Being ready to buy your first home
By Karen Cheney @Money May 2, 2014: 4:05 PM ET
The hardest part about buying a home
(Money Magazine)
First-time home buyers have it tough. The home inventories are limited, and lenders are strict.
Student debt, at an all-time high of nearly $30,000 per grad, is getting in the way of saving for a down payment, says David Stevens, president and CEO of the Mortgage Bankers Association. But it's a great time to get your foot in the door.
How much cheaper buying is vs. renting nationwide
38%
Average credit score for approved mortgage applicants 755
Percentage of borrowers opting for fixed-rate loans
92%
SOURCES: Trulia.com; Realtor.org; HSH.com; Svenja Gudell, Zillow.com; David Stevens, president and CEO, Mortgage Bankers Association; Linda Descano, president and CEO, Women & Co.; Walter Molony, National Association of Realtors
"Interest rates remain the envy of even your grandparents," says Keith Gumbinger, vice president of mortgage publisher HSH.com. First, make your finances sparkle.
HOME BUYING CHECKLIST
12 months out:
Make sure the time is right.
Use our
rent or buy calculator to see if you'd really come out ahead, based on loan rates, taxes, and where rents and prices are headed in your area. Nationwide it's 38% cheaper buying vs. renting.
Clean up your act.
Devote this year to saving money and paying down debt. You'll need at least 3.5% down for an FHA loan, or 10% to 20% for a conventional mortgage. Lenders also like to see job stability, so settle in for now.
Learn what you like.
When a home catches your eye -- a listing, say, or a photo -- pin it to a board on Pinterest. Or try Swipe, a new app from the site Doorsteps, which lets you browse listing photos and mark them pass or save.
Six months out:
Look better to lenders.
To boost your credit score, order your free credit reports at
www.annualcreditreport.com and fix any mistakes. Pay bills on time, chip away at credit card balances, avoid new debt, and don't close any accounts or apply for new credit. The average credit score for approved mortgage applicants is 755.
Figure out what you can buy.
Use an
online calculator to estimate how much house you can afford based on your income, savings, and debts. That'll help you research homes and drill down on costs.
Forecast future bills.
With an idea of how big a house you can buy, you can do a more detailed budget. Scan listings for property taxes on homes you like. Get a homeowners insurance quote at
www.Insweb.com. Call local utility companies for the typical bills. And tack on 1% of the home's value for yearly maintenance.
Three months out:
Pick your loan.
Fixed mortgage rates, now 4.4%, may edge up to 5% this year, forecasts HSH.com. If you are confident this is a starter home, you can save with a 7/1 adjustable-rate loan, now 3.5%. The risk: You end up staying longer than seven years and rates rise sharply. Most -- 92% of mortgage borrowers -- opt for fixed-rate loans.
Prove you're a serious shopper.
Based on your income and credit, a bank will give you a mortgage pre-approval. "It's the No. 1 thing you want in your back pocket when you go shopping," says Svenja Gudell, an economist with Zillow.
Even better in a hot market: Pay a few hundred to go through underwriting upfront.
Find a guide. Look for a Realtor who has worked in the neighborhood where you hope to live. And in a tight market like today's, ask candidates what their strategies are for unearthing listings and handling potential bidding wars.
By ERA Henley Real Estate in Conway, AR
http://www.eraarkansas.com
ERA: 501-327-6731
