Mortgage rates are low. Consumer confidence in the residential real estate market is growing. Meanwhile, the inventory of homes for sale is tighter than ever, approaching record lows. And this hot real estate market is driving homes prices skyward.
The quick, yet obvious, response is to be focused and prepared. And that applies to all aspects of your home search, including researching where you'd like to live and getting your financials in order. That preparation will allow you to act quickly when you find your dream home—because that's exactly what your competition is doing.
First‐time home buyers, always a critical segment of the residential real estate market, are on the increase, according to the National Association of Realtors (NAR).
It's a trend that's been building since the housing market began its rebound from the 2008 recession. The NAR's 2017 Profile of Home Buyers and Sellers found that 34 percent of all buyers were purchasing a home for the first time, compared to a record low of 32 percent in 2015. Many of these first purchasers are Millennials, according to a 2017 NAR survey, Home Buyer and Seller Generational Trends. That report revealed that home buyers age 36 and younger are the largest segment of the overall market at 34 percent, with two thirds of them purchasing for the first time.
At the same time these new home buyers are entering the market, the supply of homes for sale has tightened significantly. Nationwide, existing home inventory in September was 6.4 percent lower than one year previous, a segment that has decreased each month for more than two years.*
Here are some tips for first‐time home buyers—helpful for repeat buyers as well, given the tight market.
Find a lender and establish a relationship – Mortgages are complicated. Seeking a loan online might seem simple and efficient but a local lender can help streamline the process, answer questions and assist you with other services.
How much house can you afford? – A mortgage lender can help you determine how much you can borrow and how much you should spend for a home—not always the same amount. For example, just because you have been approved for a $250,000 mortgage doesn't mean you should borrow that much. Consider the cost of the mortgage along with your other monthly expenses and your long‐term financial goals.
Do your homework on mortgages – There are multiple options for financing a home purchase, ranging from conventional mortgages and low down payment programs from banks to government‐funded programs that assist home buyers. It's wise to consult your lender and gather information on financing options before starting a home search, to help identify houses you can afford. Here are some options:
Get pre‐approved for a mortgage – If you find a home you want to buy, or get into a bidding war with other buyers, having financing in place could give you an advantage with the seller. Getting pre‐approved is one of the most important steps in the process. Work with your lender to complete a loan application. A pre‐approval is a conditional approval of your credit documentation, while a pre‐qualification is only an approximation of what you are eligible to borrow. When you are ready to make an offer on a home, the seller knows your offer is solid with a pre‐approval.
Set your priorities – Perhaps you already know the city or town where you want to live, or you have targeted specific neighborhoods or school districts. Even if your search is wide open, you'll want to identify at least a few basic needs and wants to make your search focused and efficient. Once you have your list, keep the big picture in mind and compromise if needed. It's rare to find your idea of a perfect house of the size you want, in the right neighborhood, in the top‐ranked school district. At a time when desirable (or even not‐so‐desirable) homes sell in hours or days, knowing your priorities and where you're willing to compromise can pay off.
Plan for additional costs – Be sure to budget for the cost of a home inspection, homeowners insurance and closing costs. Depending on the condition of the home, or your individual preference, you should budget for things such as painting, furnishings and repairs or renovation after you complete your purchase.
Buying a home could be the largest financial transaction you ever will make. Take steps in advance to help ensure that when you find that dream home, you can make it yours. To learn more, visit our Mortgage Center.