Thinking of buying a house? First time home buying can be very intimidating. Even if you've bought a home in the past, the market conditions, interest rates, and loan programs have changed in the last few years. In fact with house prices rising in the area, many people don't think that they can afford to buy.

"Affordability is a huge issue. It is the biggest stumbling block because of the prices we have in Sonoma County. Too many people automatically assume that they can't qualify for a home loan and don't even try," points out Bob Finn, Mortgage Broker for Union Trust Mortgage Services in Santa Rosa.

1) Where To Start

"The number one thing a first time homebuyer needs to know, are the market conditions. Learn them by contacting a realtor," points out Sarah Carlson from Pacific Union Real Estate in Santa Rosa. Sit down with a realtor to see what the market is doing. Ask questions like:

• What are the prices like where you would like to buy?
• Are there any new homes being built where you want to live?
• What about fixer uppers?

Knowing what is happening with the market will give you a head start in negotiations. Once you understand the market conditions, the next step is to determine how much you can borrow. Many lenders and real estate agents offer pre-qualification. It is easy and free and can give you an idea of how much you can afford.

2) The Trouble with Loans Is...

Kim Schott purchased a home in Healdsburg in 2005 and thought she was pretty savvy going into the transaction. She learned that there was more to know. "We wished that we understood the qualifying part of it. We were talking to a mortgage broker and took their word from the beginning about how much loan we could qualify for. A couple of months into the process when we were trying to get approved for the loan during escrow, we were told we needed a whole lot more money and more income to be able to buy our house." They were eventually able to buy the house after some very tense days.

Is there a difference between pre-qualifying and getting pre-approval for a loan? "Absolutely, there is a huge difference," explains Finn. "Qualifying is based on what the buyer states is their income and credit. Getting approved means that the lender has already gone through the process of pulling a credit report, looking at income taxes, bank statements, proving income and that it has all gone through underwriting."

There is more buying power with a pre-approval letter from a lender than pre-qualification. This is especially important if someone else is also bidding on the house you want. If you have pre-approval, you look better to a seller who is choosing among multiple offers.

3) Bidding Wars?

You found an agent and are pre-approved for a loan. Time to go shopping! In the kind of hot market that has hit Northern California in recent years, many first-time homebuyers are finding a lot of competition. Some home sellers receive multiple offers to wade through.

In order to personalize the transaction, many buyers write letters to the sellers explaining what they love about the house. Some even include family photos. Offering an amount below asking price is generally not a good idea.

"You probably want to make an offer that is a little over what the asking price is. You want to position yourself so that the seller is likely to accept your offer," explains Ray Hansen of Realty World Selzer Realty in Ukiah. If there are multiple offers, a low bid will likely bump you out of the competition for the property. He or she may counter all of the offers with a higher price, letting bidders know that a multiple offer situation exists. The result can be a bidding war, where buyers will try to offer a higher price than they think the other buyers will offer, a kind of blind bidding.

This kind of frenzied situation has become commonplace in today's hot real estate market. "This situation is not unique to Mendocino County, it is also happening in Lake County, and all over Northern California," observes Hansen. As a part of the offer, buyers will often include a good faith deposit, usually between $1,000 and $5,000, which becomes a part of the down payment. However, "If a person has really good credit, there isn't any requirement for the buyer to put up any cash," explains Hansen.

4) Contract Contingencies

Once a seller has accepted an offer and signed a contract, escrow begins. "Escrow is typically 30 to 45 days," says Carlson. During that time the buyer must have any inspections on the property completed and work with the lender to get the final pieces of the financing in order. While California law does not require inspections, general and pest inspections are the norm.

"The Department of Real Estate Auditors will look for pest and fungus inspection reports as a bare minimum requirement when auditing a real estate office," says Hansen. Even if a house is sold "As-is," inspections are usually ordered. "As-is" means that the seller is not willing to pay any repairs that an inspection may recommend. In any situation, if a buyer and seller can't come to an agreement as to what should be repaired and who should pay for it before the inspection contingencies are removed, the contract can be broken. If this happens too far into escrow, the buyer could lose his/her good faith deposit.

If possible, get inspections done right away. An appraisal of the property by the lender is also a crucial part of the contract contingencies. The appraiser has to agree that the property is worth the price it is being sold for. However, a house appraising under the sale amount is rare. "There have been so few instances of the appraisal coming in low that I can't remember the last time a contract was canceled because the house didn't appraise," says Hansen. So more and more buyers are getting into homes with no down payment, no good faith deposit and 100 percent financing. And some sellers will pay even closing costs, although the amount gets pushed into the price," explains Hansen. Even in a hot market with prices at record highs, many people are still able to purchase a home.

5) One Last Walk Through

Sometime in the last week before escrow closes, buyers will do one more walk through the property to make sure that there have been no major changes, or damages, since escrow began. Problems may delay the closing and continue negotiations.

6) You Bought A Home!

Your offer was accepted, your loan went through, escrow has closed and you are the proud owner of your own home. Congratulations! Now you can sit back and watch your equity grow!