Buying a first home is a milestone in most people’s lives: an event to celebrate. These days, even having a ghost of a chance of breaking into the housing market is a minor victory. But actually qualifying to buy a home is another matter altogether. And if you really want your purchase to be cause for celebration and not regret, you need to keep your eyes wide open.
Barriers to homeownership may seem formidable
In many ways, prospective first-time homebuyers have never had it so rough. What used to be called “starter homes” – affordable houses for first-timers – are getting more difficult to come by as developers are focusing more on higher end, lower risk properties. And rising home prices in many parts of the US, particularly on the West Coast, are making it difficult not only for first-time buyers but also for existing homeowners who are trying to sell their current homes and acquire new ones at a reasonable price.
New house construction starts still haven’t fully rebounded from the recession, and as is always the case, when demand outstrips supply, prices rise. Developers both in the US and elsewhere have focused upon building the more expensive homes preferred by buyers who still have money and good credit, simply because those higher-priced homes are more likely to sell, and prospective buyers are more likely to have access to the cash and credit needed to close. As a result, entry-level and mid-market buyers who have historically been the housing market’s primary customers are seeing prices increasing dramatically, even as the number of available homes dwindles. It’s little wonder that many people despair of ever being homeowners.
Being a renter is the most expensive housing choice you can make
The problem of affordable housing is one that spans the globe, with millions of people feeling that they’ve been frozen out of home ownership. And when you consider that rent prices are skyrocketing right alongside purchase prices, remaining a part of “generation rent” might not seem to be a viable option, either.
Obviously, buying a home is the better alternative, particularly in the long run. Once you’ve purchased a home, the mortgage payment will remain the same, while rent prices will continue to increase every year. The property taxes and insurance premiums you pay over and above the mortgage itself will increase, but not as rapidly as will rent payments. One exception is found in many older neighborhoods, where “gentrification” has left many existing homeowners facing property tax bills higher than their original mortgage payments.
Laying the foundation for home ownership
Reduce and optimize your monthly expenses – For the renter who is determined to own a home, there is a way out of “generation rent,” but it will require making smart decisions and exercising the discipline to stick to a clear plan. Look closely at your current financial situation, and develop a budget that leaves as much as possible for savings every month, but not so much as to leave you miserable. It isn’t that difficult, as most of us spend far more on impulse purchases and unnecessary expenditures than we realize. You may also be able to reduce your monthly bills by negotiating for lower interest rates on your credit card balances, or taking measures to reduce monthly costs such as utilities.
Improve your credit standing – Bring any past due accounts up to date, and to attempt to resolve any accounts that are at or in danger of being downgraded. Creditors will generally work with you, so long as you demonstrate that you are willing to work with them. If your credit history is sparse, consider opening one or two new credit card accounts, and keep them current. You will also want to check your credit report to correct any errors or outdated information.
Stick to your savings plan – All the money you save every month by sticking to a budget won’t do you a bit of good if you don’t leave it in your savings. Once you have bought your home, your monthly savings over rent payments will increase significantly, year after year, leaving you in a better position to buy the things you want.
Once you’ve gotten yourself into a position where homeownership may be feasible, you’re still not home free, so to speak. There may still be a few obstacles on the road to happy homeownership.
Avoid the blunders first-time homebuyers often make
Too many home buyers, especially those for whom the purchase will be their first home, let their enthusiasm guide them, rather than their objectivity. Be aware of that fact, and don’t let yourself become a member of the homebuyers’ remorse club.
Work with an independent, licensed Realtor – Buying a home is a complex undertaking. Especially on your first home purchase, you will need the guidance of a professional. Developers will have people on their staff to handle the details for you, but bear in mind that those employees are salespeople, whose primary responsibility is to make as much money as possible for their bosses. A Realtor who is not affiliated with the builder will be more likely to get the best deal for you, since although they do work on commission, they are not under pressure to sell you “extras” or inflate fees and charges.
Buy the house you can afford, rather than the pricier home of your dreams – Common wisdom of the past dictated that you buy as much home as you could possibly pay for, rather than a home that fit within your budget. You have only to look back about eight years, when millions of buyers got in over their heads, to see the potential problems with such “wisdom.” If anything, you should buy a home that is well within your current budget, in a neighborhood that is likely to increase in value. Building equity in that first home will give you a jump-start on getting that dream home a few years down the line.
Get to know the neighborhood before you buy – A house that seems to be a great bargain might not be a good buy at all. Look for any red flags that might indicate problems. What is the condition of other properties in the area? What is the crime rate? And if you have children, how good are the schools? Are there businesses close by that might pose a noise, traffic, or other problem? And if the house is in a suburb that is quite a distance from your work, will the commute become a burden? Consider these and any other concerns that might arise before making the decision to buy.
Don’t let your excitement over the prospect of finally owning your own home override your good sense. Buying a house is a major undertaking, and you have to live with (or in) the consequences, so proceed with care. And even if homeownership isn’t feasible for you right now, it very well could be in the future if you make smart decisions in the present.