Buying a house for the first time is overwhelming, exhausting, and, in this hot seller’s market, frustrating. After all, it is unchartered waters.
However, if they keep in mind these unwritten rules about house hunting, they are more likely to land a home they want fast and be more prepared to deal with the challenges of the process.
1. There Are Many Ways to Buy a Property
Usually, first-time homebuyers look for market listings or reach out to brokers and agents to help them find a house. The problem with this is others are doing the same thing. When the market is hot, which means there could be more takers than supply, relying on these listings alone can already put one at a disadvantage.
What homebuyers can do is explore other ways to purchase a home. One of these is auctions often organized by lenders. The houses here are usually repossessed after the owners failed to pay the mortgage and foreclosed properties.
Selling them at auctions allows lenders to dispose of the houses quickly while raising enough money to recoup at least the principal balance. Houses sold here are often cheap, but lenders often sell them as is. Thus, homebuyers must be prepared to spend more on repairs.
Here’s another option for a first-time homebuyer: they can approach real estate companies that buy homes for sale fast. This arrangement encourages homeowners who want to let go of their assets for whatever reason, including avoiding foreclosure, by extending the best cash offer depending on the property value.
Because of the high turnover of these homes, these houses may not end up on the market listing. Homebuyers instead can talk to them about their desired property, so that once it’s available, the company can contact them immediately.
2. They Can Consider Other Types of Loans
First-time homebuyers may discover that the down payment can be one of their biggest barriers in securing their dream house. This is especially true in a hot seller’s market where home prices soar because the demand often exceeds what’s available.
The good news is those who want to buy a house with a limited down payment can consider other types of loans besides a conventional mortgage.
- FHA Loans – FHA stands for Federal Housing Administration, which backs the mortgage. With this program, the applicant needs to raise only 3.5 percent of the down payment. The required credit score is also low at 500, while loan terms are similar to conventional mortgages. The interest is also fixed-rate, but since the down payment is below 20 percent, the borrower also needs to pay for private mortgage insurance.
- USDA Loans – Also known as rural home loans, these are mortgages for people who don’t mind living away from urban areas, such as farms. This is intended for low-income households, so the program imposes income limits. On the upside, the minimum credit score is usually 640, and it doesn’t require any down payment.
- VA Loans – This is a mortgage program for those who serve or are currently working in the service. It also extends to the surviving spouses who have remained unmarried. This also doesn’t ask for a down payment, and the typical credit score is 640. However, the loan comes with funding fees.
3. There’s More to the Home Price
Many first-time homebuyers fixate themselves on the home price when the true cost of ownership is often higher than that. For example, if they pay less than 20 percent down payment, the loan may include private mortgage insurance.
Also referred to as PMI, this is a coverage that protects a lender in case of default. The range can vary from 0.22 percent to 2.25 percent of the mortgage, so this one isn’t really cheap. Moreover, it doesn’t disappear until the loan-to-value ratio is high, which can be between 78 and 80 percent.
Closing costs are another expense. This one can range from 3 to 6 percent based on the home’s purchase price, so it can be as much as $12,000 for a $200,000 property.
What constitutes the amount can differ between states and lenders. Often, these include lender’s fees, escrow charges, insurance, prorated property taxes, and other miscellaneous charges.
There’s no other way to it: buying a property in a hot seller’s market demands a lot of patience and persistence. However, first-time homebuyers are less likely to make mistakes and improve their house-hunting strategies when they enter the so-called battlefield better prepared.
Hopefully, these ideas will make them realize that they can consider various ways to approach home searching and even applying for a mortgage.