First-time homebuyers have it
tough. The supply of homes for sale is tight, and lenders are tightfisted.
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
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. "Interest rates
remain the envy of even your grandparents," says Keith Gumbinger, vice
president of mortgage publisher HSH.com. First, make your finances sparkle.
THE
TURNING-POINT CHECKLIST:
12 months in
advance:
Make sure the
time is right. Use Trulia.com's 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 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 like the one at
Zillow.com 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 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.
