The New Status Quo for First Time Buyers
Posted by Lee Cameron on Tuesday, March 29th, 2011 at 12:03pm.It wasn't too long ago that first-time homebuyers made up 40% of home sales. That number has fallen drastically in the last couple years thanks to new regulations and policies that have made it harder and more expensive to buy a home. After banks lost billions of dollars during the housing crash, lenders are stricter and more careful than ever about new mortgages. Additionally, even more fees have been added to new mortgages in an attempt to make up for the losses of the last few years.
But while mortgages may be getting more expensive, home prices are still steadily declining and it remains a buyer's market out there. New home buyers simply need to be aware that the landscape is different for them now than it was a few years ago.
Stay For the Long Haul
This is probably true of most home purchases right now, but it's especially true for first-time buyers. At the current state of the market, it may take years - maybe even a decade - before a buyer can expect to sell their home for more than they paid for it. Buyers should see a home as a chance to grow equity over a long period of time, now, as opposed to a chance to make a profit by selling in a few years.
Be Competitive
Just a couple years ago, sellers were often desperate enough to take any decent offer that came their way. But now, the market is slowly starting to change. Investors and buyers from overseas are coming in and taking advantage of the low prices. And they're buying with cash. Cash is almost always more attractive to sellers, since they won't have to wait for a lender to approve financing (and because lenders are especially slow right now). That means, for first-time buyers, the days of being able to include a long list of repairs and provisions in your offer are over. Don't be surprised if you run into some competition out there in the market. And if you do, keep your offer attractive by keeping it simple.
More Money Down
Though it is still entirely possible to get a mortgage with a down payment of less than 5%, you may not want to. Insurance fees on mortgages with lower down payments have gone up, often costing the buyer a lot more in the long run. Additionally, the average down payment has also jumped to a whopping 34%, thanks to tighter lending requirements and many wealthy buyers looking to take advantage of the low prices on the market.
Naturally, most first-time buyers will not be able to afford such a sizable down payment. Luckily, there are still some options. For instance, many first-time buyers can qualify for government grants of low interest loans from the government to help cover the cost of a down payment. Buyers can also have a co-applicant on the mortgage if they don't mind co-owning the property. Also, many lenders still allow a cash gift from family members as long as it comes with a notarized letter that states that the money will not need to be repaid at a future date.
It's still a great market for buyers, but it's not the same market it was six or even two years ago. Buyers need to know what they're getting into and they need to be prepared for the new status quo.
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Interesting!
Posted on Tuesday, March 29th, 2011 at 1:57pm.