Home buyers are caught in a storm of low inventory, high demand and tight credit availability.
In these market conditions, even simple tactics or connections a potential home buyer can have could make the difference between owning a home or not.
Here are 10 tips to help first time home buyers purchase their first home:
1. Know what you can afford. When looking for a new home, make your search more effective by knowing how much home you can afford. Carefully calculate the overall monthly payments. Be sure to include additional costs like property taxes, insurance premiums, homeowners insurance, homeowners' association dues (if applicable), etc. Look at your monthly budget to understand how a mortgage payment will fit into it.
2. Identify your potential down payment. Do you have 20% of your target purchase price available for a down payment? That used to be considered the industry norm, but in this area there are other options available. If you don't have the funds for a significant downpayment, it may not be a problem. There are several loan programs that allow you to purchase a home for NO MONEY DOWN or worse case, 3.5% down with an FHA loan.There are a variety of loan programs offered at various credit levels.
3. Work with a local agent. Pinpoint the area where you'd most like to own a home, and then connect with a real estate agent who works in that area. Make sure that the agent has worked extensively in that area and has insights into local matters like taxes, schools, new developments and other issues that may be important in the contract process. Ask how many homes the agent has helped buyers purchase in your desired location to gauge their experience working in that particular area. Agents who list homes also should have a good understanding of fair market value for the homes you're considering.
4. Evaluate your preferred neighborhood. You think you know where you want to buy a home, but how much do you actually know about the neighborhood? Visit the area at different times, including during heavy commute times, weekends and later in the evening. What's the traffic like for kids in the neighborhood? How far is the nearest grocery store? Also, talk with the neighbors in your desired community. What do they like about the area? What do they dislike? Their perspectives may offer greater insight into your desired location.
5. Get credit ready. Buying a home may be one of the largest financial decisions you ever make. Be prepared. Get a copy of your current credit report, identify any discrepancies, and get them fixed — if possible — before you talk to a lender.
6. Hold off on large credit purchases. Large purchases, such as a car loan or lease, may impact your debt-to-income ratio. Changes to this number may affect your ability to qualify for the loan amount you require. Avoid taking out any loans or adding significant debt to credit lines before you try to purchase a home.
7. Season your downpayment funds. Make sure your down payment and closing-cost funds are in your account 60 to 90 days prior to closing on your home. Some loan programs may require "seasoning" on those funds, meaning they have been in your account for a certain amount of time. Be sure to know about any conditions on these funds from your lender so that you don't hold up closing. If you will be using any gift funds from family or friends for your home, be sure to get them prior to when you will need them.
8. Understand rate vs. points. With the many financial considerations that go into buying a home, none may be as confusing to first-time home buyers as the issue of "points." To start, in the real estate arena, points are generally a fee that is paid to the lender to lower the interest rate on your mortgage. One point is equal to 1 percent of the loan amount. Is it better to get a lower interest rate by paying points upfront? Or are rates so low that the reduction offered by "buying down" the rate is minimal? Consider these options carefully, and make use of the many online tools and calculators to help you understand the cost implications of both.
9. Know where you stand with lenders. Borrowers with higher credit scores — like those with scores of 720 or above — can often shop around for the lowest available interest rate and get a conventional loan. Borrowers with lower credit scores, especially those with scores of 640 and lower, may experience higher rates because of the potentially higher assumed risk by the lender. For these borrowers, don't be discouraged if you can't get the lowest rate. There often are still many promising loan options available, and the difference in payment due to the higher rate may be less than you expect.
10. Go for it! Trying to time the market perfectly is impossible. Find the home that is right for you. Waiting may cause you to miss out on lower rates, lower home prices or even that perfect home!
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