Five strategies for first time home buyers

LOUISVILLE, Ky. (WDRB) --  With signs pointing to a home buyer's market in 2017, the dream of owning a home could become a reality this year for many people.  Existing home sales this year are expected to grow about 2% to 5.46 million homes, helped by millennial first-time buyers.  

Financial expert Mark Lamkin from Lamkin Wealth Management says the challenge of buying a home can seem so daunting that it's tempting to either go with the first place in your price range or continue to rent.  Though there has always been a debate between buying versus renting, it's nearly 38% cheaper to buy than rent now in the top 100 cities in America, according to real-estate firm Trulia.  

If you're shopping around for your first place this year, here are 5 tips that can help you find the home you've always dreamed of.

1. Affordability (Figure out what you can afford.)

A home is an expensive purchase, no matter what type it is, and affordability usually deters potential buyers.  First, figure out what you can afford for monthly payments and the down payment (typical down payment is 20% of the home price).  The general rule of thumb known as the "housing ratio" is to spend no more than 28% of your gross income on a mortgage according to Bankrate.com.  When doing calculations, be sure to include other recurring bills and responsibilities you have, as well as any debt you're paying off.

Condominiums and co-ops usually have homeowner's association or maintenance fees every month on top of the mortgage.  Also, consider what the tax and insurance costs for your home will be.  Other fees can apply, such as closing costs or extra insurance if you put down less than 20%.

Spending most of your take-home pay on your home and debts could put you in a dangerous situation, depleting your savings account and/or meaning you may not have enough for an emergency.

2. Credit Report (Get your credit in order.)

A bad credit score could negatively impact your chances of a mortgage loan, but there are plenty of actions you can take to stay on top of it, such as checking your credit report for mistakes and properly managing your credit use.  Payments should be made in full and on time and credit cards shouldn't be maxed out.

Good credit is ranked between 661 and 780, and excellent credit is between 781 and 850, though lenders may have their own criteria for what defines bad, fair, good or excellent credit.

Interested home buyers should not wait until they've found a home to buy to start working on their credit.  Consumers can check a credit score from three of the main credit bureaus (Experian, Equifax and TransUnion).

3. Realtors (Interview as many realtors as you need.)

Finding a realtor who is experienced and will make you feel comfortable is important.  Look for referrals or someone who understands the area and price point you want.  "Interview a couple of people to see that the person understands your needs and is meeting your needs," said John Samby, who will be first vice president of the Chicago-based National Association of Realtors.

It helps when these professionals can break down terms and the process so that you can do your homework and browse listings by yourself at home. Especially for first-time buyers, an agent makes for a better experience, since they can keep clients informed, according to a recent J.D. Power Home Buyer/Seller Satisfaction survey. Realtors will usually have a network of lenders their clients can work with to get pre-approved.

4. Homework (Do your homework and know what you want.)

Though many home buyers eventually rely on the pros, they're starting their searches online, according to a Chase home buying survey of more than 1,000 adults from earlier this year: 68% started searching on their own, and 45% used a computer or laptop to do so while 13% used a mobile device. Another 11% checked local listings in newspapers or magazines.

Websites such as Zillow.com have listings for buying, renting or selling homes as well as information on agents and mortgage lenders, though all options should be vetted by the home buyer first.  There are plenty of tools home buyers can use to determine what they can afford and to get a step-by-step breakdown of the buying process, including calculators on insurance and mortgage refinancing.

Buyers should also take into consideration school districts, crime statistics, noise from local transportation or a nearby bar scene and parking, among many other factors.  Also take into consideration how long you plan to stay in the home - for some, that determines if they should rent or buy.

5. Preapproval (Organize all your documents and get preapproved.)

Buying a home is a lot easier when those interested in purchasing a house are pre-approved for a mortgage, experts says, and it's becoming more commonplace, according to a Zillow survey of more than 13,000 consumers: 82% of buyers get pre-approved and 77% do so before they find a home they want.

In order to get pre-approved, home buyers must provide details on their financial history, including credit reports, proof of income, bank statements and assets and liabilities, as well as personal information including Social Security numbers and driver's licenses. 

Home buyers should shop around for lenders, who will offer different interest rates; buyers can find them online, through referrals and advertisements or by working with their financial institutions.  The majority of buyers will stick with the lender they used for a pre-approval for their mortgage loan, Zillow's survey found, though parties will usually talk to an average of two lenders about financing before making a decision.  The process can take a week to a month, depending on individual factors.

Lamkin Wealth Management

901 Lily Creek Road, Suite 102

Louisville, KY 40243

(502) 690-6764

www.lamkinwealth.com

                        

Securities and advisory services offered through LPL Financial, a registered investment advisor, Member SIPC (sipc.org). For a list of states where Mark is registered to conduct business please visit www.lamkinwealth.com 

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