Making the Right Move – Part I: First Time Home Buyers

First time home buyersWhether you are a first time home buyer, staying put, trading up or an empty nester planning to down size, you have a few challenges and advantages unique to your position.

Consider the following strategies (from Money Magazine Spring 2016) to max out your purchasing power and settle into the home that suits you.

As a first time buyer, your big challenge is that you are probably bringing less cash to the table making it harder to compete with seasoned buyers. But your competitive edge is flexibility – you aren’t dependent on selling your current place to fund the deal.

 Your best moves:

  • Lock up your financials. Clean up your credit before you start shopping and save for a bigger down payment to help you qualify for a better mortgage rate. Putting 20% down helps avoid costly private mortgage insurance and positions you to beat the competing offers. Start a dedicated account to amass a down payment.
  • Check for errors on your credit reports (free at AnnualCreditReport.com) and get your FICO score.  Many credit cards offer it for free or you can get one report for $19.95 at Myfico.com. For the best loan rates, you will need a score of 740 or better. To boost your score, pay down credit cards so your balance is less than 30% of the limit and avoid late payments.
  • Investigate Alternatives. If you can’t get close to 20% down or have a credit score less than 740, the Federal Housing Administration (FHA) loans allow you to put down 3.5% and offer better rates for those with less than perfect credit.  But know the tradeoffs – with a 30 year FHA loan, you’ll pay an extra 1.75% of the purchase price plus at least 0.8% in annual insurance for the life of the loan.
  • Get Pre-Approved. A mortgage lender has checked your credit and verified your income and assets.  Pre-approval gives you an edge with sellers who want a quick, smooth deal.
  • Find a True Advocate. A good buyer’s agent can help you find listings and guide you through price negotiations. Bargaining skills are key so ask agents for sale-to-list price ratios for their last 12 deals. The lower the better.
  • Make Unsolicited Offers. Look for homes not yet on the market to avoid competing with more established buyers.  Looks at rental ads or note new listings that look overpriced and revisit them in a month.  Unsold homes usually drop in price after about six weeks.
  • Play Up Your Flexibility. One advantage you have over more well-heeled buyers is the ability to delay move-in. Have your agent reach out to the seller’s agent to find out exactly what they need – like a longer closing window or an option to rent back.