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Paul Yamilkoski

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First-Time Home Buyer Frustration

“Offer rejected, competing offer accepted” For the fifth time in as many months the young couple has missed out a chance to own a home. They have been aggressive, spending hours and hours searching for homes as they come on the market and getting in an offer immediately, only to be denied at every turn. Now they are about burned out with the process and despondent from the lack of success, and their realtor has informed them no more offers will be made on their behalf. Looks like they will just have to give up and continue to rent. If only they had prepared better in the beginning, things might be different.

In today’s market, where the home inventory is extremely low, competition for properties is intense, and cash buyers are creating bidding wars that quickly push selling prices beyond asking price, beyond market value and into the stratosphere, first-time home buyers are facing an extreme uphill battle. Without good credit, a quality prequalification letter in hand and money for down payment, buyers just can’t compete in the market. Sellers want the path of least resistance, and that means cash if possible, and conventional loans if financing is necessary.

Many first-time home buyers don’t have great credit, meaning they commonly are limited to FHA loans, or a sizable savings for a down payment and other costs, meaning they are looking for down payment assistance and/or seller concessions. All those things are strikes against them in an aggressive seller’s market. FHA loans can have a more challenging appraisal requirement for the seller, down payment grants, if even available, take extra time, and seller concessions require the appraised value to leave room for the concessions. Sellers are getting full appraised value and very often more from cash buyers who care less about the appraised value and more about the home, and they can close quickly. That means unprepared first-time home buyers are regularly disappointed.

As a mortgage loan officer, I never cease to be amazed at how many first-time home buyers come to me wanting to get qualified for a mortgage, because they have found a property and want to put in an offer immediately, and have not prepared at all. They think that “first-time home buyer loans” means no money down and help with closing costs, even with marginal credit. I’m sure it has something to do with the advertising they see showing a $250,000 home only costs $850/month, which makes owning look a lot cheaper than renting. They never seem to notice the large down payment, perfect credit score and crazy terms that result in that payment amount. Nor do they ever seem to notice the payment is principal and interest only and they would need to add taxes and insurance. Combine those advertisements with all the “zero-down” offers that are out there, and we can maybe show first-time buyers a little grace. But grace doesn’t get them a new home. So, first-time home buyers listen up. Get prepared.

Make sure your credit is in good shape. Don’t go for minimum requirements. The better your score is the better the terms you will get, and the easier things will be.

Make sure you have money saved. You will need 3-3.5% of the home price as a down payment at a minimum. If you go with those minimums, you will also need money for prepaids and closing costs, as there won’t be enough equity left to roll those into the loan. If you want a simple way to estimate, figure roughly another 3-5% of the loan value, if you are going get you pretty close. This can vary significantly depending upon taxes, insurance, HOA fees etc.

Make sure you have a steady income and have 2 years of work history IN THAT JOB. There can be exceptions to this, which your loan officer can explore with you. But if you have not held a full-time job, with the same employer, for at least two years, you will have a much harder time qualifying for a mortgage.

Lastly, make sure you get a good prequalification, from a reputable company, and from a loan officer that looked at your credit, income, assets and work history. This will ensure you have a quality prequalification and have a good chance of closing the loan if your offer is accepted. Stay away from the on-line instant prequals. They are usually worthless, and you will end up disappointed and have a realtor frustrated with you.

That’s some of the basics to avoid first-time home buyer frustration. I hope you found it helpful, and I welcome questions and comments. Please share this with your friends and contacts. Odds are they will learn something and be thankful for it.
There is so much more to know and good lender like BestWay Mortgage can help you prepare and navigate the landscape and get you qualified. If you have any questions, feel welcome to contact me. I will be blessed to help.

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