We all know that the housing market has crashed, and it is working to correct itself from the housing boom. Unfortunately, foreclosures and falling home prices are the result of the market correcting itself. However, as prices fall in your area and sellers become more desperate to dump the home they bought a few years ago at an extra-premium price, a great opportunity is being created for young couples and single professionals looking to buy their first home. Suze Orman writes an article about the opportunities for first-time buyers right now. She gives first-time buyers five tips for finding their first home. Let’s take a look at them.
Take A New Look
Orman encourages new buyers to look at new construciton to find deals, because builders are getting desperate to unload their inventory. I agree with this. Sometimes, we tend to focus on existing homes, because the deals can be found there most of the time. However, builders are willing to negotiate, because they were building in 2006, and still trying to sell their inventory from that was completed in 2007 when the market crashed.
Know What Price is Right
Do your homework when it comes to putting a bid on the house. You don’t want to buy something at a price that will continue to go down in value. Orman explains that you should calculate what the percentage change has been for the market value of the home over the past 18 months. The best way to do this in your pajamas is by looking up the street address on Zillow.com. The site calculates an estimate of the property based on comparisons of recent sales in the area and creates a fair market value estimate. It will give you a track record of value for the past 5 years and show you recent sales prices. You’re looking to buy the home for the rock-bottom price that the area’s housing market will fall.
Buy with a 5 year time frame
Just make sure that if you buy right now, you’re planning on staying there for at least 5 years. You can run the risk of being upside down on the home after factoring in sales commissions and closing costs if you go to resell your home after a year or two.
Shore up your score
Orman explains that you should spend the $30 bucks to buy all three of your credit scores to figure out what kind of financing and interest rate you can qualify for. Her example shows that you can save a lot of money with a higher credit score. I wouldn’t go crazy about playing games with trying to increase your credit score, because typically, you have to get into MORE debt or open up MORE credit accounts to increase your score, which can be a bad thing if you have a problem with financial discipline. Obviously, you need to pay off any collections on your credit report immediately, and then focus on increasing your score to the mid 700’s.
Get the low-down on down payments
One thing that sucks for first-time homeowners is that it will be harder to get financing without a decent sized down payment. During the housing boom, you could easily get 100% financing with a good credit history. Now, lenders have tightened up their guidelines, because their loose guidelines were part of the reason the credit industry crashed. I would try to save up at least 5 to 10 percent for a down payment, but 20% is always the ideal amount, because you can avoid private mortgage insurance. If you can qualify for an FHA loan, they only require a 3% down payment.
My wife and I aren’t first-time buyers, but we will definitely be looking to buy a home in mid to late 2008. I think it’s a great time to steal a house with patience and research. Have any of you found a great deal on a house recently? Share your story below.