Rates may soon rising, banks are still operating under tight lending conditions, inventory is shrinking, and competition for well-priced homes, especially in the first-time buyer range, is fierce. Are you being shut out of the real estate market?
Here are 10 ways to improve your chances of getting in the market and getting the home you want.
1. Know what to expect from the process
No two real estate transactions are exactly the same, but buyers who have an idea of how things work will have a leg up. "Buying your first home is one of the most important decisions of your life," said MSN. "Yet most people lack in-depth knowledge of the process." Working with an agent you can trust is key. And while you might be tempted to use the lady down the street who just got her license or your brother-in-law's cousin's stepbrother, your best bet is to ask for referrals from your core group and interview a few. After all, there are hundreds of thousands of dollars and the American dream at stake.
2. Know the market
In real estate, things can change quickly. Make sure you keep up on what's happening with mortgage rates as well as home sales and prices in your target neighborhood. You'll also want to know if any homes are in default - this will shed some light on neighborhood stability, and may also uncover a great real estate deal for you.
3. Know your neighborhood
That abandoned house on the corner might be a great deal, but as for neighborhood charm…well, how do you feel about a real-life Breaking Bad situation going on across the street? You don't want to end up on the news as a witness to a drive by, so make sure you consider more than price when narrowing down neighborhoods. How are the schools? Great Schools can give you some insight, but you'll also to simply ask those who live in the area. If you don't know anyone, reaching out to your contacts through social media is a good way to make use of your extended network. You'll also want info on area crime rates, which your agent should be able to provide. The local police department can also give you some information. Finally, you'll want to check registered sex offenders in the area, which you can do on a site like Family Watchdog.
4. Know your credit score
Minimum scores needed to qualify for a mortgage vary depending on the type of loan, the lender, the going rates, the amount of money you are putting down…it's a complicated equation your lender can help explain. For an FHA loan, which is what many first-time buyers use because of the more relaxed requirements, buyers typically need a "minimum FICO score of 580 to qualify for the low down payment advantage, which is currently at around 3.5 percent," said FHA. Buyers should know that a score that low in combination with the minimum down payment may result in a more complicated loan approval process and a higher rate. And "borrowers need, in general for a conventional mortgage, a minimum FICO score of about 650," said Huffington Post. "Remember, the higher your credit score, the lower your mortgage interest rate will be."
5. Know how much it really costs to buy a house
Down payments are one thing. Have you factored in any upfront fees you are expected to pay? Your earnest money required to show the seller good faith? How about your closing costs? These will vary depending on your lender and your loan, but closing costs are usually between three and five percent of your loan amount, which can be a hefty and sometimes unexpected output of cash on top of everything else you just paid. For a detailed breakdown of FHA closing costs, click here.
6. Know how much you can afford
And stick to it, even if it's tough to find a house you like. Busting your budget won't pay off in the end if it's a constant struggle to keep up with your mortgage payments. "The rule of thumb is that you can buy housing that runs about two-and-one-half times your annual salary," said CNN Money. "But you'll do better to use one of many calculators available online to get a better handle on how your income, debts, and expenses affect what you can afford."
7. Know how monthly payments really work
About those calculators…many real estate sites and online calculators calculate principal and interest only, but as a homeowner, you will also pay insurance and taxes. If you put less than 20 percent down, you will also have to add in private mortgage insurance. And if you are in a planned community, you need to account for homeowners association (HOA) dues as well. Make sure you ask your agent about HOA fees, and ask your lender to do a calculation including everything you will pay on a monthly basis. You can also try this one.
8. Know how to win friends and influence people
Nothing tests the patience like losing out on the home you've fallen in love with (unless it's losing out on 2 or 3 or 10 - hey, it's tough out there for a first-time buyer.) A good agent should be able to reach out to his or her network to potentially find you a home that is not currently on the market or help you stand apart. But you can also take it into your own hands! Try a little tenderness, and you just might get ahead. After all, not EVERYTHING is about the bottom line. "To stand out from the pack, an increasing number of buyers are taking the old-fashioned approach and penning a love letter to sellers telling them what they adore about the house and why they are the best suitor to end up with it," said MSN. Sometimes, all it takes is a little something extra to take you from frustrated homebuyer to happy homeowner, and making a personal connection with a seller who may be overwhelmed with offers can only help.
9. Know how to play hardball
Is somebody who's working for you underperforming instead of over-delivering? Go back to that whole "working for you" thing. If you remember that your realtor, your lender, and your title company are all there to help you - but they're being paid to do so - it'll be easier to have a tough conversation if and when necessary.
10. Know when to cut and run - and how
An inexperienced, overly busy/inattentive, unethical or abusive agent or lender can turn what should be a joyous experience into a disaster. If you reach the point where it's time to move on, heed this advice from MSN: "Once you're ready to break up with your agent, make sure you have this dissolution in writing. That protects you from paying unnecessary commission and keeps the agent from continuing to work on your behalf after you've moved on. Make sure you have the agent revise a contract of representation if you signed one to make it clear that the relationship has been cancelled."