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Tips for buying home in 2008
Nationwide home sales are down about 20 percent from the same time last year, according to the National Association of Realtors (NAR). Compared to 2006, 2007 & 2008 have seen an increase in inventories of existing and new homes for sale, a record number of foreclosures, and the strongest buyers' market in a decade, this means the smart buyer is in the driver's seat. Investors who tried to unload their properties often found no takers, leading to the largest number of vacant homes on the market since the number has been tracked. This has led to the largest single increase in foreclosures in recent history. Most homes going through the foreclosure process have found no buyer’s at auction because there is no equity left in the properties so these homes become Bank Owned, known as REO properties. When a bank forecloses on a home it becomes a non-performing loan. This affects the amount of money a bank can borrow from the Federal Reserve. Since banks only make money by borrowing from the Fed and lending to the public, they must borrow as much as they can. Every non-performing loan reduces the amount the bank can lend to the public, affecting their bottom line profits. The banks a forced to unload these properties for tens of thousands below what was originally owned on them allowing buyer’s to buy properties far below their market value at a time when interest rates are still at near record lows. This magic moment will not last since the losses amongst lenders is climbing and eventually this pressure will translate to a dramatic increase in rates and even tighter lending guidelines, so even if home prices were to decline even further unless you are paying 100% cash your costs will increase due to higher interest rates.
Those who decide to buy new homes will found builders are willing to do more and willing to deal on price and upgrades if you know how to negotiate with them and that is where I can help. Very few people are aware of all the tools available to get a builder down to their lowest price. So if you’re even considering a new home it would be worth your while to get me involved before you go to a new home tract to see the models. Once you’ve stepped into the models and written down your name you have eliminated my ability to help you negotiate a better deal. What most new homebuyer’s are unaware of is that the builder corporate offices email realtors offers of incentives to help them sell their homes and often times this incentive is far higher then the discounts the builder agent is willing to share with you directly.
The good news for buyers is that 2008 looks to get a bit worse in many markets. And that means deals are there to be made on favorable terms. Many industry experts are calling this the worst real estate downturn since World War II, and others claim is the worst since the Great Depression. While the market is down, it's not out. It's just that compared to the last decade, the market is moving much more slowly, giving buyers time to compare price and amenities. If you look at the past real estate market history you will find that these markets can turn on a dime and you don’t want to miss perhaps the best buyer’s markets to come along in a long time. Keep in mind the last two market changes were accompanied by much higher interest rates and that is what makes this market so special, interest rates are at near all time lows.
What can you do as a homebuyer to capitalize on this market? If you're considering buying a home this coming year, here's what you need to do:
1. Get your credit and finances in order.
Would-be homebuyers need to focus on paying down or paying off their credit cards, car loans, school loans and other forms of personal debt. While having personal debt doesn't mean you can't qualify for a loan, it can lower the amount of the mortgage a lender might be willing to give you and the rate you will be able to get. Given the current mortgage crisis, lenders are paying close attention to your credit history in addition to your credit score. Ask me for more details on this!
If you are even considering on capitalizing on this buyer’s market one thing you will need to do is choose to clean up your credit. One of the best things you can do to prepare for buying a home is to make your monthly debt payments on time. Even if you have a lousy credit history, lenders will be more forgiving if they see you've gotten your act together in the last six to 12 months.
Federal law now requires each of the three main credit-reporting bureaus (Experian, Equifax, and TransUnion) to give you a free copy of your credit history once a year. To get yours, go to www.annualcreditreport.com. At the time, buy a copy of your credit score from Equifax. The cost is under $10, or I can pull a true Tri-merge report for you for under $18 including all three bureaus, which is still less than buying it through MyFico.com or any of the other supposedly “Free” credit report sites out there. 2. Get my credit in shape.
Put a lid on your spending, perform "plastic surgery" on your credit cards, and don't max out any one card (in fact, never charge more than 30 percent of your maximum credit limit) or your credit score will suffer dramatically. Keep in mind the longer you maintain a credit account the better your credit score so don't close accounts, simply pay them down. A credit card account that you opened in 1984 is worth a lot more than one you opened last month.
Don't forget that good credit also means job stability. Most lenders require that you work for the same employer for at least a year, and maybe two, before they'll approve your home loan application. If you're self-employed, they'll want to see at least two years of tax returns before you'll qualify for a conventional loan. If you're offered a better job in your field, by all means take it. But if you want to buy a home, try not to jump from job to job within a relatively short period of time.
3. Know how much I can afford to spend before shopping for a home.
Get me involved early on to help you to take the guesswork and mystery out of qualifying for a home loan in today’s changing market. We will look at your income, debt, assets and liabilities, and come up with the maximum amount you can spend on a home. Once you know how much you can afford to spend, you'll avoid making a common, heartbreaking, home-buyer error: looking at homes you can't afford to buy.
4. Know my neighborhood, and be comfortable with it, before I buy a home there.
Everyone wants to live on the best block in the best neighborhood. Unfortunately, that location may not be in your budget. You might be able to afford the smallest home on the best block, but that won't do you much good if you need four bedrooms and that home has only two. Balancing affordability with location means you may have to compromise. While you may be willing to compromise on the size of garden you have, you may not be willing to change your children's school districts. Again let me assist you with this.
Start looking at various neighborhoods and the amenities they offer. Is there a park? Shopping? Transportation? A house of worship? Do your friends and family live close by? Be careful not to limit your choice of neighborhoods too early on in the process. Explore new areas and the housing stock and amenities they offer.
Make sure you spend time during different times of the day in the neighborhoods you are interested in. Walk the streets and go into local shops. Visit the neighborhood police department and local schools. Get to know the neighborhood and its residents inside and out before you decide to focus on an area. Drive the commute from prospective neighborhoods to your job during rush hour. Remember to ask me about traffic patterns and short cuts as this may open your options of where to look.
5. About Realtors.
There are traditional agents, buyer agents, exclusive buyer's agents who represent the interests of the buyer, rather than the seller (and willing to sign exclusive buyer’s agreement with a buyer). There are large brokerage firms and small neighborhood shops. You can even choose not to use a real estate agent, although as a buyer you won't be out of pocket for the cost, so there's no reason not to use one and every advantage to using one. While many buyers today opt to not use their own buyer agent feeling that they can cut a better deal by going direct through the listing agent, studies have shown that buyers using buyer agents or exclusive buyer's agents paid less for their home than those who used the traditional listing agent. Remember the listing agent works for the seller, both in therory and by contract.
Choosing which agent to use -- or choosing not to use an agent -- can be critical to your successful purchase. Look for an agent whose philosophy and mannerisms are compatible with yours. Look for someone you can trust, someone who will be frank with you and give you the facts, and not just a yes person telling you what you want to hear. Someone with whom you wouldn't mind spending a lot of time. Look for an agent who has ample experience, and who is knowledgeable about the neighborhoods you've selected for yourself. Look for an agent who will do additional research on a property and its’ value prior to you writing an offer. Does the agent recommend using a dedicated transaction coordinator or do they tell you that they have the experience to handle everything themselves (this can be a costly mistake!)? Remember it is the agent you will be working with not the broker.