Home Buying in Frisco>Question Details

Todd, Home Buyer in Frisco, TX

First time buyer needs advice

Asked by Todd, Frisco, TX Thu Nov 29, 2007

Hi. My wife and I are shopping for houses. We live in north Texas and are shopping some fairly new developments that are in a very undeveloped area.This will be our first home purchase, and we will be moving from an apartment. We have spoken with several builders and a couple of realtors and we seem to be getting a large mix of information, which is causing us some confusion.
For instance, we have been told that it is best for first time buyers to buy a new home rather than a pre-owned one due to the fact that the lenders will often pay the closing costs and the downpayment when using an FHA loan. They, of course, also mentioned the fact that new homes come with warranties to protect the buyer from extra expense down the line. My question is, are these incentives possible or available at all when buying a pre-owned home? And are we better off buying new? We don't have money for a downpayment, so we feel pretty limited. Any help would be great.

Help the community by answering this question:



I completely understand where you are coming from. The decision to purchase your first home, especially when you've been used to "apartment living" is quite intense. Here's my quick feedback and I hope it helps:

If you are like most first time home buyers that live in apartments... you've probably got great credit, but no money to put down for closing costs and downpayment? So here's where that lies....
The benefits about buying a brand new home are great. You do have the 1 yr bumber to bumber warranty usually along w/ a foundation, framing and roof warranty for up to 10 yrs usually. In addition, right now if you pick up a new spec home, then you can possibly get those HUGE buyer incentives where the builder pays title policy, closing costs and downpayment.. maybe even take some money off of the sales price!

Here's... the bad... in a typical new house.. you may need to purchase more things that you will need for the house which can add up quickly.. for example.. window treatments, blinds, refrigerator and some other necessary items.

However.. here's the twist... on a pre-owned you may be able to get the same thing from the sellers as for closing costs paid for, dp assistance. It will be up to the seller to determine how desperate and willing they are to work with you. Plus..with a pre-owned... you may even be able to negoitate for all appliances to stay... window covering and whatever else you may want that will make your transition much easier on the pocketbook....

plus..remember... if you buy a pre-owned you can also have the same kind of basic warranty paid for by the seller for your first year as well!! In addition.. if the home is still w/in the foundation, framing and roof warranty period... then it may still be transferable to you as the new owner...

Hope that helps a bit...
Web Reference: http://www.exposedhomes.com
3 votes Thank Flag Link Thu Nov 29, 2007
Todd, your hunch for buying now is right, and its what every seasoned investor will do. While everyone is running for the hills to get away from the payment they thought they could afford many investors are picking up the properties cheap. Keep this in mind when you go to the negotiating table, ask for the world and you might get it.. of course you never know until you ask... Happy Hunting Todd.
1 vote Thank Flag Link Mon Dec 3, 2007
Just a quick addition to the whole "needed" downpayment issue:

If the market is going through it's dip in value on homes and you can pick up an excellent house w/ a warranty and all the trimmings and fixings... then you should ask yourself why is the downpayment so important.

I don't think it's the dp that's the real issue, it's the availability of credit, income and your personal debt portfolio. Now if you have NO DP, 2 extremely high car payments, all credit cards are maxed out or almost there and you haven't even made a deposit to your savings account except for once a year when you get your tax check back from Uncle Sam only to see it squandered away by summer on things you didn't need!

Like Todd says... if I can basically steal a home, get my dp paid for by the seller, get closing costs paid for and I've still got available credit large enough to cover me on something major happening down the road... why the heck would I still wait to try and save up only to see in 2 years...home prices have steadily climbed up again and I sitll have no equity to show for it because I was burning away ALL housing expenses on rent and other non-tax deductible expenses?

It's a little risky of course... but I believe that with risk also comes reward... you've just to know how much risk you can handle responsively!
Web Reference: http://www.exposedhomes.com
1 vote Thank Flag Link Sat Dec 1, 2007
Paul, we are considering buying along the 380 corridor. They are really developing that are between the dallas North Tollway and 420 on 380. Thanks to everyone for the advice. We are going to get in touch with a realtor and get him to start showing us both types of properties. I would love to have a downpayment. But with the market here the way it is right now, I can't see waiting the 2-3 years it would take us to save a sizable enough downpayment while throwing money away on an apartment, only to find that the market has made a swing back up and then what would have been a 10% DP is now a 3%DP. Maybe that's unrealistic, I don't know. This just seems like a good time to buy.
1 vote Thank Flag Link Fri Nov 30, 2007

First of all, determine how long you want to be in the home for and why are you buying the home. That may sound a little odd, but if you just want to be in it for a few years compared to 10 years, your risk factors are different. Builders offer different incentives especially when using their lenders (mortgage co.). You can always buy a home warranty for a resale property, just have your agent negotiate it in the price so that the seller pays for it. You might also have the seller pay for some closing costs too. It you would like to continue this discussion, feel free to contact me at Phil@PhilFowler.com and I can provide you with some more information. Bottom line, work out what you want first.
Web Reference: http://www.PhilFowler.com
1 vote Thank Flag Link Fri Nov 30, 2007
Hi Todd,

Start with a reputable lender first. Your lender is the best source for what you can qualify for, what your closing cost will be, and how much you may need to put down based on the type of loan you qualify for. I can recommend a couple of lenders who can help you that I trust to provide you with accurate information and honest rates.

Second, there is no such thing as free closing cost. A builder or builder's lender may be willing to pay for these cost, but they are being added to the bottom line that you are financing. Usually builders offer this as an incentive for new construction. We can often negotiate with individual sellers to pay your closing cost on preowned homes also. What you have to look at is what you pay in the long run. When you add closing cost to the value of a home, you are paying more than the home is worth. A builder may offer closing cost as a "discount" or incentive, but his lender may be charging a little bit higher interest rate. A preowned seller may pay your closing cost, but they may raise the sales price or just not negotiate as low a price if they are paying your closing cost. If you decide to sell the house in a couple of years, the property value may not increase enough to cover the closing cost you include now. In addition, you will have seller's closing cost and sales commissions to cover in the future. I don't recommend that you start out in the hole if you don't plan to stay in the home for at least five years.

The same logic applies to buying in a new, undeveloped area vs. buying a preowned home. The area may take another five years to develop the services (schools, shopping, and city services) that older areas do. The builder may still be selling the same house in your neighborhood for the next three to five years. If you as a first time buyer see a new house with fresh carpet and paint and a two year old house in the same neighborhood for the same price, which one would you buy? You will be competing with the builder and other builders for years to come.

You need someone to protect your interest, guide you through the buying process and help you find the best home for your needs and budget. Builders don't work for you. I do.
1 vote Thank Flag Link Fri Nov 30, 2007
There are advantages to both types of purchase and you just have to sit down with your Realtor and weigh the pros and cons of both types of purchase and what works best for you. You should be able to negotiate the same type of deal for financing on both a new and pre-owned home. We can help you walk through the process step by step if you need it. Make sure you have a realtor working on your behalf. Since you are considering buying new construction you should look at my website under new construction. The financing options will depend on your lender and then what we can negotiate with either the builder or owner of a pre-owned home.
Web Reference: http://www.teamlynn.com
1 vote Thank Flag Link Fri Nov 30, 2007
Bruce Lynn, Real Estate Pro in Coppell, TX
Hello Todd,
I understand your dilemna and here is my take of the situation as this is something I discuss with all first time buyers. Lots of good points were made below. Don't let the type of financing that you are pursuing dictate what type of home you buy. Everything is negotiable in an offer. It is a buyer's market especially in Frisco, there are currently 1127 pre-owned homes on the market and a very similar number for homes for sale by builders. My recommendation is to look at some homes that are pre-owned that are not too old, that way the owner has had a chance to make upgrades, put in window treatments, may be a sprinkler system, sometimes even a pool, ceiling fans and more... Lots of seller are motivated when they know they are competing with homebuilders. So you may end up getting a good deal.

If you decide to go with a new home builder, I would recommend that you purchase something that they already have in inventory, they are very negotiable on the price, terms and more. You don't have to pay sticker price, the builder that you want to make an offer. If you build from scratch, there is almost nothing to negotiate.

Also, you mentioned that you have no money for downpayment... FHA requires a minimum of 3%... do you have that? If not, talk to your lender about doing and 80-20 depending on your credit and financial standing.

I invite you to visit my website and call me if you have any question if I can be of assistance.
1 vote Thank Flag Link Thu Nov 29, 2007
Some of that depends on the kind of market you are in. Here in Atlanta it is a buyers market. Private sellers and builders are paying good portions of the closing costs. Remember, anything is negotiable. Sure you can get a warranty on new construction but you can also negotiate a home warranty on a resale home. My advice would be to go after what you want to live in (new or resale) The loan, closing costs, warranties etc... can be just as easily negotiated with a private seller as it can with new construction. Seek the advice of a competent realtor in your area that specializes in buyer representation. Ask them how many houses they have sold this year. This will give you a good idea of how experienced they are and how capable they are in looking after your best interests.
Web Reference: http://saffordsells.com
1 vote Thank Flag Link Thu Nov 29, 2007
Whether you purchase a new home or a resale will come down to your personal preference.

If you decide on a resale, your agent can structure the contract that the seller pay your closing costs, escrows, prepaids and FHA non allowable expenses.

FHA allows the seller (whether the seller is a builder or a home owner, makes no difference) to pay up to 6% of the purchase price toward buyer's above mentioned costs.

Depending on where you are there may be down payment assistance programs for 1st time home buyers or buyers who have not owned in the last 3 years.

You may find the following link helpful
1 vote Thank Flag Link Thu Nov 29, 2007
Downpayment would be required to purchase a home based on mortgage broker approval detemines amount required .

New homes - vs. pre-owned home
Both have warranties we request seller purchase a home warranty for new buyer
Closing cost we request for seller pay for those rolls into your overall loan.
There are homes new on market foreclosures with equity.
Web Reference: http://www.lynn911.com
0 votes Thank Flag Link Wed Jan 14, 2009
Great idea, Josh. The realtor that helped us with our home purchase was Jerry Welch. http://www.TheWelchTeam.com . He was extremely helpful and patient in dealing with our lack of knowledge on the subject. He made sure that we were wll educated and that we were taken care of by the builder. I highly recommend him to anyone looking to buy in the DFW area of Texas. Tell him Todd sent ya! ;)
0 votes Thank Flag Link Wed Sep 3, 2008
Hello Todd, just a quick note; there is something called the Down Payment Assistance Program and Seller paid closing cost that will allow you to get into a property for almost nothing out of your pocket. The only thing is that you must move quickley in order to be able to use the Assistance program because it will not be here for much longer; in fact you must have loan approval before the end of Sepember and close by Nov. 10, 2008. Let me know if I can help in any way.
Web Reference: http://www.RonPritchett.com
0 votes Thank Flag Link Tue Sep 2, 2008
That's GREAT news Todd.. thank you for sharing with us! Any plug you want to give that agent here? I'm sure your agent would appreciate it.
Web Reference: http://www.eXposedhomes.com
0 votes Thank Flag Link Mon Sep 1, 2008
Thanks for the input, guys. We actually ended up buying a new build in a nice subdevision in North Texas a couple of months ago. We are very happy with the house and with the deal we got. We did use a realtor and can reccomend him to anyone who is interested, as he did a great job for us. Thanks again!
0 votes Thank Flag Link Mon Sep 1, 2008
Hi Todd & Wife! There are pro's & con's to new construction vs. existing homes. The key is having an exit strategy should you need one. Work with a Realtor you trust (and that works in the area you are looking) to advise you on which one in which area will provide that to you.
0 votes Thank Flag Link Sat Aug 23, 2008
It sounds like you will be purchasing a subdivision home. They offer warranties for these, and it's great to have because usually the construction is fast and cheaply done. You won't find that on a preexisting home usually.

Now, in terms of purchasing in an undeveloped area, you need to be aware of this if you ever need to sell the home:

If they are building brand new custom to the buyer's taste homes down the street, it's going to be hard to compete at the same price level. Why buy your home when they can pay the same price for a brand new one with the exact type of granite countertops in the kitchen that they want? I've been through that, so just be aware that that will happen down the line if you decide to sell before the area is developed out.

With these new homes, usually the companies selling them are publicly traded, and therefore need to answer to stockholders. They will be offering better incentives to make sure they make some profit to put on their books.
0 votes Thank Flag Link Sun Aug 17, 2008
Very true Mathew,

There is no free ride. You can either pay for it cash upfront or just over 30 years with interest. One way or another, you end up paying for it most of the time. Just do your due dilligence and research and get comparables for what you buy.

Web Reference: http://www.sumnerrealty.com
0 votes Thank Flag Link Sun Aug 17, 2008
I know how you feel .Been there , am still there. I agree, its a buyers market and we home buyers keep hearing about all these dp and closing costs taken care of , but beware about them adding these so called taken care of items added to your bill . I have yet to meet any buyers in person who have had these expenses taken care of ie not added to the bottom line bill.
0 votes Thank Flag Link Sun Aug 17, 2008
Have you bought a New Home yet? If not I would be happy to respond I assist many first time home buyers with new home purchases!My question is, are these incentives possible or available at all when buying a pre-owned home? And are we better off buying new? We don't have money for a downpayment, so we feel pretty limited. Any help would be great.
Web Reference: http://www.myhomedfw.com
0 votes Thank Flag Link Sat Feb 23, 2008
I feel that if there are new homes available in the area that you want to live then a new home is usually the best deal. I say best deal because when you factor in the fact that it is new and has a warranty. In today's day and market most builders are willing to discount the homes that are already built. There are some good websites out there that make it easy to search on-line.
Web Reference: http://www.homeferret.com
0 votes Thank Flag Link Thu Jan 31, 2008
The best first step is to work with a Realtor that knows the area you are wanting to invest in, that is a full time agent such as myself and is use to working with first time buyer and is willing to spend the time needed to get you know you so you can make the best possiable purchase. Feel free to contact me at anytime, I will be glad to assist you Todd
Web Reference: http://www.RonPritchett.com
0 votes Thank Flag Link Mon Jan 21, 2008
you can buy new or pre-owned. Depending on if you have kids, I would start new in a house no one has lived in. Easier and better
0 votes Thank Flag Link Thu Jan 3, 2008
I am a Realtor who will give you the same advice I give a magazine reporter when they call me with this kind of question: DON'T BUY.

That's right, if you "don't have money for a downpayment," don't buy. If you could put down 10%, even 3%, that's a different story. But in your situation, you just don't have enough of a financial cushion in case something goes wrong.

Chances are nine out of ten that nothing will go wrong, but . . . why risk it?

It is perfectly honorable to rent for a few years while you're saving up a little wad of cash, and the houses will still be there when you get there.

If you want more unorthodox advice, take a look at my book, "Diary of a Real Estate Rookie" {http://tinyurl.com/2ag28z} -- it's been well-reviewed by Newsweek and forbes.com, and it has stopped some prospective homebuyers from tumbling over a cliff.

Alison Rogers
Web Reference: http://tinyurl.com/2ag28z
0 votes Thank Flag Link Fri Nov 30, 2007
New or re-sale? They both have their ups and downs. At first glimpse it may seem that the builder's incentives are the most attractive, but you can find a better deal through resales and much more flexible terms. Whatever the decision remember that some builders can only offer you incentives if you use the in house lender only. So if you choose another lender tell them up front. I am from Frisco originally, coincidentally where are you thinking of buying? Use an agent whatever you do.
0 votes Thank Flag Link Fri Nov 30, 2007
That guy Bruce Lynn gets a lot of recognition in DAllas, you should probably call him to see what your options are.... http://www.teamlynn.com

Generally, the more incentives come from people who have owned a property fro a long time with plenty of equity to share. Rarely is that a builder.
0 votes Thank Flag Link Fri Nov 30, 2007
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