Tips for First-Time Homebuyers

Q: My wife and I are looking to purchase our first home. Given this market, what advice both legally and financially would you give to a couple of first-time buyers?—Gary

A: Perhaps the first place I would start my research is with Fannie Mae and Freddie Mac.

They are financial institutions that do not make loans but assist consumers and lenders in the home-buying process. They both have excellent Web sites with a lot of consumer information on how to buy a home.

I would also find a good real estate agent and attorney in the county where you live (or want to buy) and have him or her walk you through the various steps.

Once you find the house that is of interest to you, have your real estate agent and your attorney review (or prepare) the sales contract before you sign it.

You should also talk with a couple of mortgage lenders (make sure they are licensed in your state) to determine approximately how large a loan you will be able to obtain.

Is this a good time to buy? Who knows?

Will the market go up or down? Again, who knows?

But I have told my clients over the years that you don’t buy a house for investment purposes. You buy because you want a solid roof over your head in a neighborhood you like.

If the house does increase in value, more power to you.

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Q: I live in a condo. The bylaws were amended by the home owners association council, before our ownership, to restrict rental of units to family members only. Is this allowed?—Dennis

A: The laws relating to community associations (including condominiums and homeowner associations) are very clear: Anyone who lives in the community is subject to the rules and regulations of the association, including any properly amended regulations—such as a rental restriction.

When you bought your unit, I must assume that the rental restriction was part of the condo documents that you received before you went to settlement.

I am familiar with the laws in the state of Maryland, where you own your condo. Before any owner can sell his or her unit, the prospective buyer must be provided with what is known as the “resale package,“ which includes the legal documents.

You had a number of days in which to review all of those documents and cancel your contract if you had any concerns.

Since you decided to buy, you are bound by those rules and regulations, including the rental restrictions.

Many states have this “resale package” requirement.

Every potential condominium or homeowner association purchaser must carefully read all of the legal documents of that association before going to settlement.

It should be noted, however, that court case law throughout the country makes it clear that for a rental restriction to be valid, it must be incorporated into the declaration or the bylaws of a condominium. That means that these legal documents have to be amended by a super-majority vote of the members.

It is not sufficient merely for a board of directors to enact such a restriction through a rule change.

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Q: My wife and I plan to move to Fort Myers, Fla., in two years when I retire at age 62. On a recent house-hunting trip to that area, we saw lots of homes for sale. We own our home in New York, which will be sold. Because of the current real estate slump in value, please give me your advice on how to time the market.—Paul

A: For many years, I had a crystal ball on my desk. Now, I have two and still cannot predict the future.

From what I understand, this is a good time to buy property in Florida.

Are you able to afford to buy that new house without selling your current one?

Depending on your financial situation, you may be able to obtain a bridge loan on your house to enable you to buy the other one.

If, on the other hand, you cannot financially carry two houses, then you will most likely have to sell your present house first.

And while in some parts of the country it’s a buyer’s market, you may find that you will get a good deal on the new Florida property but a not-so-good deal on your present home.

If you cannot move down to Florida now, you might try to find a buyer who will rent your house back to you.

This way, while you will have to pay rent, you will not have to pay principal, interest, taxes and insurance.

The sales proceeds can be used to purchase that Florida property.

If you are lucky, you can rent that property out, which will somewhat offset the rent you have to pay on your present property.

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Q: I am considering buying a distressed property. What should I look for when choosing a contractor and in negotiating the contract? I would like renovations to be completed within 12 to 18 months. Can I enforce this timeline?—Cyril

A: Whether you are buying distressed property—or any property for that matter—and want to do construction/renovation, there are several things you should do.

Check with your county or state licensing office. Do home-improvement contractors have to be licensed? If so, insist on seeing a copy of the contractor’s license, and confirm with the agency that issued it that it is valid.

Do not sign what I call a “one-page special”—in other words, a contract that is only one or two pages, especially if your renovation job will be at least $5,000 or more.

The American Institute of Architects has a number of sample contracts, which I believe you can obtain (perhaps even purchase) online. They also may assist you in locating a licensed architect in your area, should you need one.

Your contract should have at least the following:

a complete description of what work will be done; the total cost; a payment schedule (do not overpay and keep between 10 percent to 15 percent in reserve to pay when you are completely satisfied that the job is finished and acceptable to you); and a termination provision should you find that the contractor is not showing up on the job or not doing a good job.

The AIA contract contains these requirements, plus a lot more.

You asked if you can enforce your timeline. The answer is yes. I generally recommend that you agree to pay the contractor a bonus (to be determined between the two of you) for early delivery—say $100 a day up to a cap of 10 days.

Furthermore, include in the contract a provision that if the contractor does not complete the job on time, that you will deduct $100 a day, but with no cap.

Some contractors will accept the bonus-penalty concept, and that is clearly your right to insist on such a provision.

Benny L. Kass is a practicing attorney in Washington. Questions for this column can be submitted to .