherwise have been spent on rent. Getting that deduction starts to look better and better when you look at it that way. Also, in most cases, when you sell your home the first $250,000 of your gain is tax-free. You'll be hard pressed to find that tax advantage with another investment.

I'm sorry homeownership didn't work out so well for you the first time around, but I encourage you not to give up on it! It sounds like there are probably other options that fit your lifestyle better.

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Waldorf, Md.: My question is in regards to the housing market situation. I own a three-level townhouse which I brought brand new in 1997. It has quite a bit of equity in it and I am planning on selling it and purchase a single family home within the next six to eight months from now. Would it be to my advantage to purchase a new, resale, or foreclosure?

Ilona Bray: Yes! In other words, every one of these property types has its advantages -- but also disadvantages. So before buying, you'll need to make sure you're getting the best of the pros and the least of the cons, which I'll quickly outline here.

It sounds like you had a good experience with a newly built property -- but not everyone does. The biggest problems concern construction that is done too quickly, often with unskilled help. The key is to find a builder with an excellent reputation, who's been around for awhile and won't just build and run. It's also important to have inspections done both during and after construction. I probably don't have to tell you about the advantages of a new home, such as energy efficiency, compliance with building codes, and everything being fresh, clean, and potentially customized to your wishes.

Resale properties offer the certainty of knowing that the house has been there for awhile, has been hooked up to sewer and water lines (believe it or not, some new-home builders forget steps like this) and (assuming you do your inspections) isn't sitting on a foundation that wasn't given time to dry properly. They also tend to be in established neighborhoods with their own character and grown landscaping (big trees!). They may have historical features that appeal to you. And they can be cheaper than new, customized home construction, although that completely depends on what's available in your area.

Foreclosure homes are an interesting prospect. Yes, bargains are available, but with some huge risks. For example, in some situations, the original owner can buy the property back within a certain period of time called a redemption period, up to one year in some states. (According to my Googling, Maryland has no set redemption period, but the court can set one.) And you may have to pay all cash, go without a tour of the house, and end up with a property that an unhappy owner didn't maintain well or pay property taxes on. If you're interested in foreclosures, find a real estate agent who specializes in them.

Happy househunting!

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Leesburg, Va.: A few years ago I had the honor of meeting Alan Greenspan. He expressed his concern of the "train wreck" ready to happen regarding the various types of interest only mortgages that even experienced homeowners were jumping into. The train wreck is exemplified in the spike in the number of foreclosures recorded. Close to five percent of the homes in my neighborhood are for sale due to foreclosure.

How do you see the foreclosure issue affecting the housing market (sale price, etc.)?

Alayna Schroeder: If only the mortgage industry had the foresight of Alan Greenspan, right? There's a lot to say about this subject and how it affects the economy generally, but I'll stick to the mortgage market. I think foreclosures are indicative of a more general problem you address-the various types of mortgages in the last few years that have helped buyers afford homes otherwise beyond reach. Many buyers were banking on continued appreciation and the opportunity to sell for a profit. As more and more buyers have seen the rates on their adjustable loans-and thus their monthly payments-go up, they've needed to get out. It means a flood of available homes on the market, both those in foreclosure and those avoiding it. To oversimplify, it contributes to dropping prices because there is increased competition. With decreased values, it's harder to refinance or sell for a profit, creating an ugly cycle.

It makes sense for this trend to continue in the next year or two, because more buyers with hybrid loans, who may have had fixed-rates initially, will see their rates adjust upward and won't be able to afford their payments. So my answer is-I can't predict the future, but I won't be surprised to see conditions remaining challenging for sellers. On the flip side, it creates opportunity for financially-sound buyers.

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Chicago, Ill.: Is there still an extra cost incurred when you make a down payment of less than 20 percent? What about mortgage insurance? Or did they do away with that?

Alayna Schroeder: You're on the right track--usually, when you put down less than 20%, you must pay private mortgage insurance (PMI). Though you pay it, it protects the lender if you default.

PMI isn't abolished, but there was a signficant change this year: in 2007, PMI is tax-deductible. Congress may extend this tax break in the future, but for now, it's just for this year.

There are ways to avoid PMI, but as you mention, they can be costly. In recent years, many people who didn't have 20%to put down took out 2 loans. Often the first was for 80%, and the second could be up to the full remaining 20% of value. The second loan was often a home equity loan or line of credit, and the interest rate was usually higher. Becaue of problems in the mortgage market and high default rates, these loans aren't as widely available now.

Finally, some government-sponsored programs allow you to put less than 20% down without a lot of extra cost, but there are usually other limits, such as caps on how much you can borrow.

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Washington, D.C.: Are sites like Lending Tree even worth a look? It seems way too easy to be true, or any good.

Alayna Schroeder: I'm not sure what you mean by "worth a look." If you're seriously considering getting a mortgage, competitive sites are a way to see what options there are, especially because you don't need to limit yourself regionally. Meaning your lender can be in California, even if you're in D.C.--you get access to information with sites like these. I'd recommend frequenting sites that don't ask for personal information, just to get a sense of interest rates, if you're wary of being contacted by a lender.

Of course, if you're skeptical, you can always talk to a mortgage broker too. They'll get you information on mortgages from lots of different sources, and you'll have that personal touch, plus the ability to ask questions.

Also, make sure you understand all the information presented to you. If you just look at the interest rate, and it seems too good to be true, it may be because there are other costs like points and fees (which should also be published, along with the APR, which factors these costs in). And keep in mind that the advertised rates are for the "best" borrowers--those with the best credit--so it may not be the rate you're offered. Again, a mortgage broker is a good option for helping you understand what's available based on your actual financial situation.

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Herndon, Va.: I am looking into buying my first home (condo). I expect to have around $170,000 in cash to put towards my new place. As a young professional with average credit, would it be a better financial decision to pay cash for a condo in my price range or to get a relatively small mortgage and invest the rest?

Thanks!

Alayna Schroeder: Wow--sounds like you're in great financial shape. It also sounds like it will be worth your while to talk to a financial advisor. I'm guessing buying a home is only one of your goals, and you want to do other things like save for retirement. I'd suggest you keep all that in mind when deciding what to do with the money.

In terms of buying a place, keep in mind that another alternative is to leverage that cash. If you buy a more expensive place and the value increases, you'll have more equity than you would on a smaller place.

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Washington, D.C.: I bought a home in 2002 and used some of the equity to make some much-needed improvements -- new roof, replacement windows, HVAC, etc. As a result I owe more than I paid for the house. Could the decline in prices drop so low that I might end upside down in my mortgage even considering I didn't buy at the top of the market?

Alayna Schroeder: I'd like to be able to tell you exactly what will happen in your situation, but unfortunately, I don't know where prices will go. Certainly some people who didn't buy at the top of the market are still seeing the value of their properties drop.

I can say that it's smart that you used the equity to make improvements to your home, instead of spending it on other things. Keep in mind that the improvements you've listed will increase your home's value. That makes you better off than someone who took out the cash to finance an extravagant vacation.

And finally, there's no indication in your message that you plan on selling anytime soon. Just remember that your house is more than an investment-it's a place to live! If you're planning on staying put, history tells us that you're likely to see a turn around. Enjoy what it sounds like is now a very comfortable home.

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Arlington, Va.: My husband and I would like to buy a house next summer, and we will be first-time homebuyers. How soon should we start looking for a loan?

Also, I've been looking at the offers on Bankrate.com and some other sources, but I don't know one lender from another. How can I check them out to find a reliable one? Thanks.

Alayna Schroeder: It's never too early to start looking at your budget and educating yourself about what your loan options are. Lots of people wait to do this until they're looking at homes, and then they're either disappointed to learn they can't afford as much as they'd hoped, or stressed out trying to figure out what kind of loan to get.

You can also start looking for a mortgage broker, if you decide to work with one. The best way to do this is to get recommendations from other recent homebuyers in the area. The advantage of a broker is that he or she can look at lots of different potential loans, not just loans from one source, like a bank. Another advantage is that the broker has experience with lots of different lenders, and can help you find a reliable one. But keep in mind that very often, loans aren't retained by the lender-they're often immediately sold on the secondary loan market.

However, you're not going to be able to get a loan until much closer to the time you want to purchase. Interest rates are going to change. When you're ready to start looking for a house, you can get preapproved for a specific loan and amount.

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Washington, D.C.: My husband and I just purchased our first home, which is actually my parents' townhouse where I grew up. I am familiar with the house and we had an inspection before we bought which went very well. There are things to fix (the furnace is old and might need replacing, the attic can be better insulated, there are little ants in the kitchen which the Orkin man didn't get rid of on the first treatment my parents paid for before we bought) but the overall condition of this 35-year-old house is very good. I wonder what else we should be doing to keep it that way, seasonal things we need to think about, things that are higher priority than others, etc. Any tips?

Marcia Stewart: You're luckier than most buyers in that you know all the ins and outs of your new home (not that you necessarily paid attention to things like attic insulation when you were a teenager). The person who did your inspection should be able to give you some useful preventive advice on keeping your house in good condition. Also, there are some great books that should help you set priorities, including Home Comforts: The Art and Science of Keeping House, by Cheryl Mendelson (Scribner), and Martha Stewart's Homekeeping Handbook: The Essential Guide to Caring for Everything in Your Home, by Martha Stewart (Clarkson Potter). You're smart to start thinking ahead, rather than just dealing with problems as they come up.

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Arlington, Va.: Thanks for taking my question. Would it be incredibly stupid for me and my finance to buy a one bedroom condo when we'd like to start a family in the next two years? We desperately want to purchase a home, but it will take us 10 years to save up for a down payment on a two-bedroom condo in this area.

Ilona Bray: The general rule of thumb is that it's not wise to buy any property unless you're confident you'll be there from three to five years, mainly because the upfront effort and costs may not be worth it otherwise. You'll pay "transaction costs" like loan setup fees, property inspections, and more -- sometimes in the thousands of dollars. And if there's a market slump at the point when your family has completely outgrown the place, you could have to sell for less than you purchased for -- plus pay commissions to the real estate agents (averaging 5% of the purchase price, or $5,000 for every $100,000.

Of course, I know plenty of families who've squeezed into tiny spaces for years after new children were born. You may want a newborn's crib in your bedroom anyway.

The key issue is the rate at which condos and other houses are appreciating in value in your area. At the moment, most parts of the U.S. are in a bit of a slump, but you really need to focus on your corner of the world, and take a look at prices over the last several years. If you buy in a desirable location, your chances of coming out ahead are much greater than if you buy in a new development in an area that's still getting established (perhaps carved out of former farmland). And if prices are still holding steady, your plan of buying now to make sure the price of a down payment doesn't rise beyond your reach might be anything but stupid!

But of course, take a careful look at your budget. If you'll be unable to move within ten years unless house prices appreciate, you may be biting off more than you can chew.

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Washington, D.C.: The loan officer I am working with is encouraging me to put down less money because putting down an additional $10,000 will only bring my monthly payment down by $40. In his opinion, it would be better to keep that $10,000 in hand than put it down.

What is in my best interest? Put down as much as possible or save the money and perhaps invest it? I have a very good credit history so the loan officer says I will get the best interest rate regardless of how much I put down.

Alayna Schroeder: What the loan officer didn't tell you, of course, is how much extra interest you'll pay over the life of your loan. I'm not saying the advice is bad, but it is...biased. After all, the bank will make more if you borrow more, and it sounds like you're a responsible borrower they can count on to make your payments.

I don't know enough about your financial situation to tell you what you should do. I'd just say, run some numbers yourself. You can start using an online calculator. (Off the top of my head, I believe there's one at interest.com that can do a variety of helpful calculations.) Do you think the return on any investment will exceed what you're paying in interest on the extra amount you're borrowing? Will putting the extra cash into the mortgage result in having to take out a consumer loan with a higher interest rate, perhaps to buy a car next year, or furnish your new house? I don't know the answers to these questions--but either does the loan officer.

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Washington, D.C.,: What if you'll be a novice homebuyer in a brand new city? My husband and I will certainly move in 2 years, and it will likely be to a place where neither of us has ever lived before (the whims of the medical profession in its early stages). Do you think it's better to rent for a while to get the feel of a new city before buying? Or is that just a waste of money when our goal is to buy?

Alayna Schroeder: It's very smart of you to be thinking about this ahead of time. First off, I would say that it's never a bad idea to educate yourself about the market you're going to buy in. One way to do that, cetainly, is to rent first. This works great for many people.

There are a few different things to consider in your situation. Do you know where you're going to move to? If so, you've got a leg up. You can start researching potential neighborhoods--you don't have to wait until you're there--and maybe start looking for homebuying professionals like a real estate agent or mortgage broker. That makes it more likely that you can skip (or at least limit) the amount of time you spend renting.

Also, are you going to be living there for another two years, then get whisked off to a new locale? Home buying is expensive: closing costs are often about 2-5% of the purchase price. If you're only going to be there two years, buying might not to be worth the expense.

Finally, though I know you want to buy, are you sure you want to buy in this new city? An advantage of renting is testing out a new place to make sure you like it.

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Atlanta, Ga.: In the past three months I've seriously bid on two houses, only to have them fall through when we were only $5-$10,000 apart on our bids. I was surprised both times that they wouldn't budge, despite the state of the housing market. Am I wrong to think we're in a total buyer's market?

On the first house we had to cancel our contract and for ask 10,000 for repairs due to non-apparent problems with the plumbing, electricity and roof. I was surprised at their refusal, since the problems were real and they had no other offers, so I put it down to stubbornness and wishful thinking. I felt vindicated when I saw it sit on the market three more months.

On the second house our last bid (made Saturday) was only $5,000 less than the seller's last bid (less than one percent of the purchase price) and again the seller has balked. Based on publicly filed information, I'm pretty sure he won't be upside down on his loans if he accepts our bid. There's a huge amount of inventory sitting on the market in his neighborhood, everyone's having a hard time getting jumbo loans, noone else has bid on his house and he's already moved, so I just don't know what he's thinking. There are nicer houses at better prices available near him, so I'm guessing he's holding out due to his unusually large lot size and excellent location. Can you explain what is going on or how to find out what's going on? It's so frustrating trying to read the seller's mind. While the lot is nice, we are willing to walk and bid on other places, plus we're in no hurry to buy. For now we've decided to let him stew and hopefully he'll come to his senses. Do you have any other/better suggestions?

Alayna Schroeder: If the neighborhood you're in is following the national trend, it is indeed a buyer's market. In that case, it's great that you're in no hurry to buy-that means you can take the time to find the right house at the right price! Here are a few suggestions. I'm not sure whether you're working with a real estate agent, but if you are, he or she should be showing you comps-houses sold in the same neighborhoods in the last 6 months (anything beyond six months is too old). I hope you're looking at comps when setting your asking prices. Also, make sure the comps are really comparable-you mention that the second house has an "unusually large lot size and excellent location" relative to others in the neighborhood, and those factors affect its value.

In both cases, you wonder what the seller is thinking, and that's understandable, given that the deals have looked pretty good to you. Of course, the seller has completely different goals than you-to sell their homes for as much as possible. Sometimes sellers have what looks like unreasonable attachment to their homes or the perceived value of their homes. It could be that you've encountered sellers that just aren't willing to accept the hard reality of today's market.

For some sellers, the psychological value of a couple thousand dollars can break a deal. You can sometimes avoid this by doing things like writing a higher offer, then included credits for repairs or upgrades. It may seem transparent to you, but it sometimes works.

Again, if you're working with an agent, he or she often has some idea what a particular seller is thinking or what motivates the seller to sell (like not being able to afford the mortgage, an unpleasant event like a divorce or death, or whether the seller has already put an offer on a new place and is highly motivated to sell). This information can sometimes help you make an offer that's attractive, even with a lower price. For example, if the seller is waiting for a new house to be constructed, you may be able to get a lower price if you're willing to do a short rent-back to allow the seller to stay put until construction is completed.

You're in the best possible position. I'd say make sure you are being realistic by checking comps and factoring in variations for things like large lot size and better location, then wait for a seller who's realistic too.

Alayna Schroeder: Good luck!

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Reston, Va.: My husband and I bought our first house about a year and a half ago. We currently have an interest only loan with a five-year arm. Since buying our house we have both received significant raises. Should we go ahead and refinance into a fixed loan now? I do think we will be looking to buy a bigger home within the next three years due to the space we currently have and future kids. But there is always a possibility that we will need to stay in our current house longer then five years.

Alayna Schroeder: You're very aware of the precise risk of the kind of loan you have: it's a blessing and a curse, because you probably got a nice low interest rate! Based on what you describe, I think you have a hybrid mortgage, with a fixed-rate for the first 5 years, and an adjustable rate after that. Your options are: get a low fixed-rate now (but probably higher than what you've currently got), or take the risk that you'll want to stay in your house longer, and deal with the adjustment at the end of the five year term.

Unfortunately, I'm running out of time here. But I will say there are a couple things to consider: one is, since your income is higher now, you're more likely to qualify for a refinance both now and in the future. To me, that makes it more attractive to wait (you'll also likely be able to afford to buy more with a higher salary); it can also mean that it's a good time to refinance.

Also, if you don't have a prepayment penalty, keep in mind that you can pay off principal now, if you want to. Your dollar will go further if your interest rate is lower, so you'll be in a better position down the road.

Sorry to cut it short, but it looks like I'm out of time! Good luck, and congratulations on your raises!

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Alayna Schroeder: Wow, the hour just flew by! We hope our responses helped many of you, even if we weren't able to get to your question. We covered many topics, so please read through the transcript for similar questions if yours wasn't answered. And of course, there's a lot more information in our book, Nolo's Essential Guide to Buying Your First Home. Thanks for your participation!

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Alexandria, Va.: I am a renter who would like to buy in the next year or so. Is the advice to have a 20 percent down payment that I have been reading lately realistic? I can imagine saving about 10 to 15,000 by next year at this time, but in no way could I raise 40 to 60,000, and with the prices still being high (at least in my opinion), I am wondering if I will ever be able to purchase in this area. Will it be impossible to buy if I have less than the 20 percent down payment?

Marcia Stewart: No, it's not impossible to buy with less than 20% down. But whether or not this is necessary (or the best strategy) is another question. I recommend you start by setting out your own housing needs and priorities and how flexible you are about neighborhoods, types of houses, monthly payments, and anything else that's important to you. Our book for first-time homebuyers is written for someone just like you. Then, get some advice from different professionals. I suggest you set up some appointments with real estate agents who know the general area that interests you and get a good sense of what's out there. Also, talk with an experienced mortgage broker about your financial situation and goals and what financing options are available--and make sense--to you. If you're not pressured to buy right now, it will be really worth your while to do this kind of research before you find yourself with a house--or a mortage--that you can't afford.

Marcia Stewart: No, it's not impossible to buy with less than 20% down. But whether or not this is necessary (or the best strategy) is another question. I recommend you start by setting out your own housing needs and priorities and how flexible you are about neighborhoods, types of houses, monthly payments, and anything else that's important to you. Our book for first-time homebuyers is written for someone just like you. Then, get some advice from different professionals. I suggest you set up some appointments with real estate agents who know the general area that interests you and get a good sense of what's out there. Also, talk with an experienced mortgage broker about your financial situation and goals and what financing options are available--and make sense--to you. If you're not pressured to buy right now, it will be really worth your while to do this kind of research before you find yourself with a house--or a mortage--that you can't afford.

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