Over the past few years, many articles I’ve read have repeated the same mantra: “Now is the time to buy real estate.” Interest rates were low and they couldn’t go any lower, whoops, they did. Since purchasing my condo in 2010, I’ve re-financed twice due to mortgage interest rates dropping and although we’re getting closer to 0% than where rates were at 5 years ago, I don’t see any big turnaround in sight.
The question to buy a new house shouldn’t be taken lightly though, there are quite a few steps to go through before you make your purchase. Additionally, the process of buying a home is pretty tough right now. Lenders have gotten more stringent with their lending requirements and you’ll have to provide a lot more information than ever before. Here’s a good overview of the mortgage process that most lenders follow so you know what to expect.
Even after meeting these stringent loan requirements, you’ll face daunting competition. The supply of houses available is very low right now, most properties in metropolitan areas are receiving multiple offers within the first week. I even hired a realtor to come out and give me an estimate of what he thought my place could sell for(good news: my value has gone up around 20% in 3 years).
While competition is good for sellers, buyers need to be patient and understand that it may take 10-20 offers or more before one even gets accepted. Don’t feel the need to go outside your budget just because you’re getting outbid. In my area, there are a lot of cash offers coming in and in real estate cash is king.
A lot of people spend time debating on ARM vs Fixed mortgage but for first time homebuyers, I think the choice is pretty simple. The average length of homeownership for all homebuyers is only 7 years, so why would you pay more than you have to? I went with a 7/1 ARM at 3.125% and haven’t looked back since.
Make Mistakes While You’re Young
When you’re young, time is on your side. You can buy an overpriced condo, move after a couple years and maybe only lose a few thousand dollars after all is said and done. Since you’re not making as much when you’re young you can’t buy as much and therefore can’t lose as much.
But as you grow older, you need to be more conservative with the real estate choices you make. Maybe it’s a good idea to rent in a certain area before you buy a 1 million dollar house. Or maybe you should save up 20% instead of going with a FHA loan at 3.5% down in order to better absorb market fluctuations.
I’m glad I bought when and where I did but I’ve learned a lot from my purchase. All of the following are specific to my situation but you should do a similar analysis for yourself. Here’s what I’ve learned(some good, some bad):
- It’s a lot easier to do renovations before you move in than periodically after you’ve moved in.
- I like properties that have a lot of natural light, mine doesn’t(How did I not know this before? haha).
- Even though I have a balcony, I don’t get to sit out there and enjoy it as much as I would like since it’s facing the street. Next time I’ll buy one facing the courtyard.
- Having side by side parking spaces is awesome. A lot of the units in my building have tandem spots and it would be a big pain to have to move cars all the time. I didn’t even consider this when I bought the place.
- We don’t need a second bedroom but it’s nice to have for guests, office work and storage.
- Even though my HOA’s are high at $390/mo. it’s really nice having a pool and jacuzzi. I use it all the time after I work out or go to the beach.
Starter Home or Final Home
If you’re in the market for a starter home, make sure that you have the capacity to save up for another down payment if you plan on upgrading. Remember that if the value of your home goes up, so will your next home. Since the equity you put into a starter home may not be enough for your dream home downpayment, you may want to consider buying less house in the first place. Banks will give you a number they’re comfortable loaning but you need to check and make sure that number jives with your own budget.
Readers, where do you think mortgage interest rates are headed? Up, down or stay the same? Have your opinions on buying real estate changed in the past few years? Had any luck buying or selling your house?
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-Harry @ PF Pro