Are You a First-time Homebuyer? Set Your Expectations Right
Buying a home for the first time is stressful. It’s normal to have plenty of questions like “Do I have enough down payment?” “What homes are available for my budget?” “Will the owner accept my offer?”
The process, however, can become even more frustrating, daunting, and disappointing when expectations don’t align with reality. To make the right purchasing decisions, save oneself the hassle, and be happy with the buying journey, consider these three facts often missed by first-time homebuyers:
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The Home-Buying Process Can Take a While
Many homebuyers think that buying a house is as simple as making an offer to the owner. According to some experts, it can take as long as six weeks to close a deal. In certain situations, they wait for this much only to find out that the agreement won’t push through anymore.
Many factors can affect the length of the home-buying process. First, there’s the amount of time spent looking and choosing a home. Usually, a potential buyer may end up attending at least 10 to 15 home stages before they figured out which one they like.
Home buying may also take longer because of financing. Often, first-time homebuyers will find themselves subjected to a lot of scrutiny, background checks, and requirements, which is understandable since lenders want to be careful with whom they extend a loan.
The dynamics of the relationship between the seller, buyer, and broker can also affect the process. Some sellers may wait for a few more offers. Moreover, if the contract includes contingency clauses, either the seller or the buyer (or both) may need to fulfill them first before the negotiations move on.
First-Time Homebuyers Can Tap Into Many Types of Loans
Definitely, raising at least a 20 percent down payment and having an excellent credit score and stable income can help them get better financing. They may avoid paying for private mortgage insurance and be offered a mortgage with low interest rates and favorable payment terms.
However, it is also okay if they struggle to meet either or both of these common requirements. Many lenders can offer a variety of first-time homebuyer loan programs:
- Federal Housing Administration (FHA) Loans – It is a mortgage backed by the housing agency. It allows a first-time homebuyer to borrow over 90 percent of the loan value and pay only a 3.5 percent down payment. The minimum credit score is also low. It is usually between 500 and 580, depending on the lender. The catch is that the buyer needs to pay an upfront mortgage insurance premium (UFMIP) equal to 1.75 percent of the loan and then PMI afterward. However, it is a great choice for those who want a home now despite their low credit score and down payment capability.
- US Department of Agriculture (USDA) Loans –For first-time homebuyers from low-income households, they can consider a USDA loan. They can purchase only primary residences in certain rural areas, pay religiously for 12 months, and meet the income limits. On the upside, it doesn’t ask for any down payment while the credit score is low at around 640. The monthly guarantee fee may also be cheaper than a PMI.
- Veteran Affairs (VA) Home Loans –These are mortgages that veterans and their families can access. With the government-backed home loan, the buyer may no longer have to pay any down payment. Their credit score can also be as low as 640, and they may not come with PMI.
The Market Can Be Competitive
According to Statista, the number of first-time homebuyers in the United States has been declining over the years. In 2003, they accounted for 40 percent of all buyers. By 2013, it declined to 33 percent. In 2020, those who bought a property for the first time made up only 31 percent of the market.
This doesn’t mean that the housing market isn’t competitive. Currently, the United States is in a hot seller’s market, which means properties stay significantly shorter on the listing. If these homes disappear faster from the list, then a potential homebuyer may have to wait longer until an ideal property comes along.
Further, because of the high demand for properties, many buyers are willing to pay a premium to snag an accepted offer. News reports suggest that these individuals spend as much as $60,000 more than the average home price.
What do these data mean? First-time homebuyers may need to be prepared to battle: have a list of characteristics they want in a property and get a loan pre-approval. They can also decide to wait until the market slows and prices begin to fall.
Buying a house is one of the life-changing decisions someone will make, and the consequences of a wrong move can be costly. Make the right choices by knowing what to expect of the process.