Ready, set, bid Careful preparation can only help first-time homebuyers in current market
Shopping for your first home? Good luck. Sellers hold almost all the cards in this housing market. But there is good news. You have a few advantages over veteran buyers, including access to programs designed to help you secure keys to your first home.
Sarah Young, a 35-year-old Columbus schools counselor, understands what it takes to win a home in this crazy market.
After being outbid on two Pickerington condominiums over the past two years, Young landed one this spring, helped by the Ohio Heroes Program, which lowered
her loan’s interest rate, and a clear knowledge of the market.
“I was not anticipating the market would be so competitive,” Young says now.
When she found another unit she loved in March, she offered above asking price and sweetened the pot with a letter explaining to the seller why she wanted the home. Those moves worked.
For more tips, we turned to: Mark Hamrick, a senior economic analyst with Bankrate.com, the financial-services website; Felicia Hence, a Coldwell Banker King Thompson agent in Pickerington; John Igoe, president of the Columbus Mortgage Bankers Association and chief operating officer with First Ohio Home Finance in Westerville; Tracey Shell, director of marketing with Down Payment Resource; and Darryl Threat, a HER Realtors
agent in Clintonville.
Their advice to first-time buyers:
Check your credit
Several services — including the federally approved website annualcreditreport. com — allow you to receive at least one free credit report per year. If your credit score is below 580, devote your attention to improving your credit instead of buying a home. A score above 660 should give you access to most loans and programs.
Pick a lender
First- time buyers can use any lender, but to find those that specifically deal with public first- time buyer programs, search the Ohio Housing Finance Agency’s first- time buyers’ site, MyOhioHome.org. “Finding a lender and, more importantly, the individual loan officer is very important,” Igoe said.
Save a down payment
While a 20 percent down payment is still ideal to get the best loan terms, few buyers can pony up that much money. In fact, Federal Housing Administration loans allow down payments as low as 3.5 percent, and conventional loans can be secured with as little as 5 percent down, or even 3 percent for certain buyers.
In addition, a long menu of federal, state and local programs can help with down payments or provide a tax credit for first- time buyers. Most programs are restricted in some way — such as by income, background (members of the military or recent college graduates, for example), location of home or job — but they are worth exploring for any first- timer. To find such programs, visit MyOhioHome.org or DownPaymentResource.com.
In addition to government programs, it’s worth asking your employer if they offer any home-buying help for workers, Shell said.
Get pre- approved
Before visiting homes, it’s essential in this market to secure a pre-approval letter from a lender. Sellers who can choose from a half-dozen offers will bypass those who can’t demonstrate an ability to close the deal. Also keep in mind that sellers will often choose a shopper approved for a conventional loan over one planning to finance through FHA. That’s because an FHA loan may take longer to close and require a more stringent appraisal.
Don’t stretch yourself
Just because you qualify for a $200,000 home doesn’t mean that’s where you should focus your search. In addition, as Hence points out, many central Ohio homes sell above their asking price, so if you’re approved for $200,000, look at homes at $190,000 or less to allow some cushion.
Hamrick suggests not spending more than 25 percent of your monthly gross income on housing, even if most lenders will approve far more than that. He notes that most first- time buyers are also at the age where they need to start other investments, such as retirement funds or college accounts for their children.” It’s easy to think if you check the home-buying box, you’ve accomplished everything financially,” he said. “Nothing could be further from the truth.”
Pick a real- estate agent
Navigating today’s housing landscape is tricky for even seasoned buyers, so first- timers should not attempt to go it alone. And there’s no reason to because buyers don’t pay their agent’s commission; sellers do. Interview agents before choosing one. Are they used to working with first- timers? Familiar with the area you’re looking in? Accustomed to dealing with someone in your price range? Hamrick likes agents who exclusively represent buyers, but at the very least, be sure your agent is familiar with the buyer side of the equation.
Decide what’s essential
Also decide what’s not essential you start shopping. You’ll probably need to make an immediate decision on a home once it’s available. To do that, you need to know beforehand what you can’t live without.
“Be flexible in terms of what your wants are,” said Casaundra Johnson, who bought her first home in the Galloway area last year.
“You have your needs – number of bedrooms, bathrooms, if you have a dog, some things are absolutes. But think, ‘ Is this the forever home you’re buying or is this your starter home?’ If it’s your starter home, can you be comfortable without everything you dreamed of? It’s easy to get caught up on things like paint. You can do that yourself. Don’t let that deter you. My basement was lime green when I bought it. Don’t get distracted by things you can change.”
In addition to considering where you want to live now, think about where you’ll want to live in five years. If you plan to spend less than five years in the home, think twice about buying. Even with today’s fast- rising home prices, it’s difficult to make money on a home you own for only a short time.
Be prepared to act
The days of mulling over a home or making a low-ball offer are past. Buyers must be ready to make a serious offer immediately. “Buyers will be running into a lot of multiple offers,” Threat said. “When they fall in love with something, they need to be prepared to go in with their highest and best offer. If not, they’re just going to lose.”
Exploit your advantages
While first- time buyers may lack the financial resources of seasoned buyers, you probably have two advantages that can boost your offer. Your offer won’t be contingent on selling another home, which is a big plus. In addition, you’re more likely to be flexible with your occupancy date. Saying so in your offer may bump you up the ladder.
Relax
Buyers can get discouraged when they show up at a home only to find two dozen other shoppers already there. But worse than missing out on your dream home is buying the wrong home. Homes will continue to come on the market, and if you don’t buy one this summer or fall, keep this in mind: Buyers get better deals in the winter.