In her new book, Buy, Close, Move In!, award-winning real estate guru tells readers everything they need to rebuild their financial lives to wade back into the housing market. In this excerpt, she points out the biggest mistakes that prospective buyers are making.

With real estate rules, laws, and fees changing daily, it’s easy to make a mistake when shopping for a home or a loan. Here are some of the most common mistakes buyers are making in the new housing market — and some tips on how you can avoid following suit.

1. Not Understanding the New Rules

What’s changed in real estate? The details. While you still go out and shop for a home, make an offer, find financing and close on the property, the details of how this process works today are vastly different from the way we went about buying real estate five, 10, or 20 years ago. If you attempt to wade in without familiarizing yourself with the new way of doing business, you’ll find yourself blocked at almost every turn. Finding good partners (see below) can help, but you have to be prepared to provide more information and evaluate more factors in order to close successfully on a new home.

2. Failing to Build a Top Real Estate Team

If you buy and sell property for a living, you know that it’s a team sport. Even if you’re a real estate agent, you’ll still need a good lender, inspector, title or escrow company, and attorney to assist you in completing this purchase successfully. But some buyers think they can do it on their own. In today’s new real estate world, that’s a mistake. For example, even in states where real estate attorneys aren’t generally used to close house deals, using an attorney to help you negotiate a foreclosure or short-sale purchase can mean the difference between closing and sitting in limbo. Real estate agents who intimately know the foreclosure market or have colleagues who represent real estate owned properties for banks and other financial institutions can help you find the right property faster. Get on their short list as an investor with cash to spend and they’ll give you extra time and attention. Taking the time to build a great real estate team will pay off in spades. Not putting this team together ahead of time is a mistake you don’t want to make.

3. Not Responding to Your Lender’s Requests

Lenders have tightened up credit requirements and are taking the time to verify every piece of information you submit. In fact, when you apply for a mortgage today, you should expect to provide reams of documentation both with your application and during the verification process.

It’s quite likely that some of your information will disappear during the process, and you’ll be asked to replace various documents or augment your documentation. When these requests come in, you should take them seriously and respond quickly. If you don’t, you could be putting your financing in jeopardy.

4. Not Cleaning Up Your Credit in Advance

One of the ways lenders are tightening credit requirements is by raising the minimum credit score necessary to be approved for a mortgage. Prior to the credit crisis, lenders might have charged one interest rate if you had a 680 credit score — today you might need a credit score of 720 to get the same rate. When it comes to government-backed loans, FHA originally didn’t have a minimum acceptable credit score limit, but it has now instituted tougher standards that require a credit score floor of at least 600 in order to get a loan. That’s why is extremely important that you spend time cleaning up your credit history and score before you apply for a loan.

5. Paying Too Much

Although home buyers are enjoying the strongest buyers’ market in recent memory, some buyers are paying more than they should for properties. Why? There seems to be a fear growing in some areas of the country that if you don’t buy now, you’ll miss out on a once-in-a-lifetime opportunity to “get in at the bottom.” While it’s true that in some markets, “bottom feeders” are coming in and swooping up properties by the dozen, fear is the wrong emotion to drive the real estate market. The housing bubble formed because too many folks were thinking about real estate as an investment and not about the other parts of the equation. They were afraid to wait, believing that property prices would go up at 8 to 10 percent per year. We now know that property prices can tank as well as soar. The trick is to understand what the real value is in a neighborhood and not overpay for property. Don’t be pressured into making a move before you’re ready.

6. Believing What You Read and See on the Internet

Scam artists love the Internet, and there will always someone trying to scam you in some way, shape, or form. And when it comes to real estate, it’s even easier to get ensnared in someone’s web. But even if you don’t get scammed, it’s easy to get fooled by what you read or see on the Internet. If you shop for a home only on the Internet, and never go to see the property in person, you might be surprised to find that the house looks different, or the neighborhood is not as it was represented. Perhaps the property backs up to a dump or the train tracks that you didn’t notice when you did your Google search. The smartest thing you can do is take everything you see on the Internet with a grain of salt — and then take the time to see the property in person.

7. Not Understanding the Risks with a Desperate Seller

The housing crisis has produced millions of foreclosures. But it has also spawned millions of homeowners who are “underwater” with their mortgages — that is, who owe more than their homes are worth — and are offering them for sale for less than the mortgage amount. There are some risks involved when you buy a home through one of these so-called “short sales”: The property might have years of deferred maintenance (because if you can’t afford your mortgage, you probably can’t afford to maintain your home either); there may be hidden liens lurking that will cause problems after the closing; and you may have to negotiate with several lenders, which could take months. If you’re hoping for a big bargain from an underwater seller, you’ll need to be patient. And above all, you’ll need to realize that even if you’ve spent months negotiating a deal, it could fall apart overnight — and you’ll have to start all over again.

8. Forgetting to Buy Owner’s Title Insurance

When you purchase property, your lender will require you to buy a lender’s title insurance policy. But unless you also purchase an owner’s title insurance policy, only the lender will be made whole financially if something goes wrong. And there are so many things that can go wrong when it comes to title. Not only can a former owner pop out of the woodwork, but mechanics’ and tax liens can “magically” appear — especially if you’re buying a short sale. (See above.) Don’t risk it. Order an owner’s title insurance policy when you order the lender’s policy. If you’re buying with cash, don’t forget to order your owner’s policy well in advance of the closing date.

9. Not Considering a HUD Home

At a “How to Profit from Foreclosures” event I held in Atlanta in October 2009, I learned that there were more than 4,000 HUD homes for sale. (A HUD home is simply a foreclosure that had FHA financing.) I learned that there are clever ways of searching for an agent who is more than just HUD-certified, but who really knows how to put in an offer on a HUD home. (You must have a HUD-certified agent put in your offers for HUD homes.) I learned that home buyers who plan to live in the house have a two-week advantage over real estate investors. And I learned that with FHA financing about 20 to 25 percent of all homes purchased, there will be plenty of HUD homes for sale over the next few years. There are thousands of HUD homes for sale across the country, in most neighborhoods. If you’re not thinking about buying HUD homes, you should.
Excerpt from Buy, Close, Move In! reprinted courtesy of Harper Paperbacks.

Buying Bank Owned Properties

There is a lot of interest in buying bank owned properties these days. A lot of information, some good and some bad, is floating around about the subject. Often the information offered is for sale, with the promise that you can make a lot of money with little effort once you know “the secret formula”. The fact is that there are no secrets, and to make money does require effort.

What’s an REO?
REO stands for “Real Estate Owned”. These are properties that have gone through foreclosure and are now owned by the bank or mortgage company. This is not the same as a property up for foreclosure auction. When buying a property during a foreclosure sale, you must pay at least the loan balance plus any interest and other fees accumulated during the foreclosure process. You must also be prepared to pay with cash in hand. And on top of all that, you’ll receive the property 100% “as is”. That could include existing liens and even current occupants that need to be evicted. A REO, by contrast, is a much “cleaner” and attractive transaction. The REO property did not find a buyer during foreclosure auction. The bank now owns it. The bank will see to the removal of tax liens, evict occupants if needed and generally prepare for the issuance of a title insurance policy to the buyer at closing. Do be aware that REO’s may be exempt from normal disclosure requirements. In California, for example, banks are exempt from giving a Transfer Disclosure Statement, a document that normally requires sellers to tell you about any defects they are aware of.

Is it a bargain?
It’s commonly assumed that any REO must be a bargain and an opportunity for easy money. This simply isn’t true. You have to be very careful about buying a REO if your intent is to make money off of it. While it’s true that the bank is typically anxious to sell it quickly, they are also strongly motivated to get as much as they can for it. When considering the value of a REO, you need to look closely at comparable sales in the neighborhood and be sure to take into account the time and cost of any repairs or remodeling needed to prepare the house for resale. The bargains with money making potential exist, and many people do very well buying foreclosures. But there are also many REO’s that are not good buys and not likely to turn a profit.

Ready to make an offer?
Most banks have a REO department that you’ll work with in buying a REO property from them. Typically the REO department will use a listing agent to get their REO properties listed on the local MLS. Before making your offer, you’ll want to contact either the listing agent or REO department at the bank and find out as much as you can about what they know about the condition of the property and what their process is for receiving offers. Since banks almost always sell REO properties “as is”, you’ll want to be sure and include an inspection contingency in your offer that gives you time to check for hidden damage and terminate the offer if you find it. As with making any offer on real estate, you’ll make your offer more attractive if you can include documentation of your ability to pay, such as a pre-approval letter from a lender. After you’ve made your offer, you can expect the bank to make a counter offer. Then it will be up to you to decide whether to accept their counter, or offer a counter to the counter offer. Realize, you’ll be dealing with a process that probably involves multiple people at the bank, and they don’t work evenings or weekends. It’s not unusual for the process of offers and counter offers to take days or even weeks.

WASHINGTON (Reuters) – A recently created FBI team is setting priorities on mortgage fraud investigations, and the bureau is using undercover operations, wiretaps and computer technology to get evidence of economic crimes, the agency's chief said on Wednesday.

FBI Director Robert Mueller told a House Judiciary Committee hearing that the agency in December created the National Mortgage Fraud Team at headquarters to assist field offices in their pending investigations.

In his prepared remarks submitted to the committee and in his actual comments, Mueller said the team also is helping to identify the worst mortgage fraud perpetrators and to evaluate where additional FBI employees are needed.

The FBI's mortgage fraud caseload has tripled in the past three years to more than 2,400 cases, Mueller said.

In addition, the FBI has more than 560 open corporate fraud investigations, including matters directly related to the current financial crisis, he said. The FBI has declined to identify any companies under criminal investigation.

Mueller said the FBI has found new ways to detect and combat mortgage fraud.

One example involved a national FBI initiative that uses statistical correlations and advanced computer technology to search for companies and individuals with patterns of property flipping, he said.

"In addition, sophisticated investigative techniques, such as undercover operations and wiretaps, not only result in the collection of valuable evidence, they provide an opportunity to apprehend criminals in the commission of their crimes, thus reducing loss to individuals and financial institutions," he said.

Mueller said he met last week with Mary Schapiro, the head of the U.S. Securities and Exchange Commission, so that the two agencies could better coordinate investigations.

The two agencies have been investigating allegations of financial statement manipulation, accounting fraud and insider trading that contributed to the current economic crisis.

ATLANTA – Federal Reserve Chairman Ben Bernanke said Tuesday there's been "tentative signs" that the recession may be easing. But he also warned that any hope for a lasting recovery hinges on the government's success in stabilizing shaky financial markets and getting credit to flow more freely again.

Specifically, the Fed chief mentioned improvements in recent data on home and auto sales, home building and consumer spending as flickering signs of encouragement.

"Recently we have seen tentative signs that the sharp decline in economic activity may be slowing," Bernanke said during a speech at Morehouse College in Atlanta.

"A leveling out of economic activity is the first step toward recovery. To be sure, we will not have a sustainable recovery without a stabilization of our financial system and credit markets," he said.

But the Fed is "making progress on that front as well," Bernanke said, and will keep working to ease financial and credit stresses so those markets operate normally.

In a question-and-answer session after the speech, Bernanke acknowledged that the job market for graduates is the most difficult in decades. But he said the country still needs smart and hardworking people, especially in the business community, and urged students not to make financial compensation the main factor in what profession they choose.

"People ought to go into a profession based on what they enjoy, what is valuable to them, what they think is valuable to their society," Bernanke said.

Referring to the current economic crisis, Bernanke said "it is clear that some of the compensation and some of the risk-taking was excessive" in the financial community. There will be a more vigilant regulatory environment going forward, he added.

Bernanke also addressed the inequities in wealth between whites and minorities.

"Part of it has to do I think with financial education," Bernanke told students at the historically black college. "There needs to be broader understanding in minority communities ... about the importance of saving and building a credit record."

Bernanke said many factors contribute to the issue — including access to home ownership, income levels and differences in professions — but promoting financial literacy in minority communities is important.

To revive the economy, the Fed has cut a key bank lending rate to a record low of near zero and has rolled out a number of radical programs to spur lending to Americans, a key ingredient to turning around the economy.

On that front, the Fed recently plowed $1.2 trillion into the economy in an attempt to reduce interest rates for mortgages and other loans. The Fed, meanwhile, also is considering expanding a program to jump-start consumer lending, Bernanke said.

Many analysts believe the economy will continue to shrink in the April-June quarter but not nearly as much as it had been — perhaps at a rate of 2 to 2.5 percent.

The economy shrank at a 6.3 percent rate in the final three months of 2008, the worst showing in a quarter-century. Some economists say it fared about as poorly in the first three months of this year, while others expect a 4 to 5 percent rate of decline. The government releases its initial estimate for first-quarter economic activity at the end of April.

President Barack Obama is counting on the $787 billion stimulus of tax cuts and increased government spending to help bolster economic activity. The administration also has put forward plans to prop up troubled banks and to reduce home foreclosures.

The government is battling a three-headed monster: housing, credit and financial crises, which are the worst since the 1930s.

"The current crisis has been one of the most difficult financial and economic episodes in modern history," Bernanke said.

Even as the Fed chief mentioned improvements in some recent economic data, a government report released Tuesday showed the economy remains in a fragile state. Retail sales dipped 1.1 percent in March, a much weaker showing than analysts expected.

All the Fed's aggressive actions to fight the crisis also will help fend off any risk of a widespread and prolonged decline in prices, known as deflation. Bernanke didn't use the "d" word, but said that because of the weakness in economic conditions in the U.S. and worldwide, inflation has been low and will "remain quite low for some time."

Wholesale prices fell 1.2 percent in March as the cost of gasoline, other energy products and food plunged, the government reported Tuesday. Excluding volatile food and energy prices, the Producer Price Index was unchanged, below analysts' forecasts of a 0.1 percent rise.

Because the Fed's policies can help thwart a destabilizing drop in prices, they are "not at all inconsistent" with the central bank's goal of achieving stable prices over time, Bernanke said.

Some critics worry that the Fed's policies could spur inflation over the long run if key interest rates aren't quickly boosted and special lending programs aren't rapidly dismantled once the economy shows strong signs of turning around.

Bernanke acknowledged this will be a challenge and require a delicate balancing act. But he was optimistic the Fed is "well equipped to make those judgments appropriately."

Meanwhile, the government's bailout of giant insurer American International Group Inc., to the tune of more than $180 billion, underscores the urgent need for stronger regulations and new powers to minimize the damage from the collapse of a huge nonbank financial company, the Fed chief said.

"In my view, preventing the failure of AIG was the best of the very bad options available, but it nevertheless involved major costs, including financial risks to the taxpayer," Bernanke said.

The Federal Housing Administration used to be known as a place for low-income borrowers with tarnished credit histories. But now, it has become a destination for borrowers whose credentials are respectable, but not stellar.

To qualify for the best interest rates on a new or refinanced mortgage, you need to have a top-notch credit score and a substantial down payment or home equity. But if you have less than perfect credit and less than 20 percent in home equity, an important threshold, you’ll have to pay a lot more. And that’s why many of those borrowers are turning to the F.H.A.

The F.H.A. requires down payments of only 3.5 percent and has less stringent credit requirements than conventional mortgages backed by Fannie Mae and Freddie Mac, the two government-controlled mortgage finance companies. F.H.A. mortgages also have become one of the least expensive alternatives for new mortgages and refinancing, given the increase in fees tacked onto traditional loans.

“Just about anyone that is putting down less than 20 percent needs to consider F.H.A. financing,” said Joe Rogers, executive vice president of Wells Fargo Home Mortgage. “That doesn’t mean they need to take it, but they should consider it.”

The F.H.A., which was created during the Great Depression, does not make loans, but insures mortgages that meet its guidelines. Because the F.H.A. is the only viable option for a lot of people, its loans now account for a much larger percentage of all mortgages. In 2005 and 2006, at the height of the housing boom, only 1.8 percent of all mortgages were F.H.A.-backed, according to Inside Mortgage Finance. Last year, that number ballooned to 17.1 percent. The F.H.A. now insures 4.8 million single-family mortgages worth about $550 billion.

Historically, F.H.A. loans carried a certain stigma. They were viewed as hard-to-obtain loans for low-income consumers with checkered credit histories and small down payments. They also tended to be more expensive.

But in the current market, the opposite is often true. Qualifying for a regular mortgage has become more expensive, sometimes prohibitively so, given the many fees that are now layered onto conventional loans backed by Fannie Mae and Freddie Mac.

The fees are generally levied on borrowers deemed to be more risky. The charges depend on your credit score and the amount of money you’re borrowing relative to the value of your home. But they tend to hit people with credit scores under 700 and less than 20 percent in home equity. Carrying a home equity loan may result in extra fees, as will taking cash out of your home when you refinance.

The extra charges aren’t the only hurdle consumers may face. Borrowers with less than 20 percent in home equity must also purchase private mortgage insurance. The insurance has become much more difficult to qualify for and more expensive, especially in areas where home values have declined the most.

F.H.A. borrowers won’t avoid mortgage insurance, but they will escape the extra fees, lenders and mortgage brokers said. And that’s why, for many families, the F.H.A. program has become the most economical option.

If you’re having trouble securing a mortgage or refinancing an existing loan, here’s what you need to know about the F.H.A’s program:

ELIGIBILITY - Borrowers need to prove that they have sufficient income to meet their monthly mortgage payments.

Generally speaking, your payments, including taxes and insurance, should not exceed 31 percent of gross income. When you include car payments, student loans and other obligations, your total debt shouldn’t exceed more than 43 percent of gross income. But these thresholds are only guidelines. So if you have a larger than required down payment, or a good amount of money in the bank, you may be able to bend these rules.

The F.H.A. doesn’t impose any income limits or credit score minimums, but people with credit scores below 500 must have at least 10 percent of equity in their home to be eligible. (The average F.H.A. borrower has a score of 640.)

But to keep default rates down, many F.H.A.-approved lenders have recently started to impose their own credit score minimums — above and beyond the F.H.A’s. guidelines — and are requiring more stringent income documentation. Clearly, they’re trying to protect themselves: if a particular lender’s default rates exceed neighboring lenders, they can be audited and even removed from the program.

“In the last month and a half, there has been a dramatic increase in the minimum credit score required,” said Michael Moskowitz, president of Equity Now, a New York mortgage lender that makes F.H.A. loans. “Some went to 580 and others went to 620.”

COSTS Whether an F.H.A. loan will cost less depends on your personal situation. Currently, however, borrowers with credit scores less than 700 with less than 20 percent in home equity often come out ahead with F.H.A. loans. At the very least, lenders and brokers say it pays to compare the costs of an F.H.A.-insured loan versus a conventional mortgage if you fit into this category.

Generally, an F.H.A. loan’s total costs — including the interest rate and mortgage insurance — become less than a traditional mortgage’s costs as your credit score and home equity declines.

All borrowers must pay an upfront mortgage premium of 1.5 to 1.75 percent of the loan, which is usually tacked onto the loan amount. You must also pay an annual mortgage insurance premium of 0.50 of the loan amount (if you are borrowing 95 percent or less of your home’s value) or 0.55 percent (if your loan is more than that).

That premium is broken down into monthly payments. The monthly mortgage premium can be canceled once the mortgage amount falls to less than 78 percent of the home’s value, but it must be paid for at least five years — and it can only be eliminated by paying down your mortgage (not through appreciation in the value of your home).

Excluding the insurance premium, closing costs are about the same amount as you would pay with a traditional mortgage. All homes must be appraised — which costs about $400, on average — unless you’re refinancing an existing F.H.A. loan, said John Councilman, president of AMC Mortgage in Fallston, Md., and chairman of the National Association of Mortgage Brokers’ F.H.A. committee.

LOAN LIMITS - In many areas, loan amounts appear to hew closely to the conforming loan limits set by Fannie Mae and Freddie Mac. But F.H.A. limits are much lower in less expensive areas: in the lowest-cost areas, the F.H.A. will insure loans up to $271,050, though that number can rise to $729,750 in the costliest parts of, say, New York or California.

TYPES OF LOANS - The F.H.A. never trafficked in the exotic sub-prime loans that started the financial crisis. The vast majority of borrowers get a 30-year fixed-rate mortgage, though it also offers 15-year fixed rates and adjustable-rate mortgages.

FINDING A LENDER - Lenders need to be approved by the F.H.A. to participate in the program. You can find lenders or free counseling services through the Department of Housing and Urban Development’s Web site. You can search for mortgage brokers through the Upfront Mortgage Brokers Association, a trade group whose members state their fees in advance (though you’ll have to peruse the list for brokers that work with F.H.A. lenders).

ADDED BENEFITS - All F.H.A. loans can be assumed by a new borrower — as long as they qualify — which allows more flexibility if you plan on selling the home later. If mortgage rates were to rise, the new borrower is entitled to the existing interest rate.

Meanwhile, your down payment can be a gift from a family member. And co-borrowers don’t necessarily need to occupy the home. Moreover, the F.H.A. is more reluctant to foreclose on its borrowers. It has said that borrowers in default get to keep their homes about 65 percent of the time.

“They do not foreclose as quickly or without a thorough vetting of the situation,” Mr. Councilman said. “That’s very important in today’s market.”

Tax season is upon us, and homeowners everywhere will reap the benefits of tax breaks and incentives. If you're currently renting, consider the tax advantages of homeownership. Now may be the time to buy. If you're an owner or seller, new incentives will help you survive this tough housing market. Know what expenses you can deduct and understand how new laws affect you. Remember to consult your tax advisor.

1. Deduct the interest you pay on your home loan on your tax return. That means the mortgage interest deduction reduces your tax liability. And because your mortgage payments for the first few years are almost entirely comprised of interest, they are almost entirely tax deductible.
   
   
2. Deduct property taxes and points you paid to lower your loan's interest rate. The IRS offsets the expense of your state/local property taxes by allowing you to deduct them from your itemized income tax return. And you get a tax benefit if you paid points to lower your mortgage interest rate.
   
   
3. Take advantage of new laws in a challenging market. New homebuyers can get an $8,000 tax credit, short sellers won't be penalized for forgiven mortgage debt, and homeowners can contest their property taxes in a declining market.
   
   
4. Request a property tax reassessment if your home's market value has declined. You don't need to pay for a special service to have your local tax assessor adjust your property taxes. If your property value is significantly lower now than when you bought it, show proof of your home's current market value and recent comparable sales in your neighborhood.
   
   
5. Research past and proposed assessments that may apply to your home. Understanding property taxes and assessments will give you a truer picture of the cost of homeownership and help you predict and control your monthly expenses.
   
   
6. Get a reliable estimate of your property tax bill. If you're buying a home, don't rely on the tax data in the property listing. Depending on the circumstances of the sale, your tax bill can differ from the previous owner's bill.
   
   
7. Wrap your property taxes into your monthly mortgage payment. If paying one huge tax bill once or twice a year seems daunting, consider getting an escrow account. Also called an impound account, it protects the lender and offers convenience for the homeowner.
   
   
8. Understand how capital gains tax is calculated. When you sell your home, you're taxed on any profit over $250,000 if you are single, $500,000 if married. But calculating your gains isn't as simple as "price you sold it for" minus "price you paid for it." The IRS takes into account the money you put into improving the home as well. So remember to save receipts for any repairs, maintenance and upgrades.
   
   
9. Know how your tax situation changes with every real estate move you make. Whether you're buying a home, refinancing or renting out an investment property, understand how you'll be affected tax-wise.
   
   
10. See if homeownership lowers your tax liability. Your tax situation varies depending on your stage in life. Examine your payroll withholdings and reduce them to account for the reduction in net tax liability. That means more money in your pocket every pay period.