Tips for First-time Home Buyers
Are you already deep into the search for your first home, just beginning to consider whether owning your own home is right for you – or somewhere in between?
In any case, you’ve got a lot of company. According to the National Association of Realtors®, about 40 percent of existing homes are purchased by first-time buyers every year, with sales of new homes to first-timers adding to the total. That’s nearly three million sales to first-time home buyers annually.
Overall, the desire for homeownership continues to appeal to a big majority of us. Statistics compiled by the U.S. Census Bureau show that home sales rose to record levels five years in a row. In the fourth quarter of 2006, the national homeownership rate was 68.9 percent, a near record high.
In addition, home ownership knows no boundaries when it comes to sales to newcomers to our shores. U.S. Census Bureau data indicates that foreign-born Americans are as likely to buy homes as native-born Americans, and it may surprise you to learn that the home ownership rate for immigrants who have lived here for 30-plus years exceeds the national average.
So, what is it about owning a home of one’s own that so many of us find attractive? The first answer that comes to mind for most of us is the financial advantages. As a home owner, you can build equity in your property over time, and you can benefit from the substantial tax advantage of the deductibility of the interest portion of your mortgage payment.* In addition, upgrades and improvements to your home can add value, as well as add to your comfort and enjoyment for years to come.
That said, the appeal of homeownership can be as much about the intangible benefits as about the cold hard facts of investment potential and tax savings. Your home is, well, yours, a means of expressing your personal taste and satisfying a fundamental need for shelter and security for yourself and your family. It also represents a solid connection to community, and instills a sense of place and participation in community life.
*Individual tax savings vary. Consult your tax adviser for details about potential tax consequences.
The Hardest Part: Getting Started
The most daunting part of choosing your first home is simply getting started; it’s a complex process full of uncertainties and unknowns that can seem overwhelming at times. If you’ve ever felt that way, don’t worry, those feelings are part of the process too.
The best way that we know to keep you on the path that leads to the door of your first home is information, a lot of which you’ll find right here on ERA.com, some from research elsewhere on the Internet, talking to friends and co-workers, and – perhaps when you’ve narrowed down your choices to a specific area, town or neighborhood – from working with a local ERA Real Estate professional.
You’ve already made one smart step toward home ownership by putting the power of the Internet to work for you. Used wisely, the Internet can help you do an amazing amount of research on all the things it takes to find the home that’s right for you in an amazingly short time. That’s why nearly 80% of searches for a home begin on the Internet; and that percentage continues to grow.
Tips to Help Keep You on Track
Of course, the potential downside of all that searching is a quick trip to information overload, and a heapin’ helpin’ of frustration. Here are a few tips on what to look for that should help keep your search for your first home on track:
Know What you Need – It’s easy to get distracted and lose sight of your basic needs once you’re in the middle of searching for your first home. Early in the process, it’s helpful to list your basic needs; minimum square footage and number of bedrooms and bathrooms, as well as proximity to schools, shopping – whatever you think you must have in your new home.
List Your ‘Nice to Haves’ – Now that you’ve got a firm handle on the ‘must haves,’ make a second list of the ‘nice to haves;’ things like a bigger garage, extra bedroom, in-ground pool, etc. Between these two lists, you’re already off to a great start on zeroing in on the home that’s right for you.
How Much Can You Afford? – In general, the answer to this question is a function of how big a down payment you can put down and how much you are able to borrow, based on your credit score and other factors as determined by a lender. There are many loan calculators on the Internet to help you determine what you can afford; none of these is a substitute for discussing your needs with a reputable lender. A common rule of thumb is that your annual mortgage payments, taxes and homeowner’s insurance should not exceed 28% of your gross annual income.
Note: In addition to a down payment, you should keep up to 5% of your home’s purchase price in reserve to cover closing costs and contingencies.
Check Your Credit – … and your debt. This would be a great time to obtain a copy of your credit report from a credit service bureau and make sure that your credit history is in order. Most lenders breathe easier when your total monthly debt service from all sources – including homeowner’s insurance, property taxes and your mortgage payment – will be below 40% of your gross income. Note: Cancel credit cards you never use; the credit line, even if unused, can raise a flag with lenders.
Research Your Favorite Neighborhoods – The Internet makes it a snap to research economic, demographic and a whole host of other data about specific communities and neighborhoods with a few mouse clicks. Real estate sites of global real estate brands (such as ERA.com) and the sites of area Chambers of Commerce are excellent sources.
Find out What’s Available – Searching online for homes in the area of your choice will return online listings, virtual tours, and an endless array of photographs, aerial views and maps of homes and the surrounding area. Check the listings against your list of ‘must haves’ and ‘nice to haves’ and decide whether prices are in your ballpark.
Start Kicking the Tires – Once you’ve settled on the type of home and neighborhood you’re looking for, it’s time to make the move from ‘clicks to bricks’ and start looking at properties. We believe that the using services of a real estate professional is the best way to successfully get you through the emotional and often complex process of choosing and purchasing your home. A real estate professional will listen to your needs, and show you homes that fit your particular desires; homes that may even be new to the market and whose listings are not yet generally available online. In addition, a real estate professional is dedicated to taking care of the seemingly endless details that buying a home entails and keeping the process on track to a successful conclusion at the closing table. Note: Bring a camera and a copy of the listing when you view a property, and take notes on your likes and dislikes.
Shop for Financing – With the availability of fixed rate, adjustable rate, hybrid, interest-only, etc., etc. programs for financing your first home, entire books can (and are) written on the subject of financing your home. In short, research financing options while you’re researching potential neighborhoods, and shop for financing as soon as you’re ready to begin viewing properties.
Note: Competition for choice properties occurs regardless of market conditions, and the potential buyer whose mortgage line of credit is pre-approved often walks away with a signed contract for their dream home.
A Final Tip – When you find the first home that’s perfect for you, buy it!
Get started with the home buyers class: www.whninc.org