First-time home buyers have it tough. Not only are they competing with seasoned sellers and cash-laiden buyers, but also greatly because the supply of homes for sale is tight, and lenders are even more tightfisted.
We all know that the main issue most first-time home buyers are facing is their debt; their student debt, in particular. Currently at an all-time high of nearly $30,000 per grad, that amount is getting in the way of young professionals saving for a down payment. However, market conditions indicate that that factor in itself hasn't stop the next generation of property owners from getting their foot in the door, literally. Two out of five prospective home buyers these days aren't even in the market for a home - at least not yet.
As can be seen in today's vibrant Bostonian market, young families and first-time homebuyers begin their search months ahead of their intended property purchase. Although they sometimes get discouraged seeing cash-only deals and above-asking exchanges, they at least expose themselves to the process.
So what does it take to see that for sale sign taken down on the property you've been eyeballing? Well, we believe it's a combination of two factors: your agent's ability to be fierce during negotiations, and of course, your favorable finances. And as we'd like to tell our clients, there's no need to worry at all about the first one - it's the latter that needs your most dire attention. Here are some useful tips for your financial planning, designed to be a year in advance for your intended purchase.
A YEAR IN ADVANCE
Make sure the time is right. Use online rent or buy calculators to see if you'd really come out ahead, based on loan rates, taxes, and where rents and prices are headed in your area. Nationwide it's 38% cheaper buying vs. renting. In Boston, it's 34% (as of this writing). Still a substantial amount cheaper than having to pay for something you won't have a stake in for the long-run.
Clean up your act. Devote this year to saving money and paying down debt. You'll need at least 3.5% down for an FHA loan, or 10% to 20% for a conventional mortgage. Lenders also like to see job stability, so settle in for now. If you can, try with your current employer. And if that's just getting in the way of your career's direction, then it's not an issue to change employers - just make sure that the company you're jumping to has a better compensation package in store for you.
Learn what you like. When a home catches your eye - whether it's a full-fledged listing, a photo, or simply an ad -- pin it to your dream home board. It doesn't matter if it's a traditional cork board, a wall on your place, or even on your phone and on the cloud - all that matters is that you have a peg of what you're looking for! Another good tip is to create your own "dream home board" on Pinterest. Not only will you be able to pull it up at a moment's notice, but you can explore so many other inspirational pegs on the site. That should keep you focused on what exactly you'll be in the market for when the time comes.
SIX MONTHS OUT
Look better to lenders. To boost your credit score, order your free credit reports at annualcreditreport.com and fix any mistakes you may find in it. Pay bills on time, chip away at credit card balances, avoid new debt, and don't close any accounts or apply for new credit. The average credit score for approved mortgage applicants is 755.
Figure out what you can buy. Use an online calculator like the one at Zillow.com to estimate how much house you can afford based on your income, savings, and debts. That'll help you research homes and drill down on costs.
Forecast future bills. With an idea of how big a house you can buy, you can do a more detailed budget. Scan listings for property taxes on homes you like. Get an early estimate on homeowners insurance. Ask your agent to canvass how much your street's average utility bills come out to. And tack on 1% of the home's value for yearly maintenance.
THREE MONTHS OUT
Pick your loan. Fixed mortgage rates, currently at 4.4%, may edge up to 5% this year, as forecasted by HSH.com. If you are confident this is a starter home, you can save with a 7/1 adjustable-rate loan, now at 3.5%. The risk: You end up staying longer than seven years and rates rise sharply. Most, 92% of mortgage borrowers to be exact, opt for fixed-rate loans.
Prove you're a serious shopper. Based on your income and credit, a bank will give you a mortgage pre-approval. Remember to keep it with you at all times of your property hunt, and keep updating them as well as the months draw nearer to your intended buying season. Remember, it's the No. 1 thing you want in your back pocket when you go home shopping, at least if you're coming in with a mortgage. Even better in a hot market: Pay a few hundred to go through underwriting upfront.
Find a guide. Finally, look for a realtor who has worked in the neighborhood where you hope to live. And in a tight market like today's, ask candidates firms what their strategies are for unearthing listings and handling potential bidding wars.
Contact us now to find out how we can help you! Call (617) 505-1781 or email us at email@example.com to set up a risk-free consultation!