What exactly does it take to buy a house? Whether it's your first home or you're making a change, the housing market and the process has changed a bit in the last few years. Buying a home in 2015 looks a little different than it did in 2005, just 10 years ago.
What if you're buying your first home in 2015? Is it even more different than it was for first time home buyers 10 years ago? the answer is yes, you'll find a few things different. You'll also find some things have never changed.
First off, let's look at the obvious: Buying a house is a big deal. This isn't simply a short-term commitment. A 30-year mortgage and the home you'll live in for at least a few years shouldn't be a simple wave of a wand. It will take some work, and you'll probably want to take your time making decisions.
In the last few years we've seen the housing bubble grow and burst. We've watched our friends, neighbors and family lose equity and end up underwater on their mortgages...even going into foreclosure. The investment of a home has become more of a liability and an expense rather than a true investment.
The reasons for the housing market meltdown vary. But one thing is clear: the change in the market made it tough for the fly-by-night operators to survive. Mortgage lenders that weathered the storm did so by practicing honest business, treating home buyers well and investing in their communities rather than trying to make a quick buck on borrowers that couldn't afford the loans they were taking on. What's left behind is a landscape of cautious lenders and borrowers ready for a recovering housing market.
So ... where does that leave those who want to become first time home buyers in 2015? It leaves you with a bit more of a limited menu of loans - no more will you find loans like sub-prime mortgages, stated income stated asset loans or other risky propositions. Instead, you're left with tried and true mortgages like FHA loans, USDA Rural Development and conventional mortgage loans.
Buying your first home in 2015 won't necessarily be an easy road. But it also doesn't have to be painful. Preparing early can help ensure a smoother process and likely bring that successful closing right to your door. Let's look at 5 tips and tricks to become a first time home buyer in 2015.
1: Educate Yourself - Take time to look around and educate yourself on the home buying process, the mortgage world and what it might mean to your overall budget to own a home. As a first time buyer, you may not have thought of the extra expenses that go into a owning a home: yard maintenance, utilities, taxes, insurance ... be realistic in your assessment.
Knowing your mortgage options is part of the education process as well. Did you know you have more than one option for financing your first home? While there really aren't loans only for a first house, you'll find that some mortgage might be more "friendly" for you. You could find 100% financing options like USDA Rural Development or VA loans helpful. You might also decide a low-down payment option like FHA is good for you. Or if you're looking at fixer-upper homes a renovation mortgage might be the right fit.
Education is important in many aspects of life. Buying your first home is a big deal - take the time to educate yourself so you're a more powerful buyer.
2: Get Mortgage Pre-Approval - House hunting without mortgage pre-approval is like taking a trip without an itinerary and map. You might get where you're going, but you'll probably find a few problems along the way. Years ago, finding a house and making an offer without pre-approval wasn't a big deal. Many banks essentially gave blank checks to a lot of potential buyers. Money was almost free. Today, lenders are back to the more cautious side of the tracks and want to make sure you can pay your loan. Sellers want to know that your offer is real. If you don't have the backing of a lender, you may not be taken seriously.
Mortgage pre-approval also helps you know just how much of a house payment you can afford, putting you in the right mind set for home prices. A mortgage consultant will help you see the house payment you can handle, as well as the homeowners insurance and taxes you'll take on. This is an important step.
3: Talk to a Real Estate Agent - Sure you can find home listings on website like Trulia and Zillow. But a real estate agent often has that information sooner - it's more accurate. They also know the ins-and-outs of negotiations, pricing, comparable home prices and more.
If you're concerned about the cost of an agent, remember that the seller pays the price of real estate agents. Saving them cash may end up costing you in the end. An agent should know the comparable selling prices in the area and be ready negotiate. It's what they do.
Find a real estate agent or REALTOR® you can work with - someone you trust and who fits your needs.
4: Credit Improvement - We all have areas of our lives where we can improve. No matter how good we might be at, let's say, painting, practice makes us better. The same can be said for our credit scores. Unless your credit is absolutely perfect, there's almost always room for improvement. Most often, the better your FICO score, the lower interest rates you can get for loans.
Get yourself on the road to mortgage-ready credit with a few simple first-steps:
- Pay your bills on time - late payments on bills that report to the credit bureaus can drop your scroe significantly.
- Keep your credit lines below 30% of their maximums - if your credit card has a $10,000 max, keep your debt under $3,000
- Keep an eye on your credit history - you have the right to your credit report once per year from each of the credit bureaus. Get your report from each one in different quarters of the year, and make sure no one is charging on your credit when they shouldn't be. Dispute mistakes.
Learn more about what kind of a FICO score you may want to shoot for: What's a Good Credit Score for a First Time Home Buyer?
5: Save Up Cash - Even if your mortgage loan offers 100% financing, you may have closing costs like funding your escrow account or paying inspection fees. Have cash in your bank account just in case.
Also, owning a home takes money. If you're buying a home that's not brand new, you may find things wrong with it - an old furnace, leaky windows, remodeling "wants" - and need some cash on-hand to take care of some things. Save up money each paycheck, put bonuses or holiday gifts away in the bank and build up some savings.
Pro tip: Don't just stuff money under your mattress. Be sure to keep a paper trail by depositing in your bank or credit union. Lenders love paper trails. It will help in the long run.
Buying a home isn't an instant gratification situation. It takes time, planning and work. Be patient - but know that it just might be possible to become a first time home buyer this year if you're willing to work at it.