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First-time Homebuyers in Driver's Seat
Although the process might seem terrifying, if you're considering purchasing your first home here is some great news - you're in the driver's seat. That's because you have no other home to sell, making your offer very attractive to home sellers.
All other things equal, if a first-time homebuyer offers the same price for a house as homebuyer who has another house to sell, that first-time homebuyer's offer will most likely be the one that is accepted. Occasionally a lower offer from a first-time homebuyer will be accepted over a higher price from someone with another home to sell because sellers want to sell their home now- not to wait for another home to sell first, which could take months.
Feel a little better about the whole process? Great, read on.
First you'll want to get an idea of how much of a mortgage you can afford. Determining current mortgage rates and then what a payment might be can help give you a general idea of the type of house you can afford. For example, the average price of a house nationwide is nearly $210,000, according to the National Association of Realtors. So if you put down 10 percent (if you don't have that amount yet saved, that is OK, there are several ways to buy a home with less than a 10 percent down payment) that means you would borrow $187,650. Your monthly payment on a 30-year mortgage at 7 percent would be $1,248. Click here to check out home listings and prices.
Which Towns?
Continue your research by deciding on the town, or towns, that meet your needs. How important are the schools? How long of a commute to work is acceptable? Which communities are those that you would feel comfortable in? How far will you drive to go shopping? Does the proximity to family and friends matter? Get pertinent statistics and information about selected cities by clicking here.
After you begin to narrow your search to a few towns, then you need to begin educating yourself about the cost of homes in your target towns. The difference in the price of identical houses located in a city, versus a middle class town, versus an upper class town can vary by 20 percent, 30 percent, or even 50 percent (but don't forget to take property taxes into account as well). Find out what homes are for sale in a given area by clicking here.
Price Ranges
Taking all of this information into account you should then getting an idea of the price ranges in your target towns. Look online and in the newspaper for houses that are for sale. Click here to check what houses in your target towns have sold for recently. So you might find that in a middle-class town you can afford a four-bedroom colonial, whereas in an upper-class town you can only afford a three-bedroom colonial. This information can help you to narrow the focus on home search to one or two towns.
If you are concerned with resale value - perhaps you know this purchase will be a starter home and you will trade up to a larger home, or perhaps you know you will be relocating in a few years - take this advice: buy one of the smallest homes in a neighborhood. All things being equal, the resale value of an identical home will be higher if it is one of the smallest in one neighborhood rather than one of the largest in another.
Checklist for the First-time Homebuyer
1. Check your credit (and fix it if it needs fixing).
The difference in the interest rate for someone with good versus bad credit can be a full percentage point or more. In dollars and cents that can mean $100 (or more) monthly - that adds up to $1,200 a year or $36,000 over 30 years. The government-mandated web site www.annualcreditreport.com is a good place to start to get a copy of your credit report as well as information that can help you to learn more about credit reports.
2. Research the town or towns that you would like to live in.
Consider things such as schools; proximity to current (and potentially future) jobs; highway access; access to public transportation; whether the town is growing or declining; what do you get for your tax dollar in terms of services; proximity to family and friends; and availability of cultural events.
3. Assemble your team.
Find a real estate agent who specializes in your target town or towns and who you feel will best represent you. Then identify an attorney who will best protect your interest by getting referrals from your real estate agent, or from family and friends. Talk with your agent about finding the best home inspector available (quality inspectors will crawl into every nook and cranny and will provide you with reams of quality information about the home you wish to buy). Talk with your agent and your family, friends, etc. about the mortgage broker that best served their needs, taking price into account. You may want to get prequalified for a loan by a lender so you know how much you can afford, and to show sellers that you are serious about buying.
4. Take your time.
Buying your first home is the biggest purchase of your life. Don't rush into it (unless your parents want to sell you their home for half of its appraised value). Make sure you know where you want to live; have a team that has your best interest in mind; and find a home that you will be comfortable in. This does not mean buying the first one you look at. It probably means that you will visit open houses for a few months before you have made the decision of where to buy, and perhaps even before you have seriously begun working on steps 2 and 3 (get started on Step 1 even if you don't plan on buying for a year or two). See what home listings are available in given areas by clicking here.
5. Be a student of interest rates.
Fixed mortgage rates are based on the 10-year Treasury bill, and don't always move in tandem with other interest rates (fixed rate mortgages are not pegged to interest rates set by the Federal Reserve, adjustable rate mortgages are). A house with a $187,650 mortgage at 7 percent has a monthly payment of $1,248. If rates drop to 6.5 percent the monthly payment drops to $1,186; if rates rise to 8 percent the monthly payment increases to $1,377. That means when rates drop you can afford a larger house, but when rates increase you'll buy less home for your money.
6. Have fun.
Remember you're in the driver's seat because you don't have another house to sell. It will be stressful - just thinking about all of the money it will cost - but don't rush into buying your first home. Find the area you want to live in, settle on a price you would be willing to pay, and wait until a home that fits your needs comes on the market.
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