RISMEDIA, April 8, 2011-- While affordable housing prices, ample inventories, and historically low interest rates signal "buyer's market" for investors or move-up buyers in many U.S. markets, inexperienced first-time buyers may not know if the time is right to make a move into real estate.
"It's not about timing the market. It's about time in the market," says Steve Berkowitz, chief executive officer at Move, Inc. "Once you know how long you expect to own a home, look at the historical value performance of properties in the neighborhood. Be confident about your own job security, down payment resources and tolerance for upkeep, as well as the lifestyle you want today and in the near term. While homeownership may not be for everyone, it is the right choice for hundreds of thousands of people. Today's housing market, especially for first-time buyers, makes it almost impossible not to think about the possibilities."
To help first-time buyers know if the time is right for them, here is a "reality checklist" designed to help them decide if the time is right:
Get Your Financial House in Order
Before you decide to buy a home, it's essential to make sure your credit is in good shape and repair any damage previously done. Know your credit score: 35% of successful buyers recently reported they didn't know their credit score when they went house shopping, according to a national survey fielded for MortgageMatch.com. Having enough money set aside for a down payment is a key component to making sure you are ready to purchase a home. Also, it's important to not put all of your money in the down payment as other fees or unexpected expenses often arise after closing.
Don't Fall in Love with a House You Can't Buy
Find out how much you can afford.
Establishing your purchase power upfront, including how much money will be required for a down payment and closing costs, is a must for first-time buyers.
Look for special loans available from FHA and government sponsored loans for first-time home buyers that reduce the amount of money required to get into a home.
Learn the Lingo
Since first-time buyers are new to the market and will finance a significant portion of their purchase, it's important to get familiar with the processes and terminology associated with home buying.
Here are a few key terms to add to your vocabulary:
- Bait Rate: Misleading mortgages with low rate promises and no contingencies generally for those with extraordinary credit.
Rates are based on:
credit, debt-to-income and loan-to-value ratios, the size and type of loan, property location, and the day you lock your rate, etc.
The loan isn't locked until the application is accepted. By then, it may be too late to find a better rate from another lender.
- Basis Point: A term used in the mortgage industry which simply means 1/100th of 1 percent.
- Closing Costs: The fees required to process and close your loan. They're a cash obligation running from three to five percent of the purchase price.
Motivated sellers might pay a portion of these costs.
- FHA: Federal Housing Administration, the Federal Government Agency that oversees the US Housing market. FHA Loans are loans insured by the Dept. of Housing and Urban Development.
- FRM and ARM: A Fixed Rate Mortgage Loan (FRM) is a loan where your interest rate stays the same for the life of the loan.
ARMs are Adjustable Rate Mortgages with variable interest rates that fluctuate based on an agreed-upon index.
- GFE: The Good Faith Estimate (GFE) is a document explaining all costs involved in getting a loan.
- TIL: The Federal Truth-in-Lending Form is a document that spells out the costs and fees of the loan.
- Lis Pendens: An official notice that there is a pending lawsuit over real estate.
- Per Diem Interest: Interest you pay per day, from the day you close to the last day of the month.
- Underwriting and Underwriting Fees: Underwriting is a process the lender performs to qualify a borrower for a loan and the fee is what you pay the lender at closing to cover evaluating the risk involved with loaning you money.
- Warranty Deed: A legal document guaranteeing the seller has a right to sell a property, which is very important if you are considering a distressed or discounted property.
Mortgage Mumbo Jumbo Translated Into Knowledge and Power
While national rates on 30-year-fixed-rates mortgages have risen slightly this year, they are still at historic lows not seen since 1980, according to Freddie Mac.
"Buyers who prepare themselves financially before they start looking for a home will have a better chance of succeeding," says Sue Stewart, senior vice president for Move, Inc. "If you want to land the best mortgage that fits your needs, start early, educate yourself on your financial situation, get your documentation together and find a lender you trust."
If Now Isn't the Right Time, Prepare for Your Future Purchase
If now isn't the right time to buy a home, make a plan with a target date for when you expect to be ready. Improving your credit, paying down debt, stabilizing your work history, and calculating exactly how much you can afford, are the best ways to prepare for your future home purchase. It's also important to refrain from making any new large purchases or applying for new credit.