Spring home buying season -- old rules, new tools
Here's how to put yourself in the best position as you start eyeing homes.
By Les Christie, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) - It's that time of year again: After the long, cold winter, when shopping for new homes grinds nearly to a halt, the warm weather brings people out and into real estate offices.

But this year, shoppers face a changed environment.

In January 2005, only 382,000 homes were sold, according to the National Association of Realtors (NAR). By contrast, the peak sales month, June, saw 753,000 homes change hands, with much of the shopping coming in the two months prior.

Now, many markets have cooled, giving more leverage to buyers. Still, it's more important than ever for shoppers to pay attention to fundamentals, and at the same time, there are new tools available to help.

The rules

1) Get pre-approved for your loan. According to Lennox Scott, CEO of John L. Scott Real Estate, it's more important than ever this year to get pre-approved -- because virtually every other buyer has. "You have to do that," he says, "to show you're capable and motivated."

Mortgage broker Bob Moulton, of Americana Mortgage, says it reduces the stress of home buying. "You're going through a fire drill before closing, lining up inspectors, attorneys, getting paperwork together. It's a lot easier if you already have the loan in place."

Pre-approval involves filling out a mortgage application before you begin to shop. It includes all your financial information such as salary, credit history and bank statements, and it establishes a target loan amount. Approval typically takes at least several days.

2) Determine how much you can afford. Remember, you probably can't count on the soaring home-price market to bail you out anymore.

Too, prices have changed dramatically in many places in just the past 12 months. You may have to re-think where you want to live. In Phoenix, prices grew nearly 50 percent. Several cities in Florida were up 40 percent or more. That split-level you had your eye last April may be an unaffordable today. In addition, interest rates are on the rise, increasing monthly payments.

Lenders typically don't want their borrowers' total home expenses -- including mortgage, taxes and insurance -- to exceed 28 percent of their gross income. A borrower with household income of $60,000 a year, paying off a car loan at $300 a month and property taxes of $3,000 a year, would be eligible for a loan big enough to buy up to a $300,000 home on a 30-year, fixed 6.5 percent rate.

Jim Gillespie, CEO of Coldwell Banker, says, "For every 1 percent rise in mortgage rates, 250,000 to 300,000 buyers are priced out of the market."

3) Don't get caught up in a bidding war. Try not to fall too deeply in love when bidding on a home -- you're much more likely to overpay if you do.

This year, it should be easier to hold out. Housing inventories have risen steadily the past six months. As Moulton says, "With all the inventory out there, there's always another house."

4) Check out the home thoroughly before going to contract. Hiring a home inspector is always a good investment. They may find problems that can be repaired at the seller's expense. At the very least, buyers can get some idea of how much they'll need to put into repairs and remodeling before they close.

This is more important than ever. Ken Simonson, chief economist for the Associated General Contractors of America, is predicted double-digit increases in the prices of construction materials this year, thanks, in part, to Hurricane Katrina. Labor and energy costs will also spike.

5) Pick your sales agent carefully. Working with an experienced pro can make house hunting a pleasure instead of a nightmare, but the housing bubble of the past few years has lured legions of green recruits to the field. Be extra careful in choosing an agent this year.

New tools

The Internet greases the wheels for house hunters. According to Gillespie, a California study reported that when buyers start their shopping on line they're able to complete the buy in two weeks after they start working with a salesperson and they view just 6.2 homes. If they don't shop on line, the process takes an average of seven weeks and they see 14 homes.

Several new Web tools have come on line or into wide use during the past 12 months These include:

1) Zillow.com enables buyers to get an online estimate of the market value of their house, as well as others in their neighborhood. (For more, see, What's your home worth, Get a 'Zestimate')

2) Homepages.com offers high resolution aerial photography of neighborhoods that enables shoppers to drill down into the details of what kinds of amenities and facilities it offers. HomePages marketing director Matt Heinz says users can zoom in on parks, for example, to see if they have basketball courts, a dog run or playground equipment. Click on a school building and data such as test scores appears.

"It allows consumers to see the house in context with the neighborhood," say Heinz. The service also provides prices for recently sold nearby homes

3) Broker web sites have added many useful tools since last spring. There are more photos, slide shows and virtual tours than ever and much new information is available as well.

Scott, for instance, reports his company's site now includes aerial mapping and neighborhood information like housing inventory stats, demographics, weather records, and population.

Coldwell Banker has streaming video on their sites that reports such important data as the percentage of listings that the agency has sold through, the average ratio of selling to asking prices, time on market, and average prices. The site also enables consumers to do side-by-side home comparisons.

4) Real estate blogs. Get the real skinny on a new neighborhood before you buy. Many new blogs offer tons of raw, unedited, un-fact-checked info on places all over the country. Is that Mexican fusion restaurant any good? How are the new condos on Main Street selling? Which are the best schools? The blogs have the answers, although you can't count on them for total accuracy.

Recent contributions to the Brownstoner.com, a Brooklyn real estate blog, included speculation on the quality of a new building project under development, what residents can do to block building extensions and on what block "Brokeback Mountain" stars Heath Ledger and Michelle Williams live.

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.