Tuesday, December 22, 2015
Buying Your First Home in 2016? Start Now.
The State of the Real Estate Market
First-time homebuyers found the pickings to be slim for affordable starter homes in 2015, especially in hotter markers like Denver, Portland, Dallas, Seattle and much of California. Slim pickings in their price range kept thousands of potential buyers in rentals for another year. Will 2016 be any different?
New home construction is expected to improve considerably over last year as builders respond to rising prices. The will put the new-home market on track to reach 91 percent of its average norm by 2017, according to the National Association of Home Builders. News homes are generally priced higher than first-timers can afford, but the new construction will still make a positive contribution to the inventory shortage.
More import is the outlook for existing homes. Supply of entry-level homes has been constricted by the unwillingness of current owners to sell and move up the housing ladder to a more expensive home, but that may change in 2016.
“Sales activity in 2016 will once again be primarily driven by the ongoing release of more pent-up sellers finally realizing their equity gains and using it towards the down payment on their next home,” says Lawrence Yun, chief economist for the National Association of Realtors. Yun predicts home sales will finish 2015 at a pace of 5.30 million and grow three percent next year to around 5.45 million.
However, 2015 is ending with a question mark about the inventory outlook. Both NAR and Redfin reported that in October total homes for sale were down 4.5 percent from 2014 and NAR reported the inventor of unsold homes in October stood at a 4.8-month supply, below six months considered normal.
When the spring season opens, one thing is certain. Inventories will be much larger than in the late fall, with fresh, new listings for sale. Again, the early birds will get the worms.
How to Get Started
If you’re serious about becoming a homeowner in 2016, you need to be getting ready now. Here’s a checklist to get you started.
Get your credit in order. If you haven’t been managing your credit before, it’s too late to do much about big problems like bankruptcies or tax liens. You should , however, still order reports from three top credit reporting agencies (Experian, Transunion and Equifax) to look for any errors or questionable calls that you might challenge. Here’s a list of credit do’s and don’ts:
Pay all your bills on time
Pay down as much debt as you can, especially smaller amounts on high interest cards. That will reduce your minimum monthly payments.
Consolidate high interest credit card debt with a lower interest card or personal loan. Again, you will reduce your minimum payments, which lenders total to determine your debt-to-income ratio.
Make any large purchases on credit.
Open any new credit card or store credit accounts. Too much credit can be a negative and every time you apply for new credit, your rating takes a small hit.
Cancel your oldest credit card. Lenders like to see a long history of good credit.
Get a down payment strategy. To buy a home, you will need cash for a down payment and closing costs, which roughly will come to about 3.5 percent of the total cost of your home. Of course, there are options to consider.
You don’t need 20 percent down for many mortgage options; the average down payment in 2014 was only 10 percent and among first-time buyers, only 6 percent. That’s because most first-time buyers are using FHA financing these days to take advantage of its 3.5 percent down payment requirement. Look into your down payment options, including:
Down payment assistance with a low or no-down payment loan from a state or local housing authority. Feel free to contact us for information if you’re looking to buy a home in Connecticut—we’re kind of experts.
You can’t take out a loan for your down payment, but you can receive assistance from parents or relatives.
Both Fannie Mae and Freddie Mae initiated new loan down payment programs early in 2015. Fannie’s program is limited to qualified first-time buyers and requires a down payment as low as three percent and requires private mortgage insurance or other risk sharing. Freddie Mac’s program also requires only 3 percent down but first-time buyers must complete a home education course, like Freddie Mac’s online CreditSmart course. Minimum credit scores for either program is 620.
You can qualify for a VA loan, which has no down payment requirement if you have 90 consecutive days of active duty service during war time, 181 consecutive days of service during peacetime, or 6 years of service in the Reserves or National Guard. You can also qualify if you are the spouse of a veteran who died in the line of duty, the spouse of a service member who is a prisoner of war or missing in action, or the surviving spouse of a disabled veteran whose disability may or may not have been the cause of death.
Get your documentation in order. Having your paperwork in order when you apply for a loan speeds the approval process along.
If you are emplolyed full-time, let your human resources office know that you plan to apply for a mortgage so that they will be ready to get you the right paperwork.
If you are self-employed, part-tine or seasonally employed or rely on income aside from full-time employment such as alimony, child support, royalties, sales commissions, dividends, etc. you will need documentation and at least three years of tax returns.