The National Association of Realtors has speculated that 2015 will be the year of the first-time homebuyer, and as many aspiring homeowners begin to dip their toes in real estate, they should prepare themselves for what can sometimes be tricky waters. With careful forethought and planning, newcomers to the real estate realm can make sure that they are ready to buy their dream home as soon as they find it.
With more than 1 million members, the National Association of REALTORS is America’s largest group of independent businesspeople and the biggest professional trade association in the U.S. NAR strives to be the collective force influencing and shaping the real estate industry, working on behalf of its members and the public.
In Washington, state houses, and municipalities, NAR represents “the Voice of Real Estate” advocating for the industry and consumers on law and rules that effect real estate. The association also sets ethical standards and helps establish and share best business practices for REALTORS. Members benefit from the cohesiveness that the National Association of REALTORS provides, along with the industry news, professional development, informational tools, and research it delivers.
“The residual financial effects of recession-driven job losses and subsequent unemployment have impeded Millennials’ entry into the home-owning market…In 2015, increases in employment opportunities will empower younger buyers to return to the market and fuel the continued housing recovery. If access to credit improves, we could see substantially larger numbers of young buyers in the market. However, given a high dependency on financial qualifications, this activity will be skewed to geographic areas with higher affordability, such as the Midwest and South.” says Jonathan Smoke, chief economist for realtor.com
Here are 10 tips to help first-time homebuyers navigate their way to becoming homeowners in the US
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.
Identify your potential downpayment
Do you have 20 percent of your target purchase price available for a downpayment? That’s often considered the industry norm, but there are other options available. If you don’t have the funds for a significant downpayment, it may not be a problem.
There are a variety of loan programs offered at various credit levels. Some mortgage programs have loans that offer a 3.5 percent downpayment or even a no downpayment option for veterans and active military. It is important to note, however, that most loans that offer less than 20 percent down have additional insurance premiums that will add to the monthly payment.
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 neighborhood 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.
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.
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.
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.
Season your downpayment funds
Make sure your downpayment 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.
Understand rate vs. points
With the many financial considerations that go into buying a home, none may be as confusing to first-time homebuyers 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.
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.
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.
First-time homebuyers who are armed with these 10 tips will find themselves ahead of the pack as they look to find and purchase their dream home. Real estate markets across the country are becoming more and more competitive, so don’t be caught unprepared and make rookie mistakes that could cost you time and money—or potentially your first place.