Who Represents You?

With all the tools and advice available today - ranging from books and magazines to online advice like this lesson -- it would theoretically be possible for you to buy your home almost completely without the aid of real estate professionals.

That's not necessarily recommended. The housing market, like politics, is basically local, and each state, city, and even neighborhood has a thicket of local laws or customs that you need to understand. For that, it helps to have a team of professionals to guide you.

Put your interests first

You might want to start by finding an agent who can represent your interests in the search. This is not as simple as it sounds. Sure, 85 percent of sellers list their homes through an agent -- but those agents are working for the seller, not you. They're paid based on a percentage, usually 5 to 7 percent of the purchase price, so their interest will be in getting you to pay more. What you need is what's known as an "Accredited Buyer Broker." Sometimes buyer agents are paid directly by you, at an hourly or contracted rate. Other times they split the commission that the seller's agent gets upon sale. A buyer's representative has the same access to homes for sale that a seller's agent does, but his or her allegiance is to represent you. To complicate matters, there are hybrid agencies called either single-agency or dual-agency brokers. In both cases, an individual agent in the firm may represent either sellers or buyers, but never both in the same transaction. Potential conflicts of interest abound in this situation, so if you are seeking a buyer agent but no exclusive buyer agent is available, make sure to ask the agent about conflicts of interest.

Find a lender

After finding an agent, you'll need to start looking for a mortgage lender. Take your time, since you could be paying this loan for 30 years. Don't limit your search to the Web. Once you have an idea of the best rates from national lenders, get on the phone to your community banks and any other institutions, including credit unions, with which you may have a relationship. Ask if they can beat the national rates. Often, the local lender can offer a better deal simply because he or she knows the local market and wants to keep your business.

What type of loan for you?

A fixed rate loan, you lock in a monthly payment amount that will remain constant throughout the life of the loan, even if interest rates rise. If interest rates fall, you can either continue paying your higher preset rate, or you could refinance your loan, though that would mean paying additional closing costs.

You may also want to pay points to lower the interest rate on your loan. Basically, points -- or the "loan discount cost," as they're more formally known -- represent a portion of the interest that you pay up front in exchange for a lower rate thereafter. One point equals 1 percent of the loan amount.

Rising interest rates can be a real risk factor. When interest rates rise, those holding adjustable mortgages will lose out in two ways: First, your debt payments will increase when the rate on your loan is readjusted upward. Second, and perhaps more important, rising mortgage rates tend to depress demand for real estate in general. So the resale value of your house could decline, perhaps significantly. The longer you plan to stay in your home, the more you should consider paying points. For instance, a lender may offer a 6 percent loan at no points, or a 5.6 percent loan with two points. If you have a 30-year, fixed-rate mortgage of $100,000, your monthly payment for a no-point loan would be $600; on the two-point loan, it would be $574. That's a small difference, just $26 a month. But if you pay the points, you'll recoup the $2,000 you spent in a little over six years of payments. Over the life of the loan, you'll save $7,500. So in this case, if you plan to stay put for six years or more, it would make sense to go with the points.

Get approved

Once you choose a lender, try to get yourself "pre-qualified," which merely means that the lender has determined the maximum home price for which it will approve a loan. If the housing market in your area is very competitive, with homes selling just days after they go on the market, then you might also consider getting "pre-approved." That means the lender agrees to provide a mortgage even before you have selected a house. Not only will this help you to move quickly to close on a home once you find one, it can also give you an edge if others are competing to buy the same property.