Tips for First-time Homebuyers
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
homebuyers 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.
Buy? Why?
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 advisor
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!
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