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Real Estate: Home Buying

posted on 29 August 2008

First-time Buyers Find Opportunities, Different Rules in Current Home Market

By Charles J. Kovaleski

For the first-time home buyer, it might seem a bit like Christmas out there. Foreclosures rate are at historic levels and prices are retreating to levels from four years ago in some cases.

With so many potential deals around, that puts first-time buyers – kept on the sidelines by years of rapidly escalating prices – much closer to realizing their dreams of home ownership. First-time buyers often don’t face the obstacle of selling a current property before buying, which may be a hurdle for potential buyers who are also owners.

Many of the steps for purchasing remain the same in the current economy – having your real estate attorney draw up a contract, understanding contingencies, securing financing, preparing loan documentation and professionally inspecting the property. There are, however, new considerations to keep in mind during such a strong buyers’ market.

MORE ITEMS UP FOR NEGOTIATION

While price is often the No. 1 negotiated item, other issues come into play and are magnified by the current climate. Many first-time buyers today are driven to find “perfect” houses. Beyond every squeak, drip and crack, they now expect that sellers should change carpets that don’t fit their decorating schemes or paint colors that don’t match their furniture. Most everything in a real estate transaction is negotiable – and that’s underscored even more today by what some motivated sellers are willing to concede. Discussions can include homeowner association fees, taxes, closing costs – and even down payments.

There’s a balance to strike between being an aggressive buyer and one who overplays his hand. Many buyers are using the home inspection process as a time to re-open price negotiations.

Use this tactic with care. Sellers who are pushed too hard may simply dig in and refuse to negotiate. Many deals die because both sides are scraping for every last penny.

Some agents caution that sellers may accept large price discount or multiple rounds of concessions for amenities and extras – but not both. As a buyer, know what matters to you most. If you’re handy, a deep price cut might be more beneficial than a series of superficial repairs. Broken items (a hole in the wall or a damaged door) and safety issues (bad wiring or a rotted staircase) often fall to the sellers to fix. Worn items (outdated chandeliers or scratched tile) can be negotiated but often become the responsibility of the new owner to replace. Whatever concessions or contingencies you propose, consult with your real estate attorney to make certain the terms are properly reflected in your contract – which is still one of the most crucial pieces of the transaction.

KNOW THE PRICE, FIND THE MONEY

The salivation factor is hard to ignore: Depending on the area, some home prices have fallen back to 2004 levels. Make certain your offer price – not the asking price – is in line with the market. Ask your real estate agent for a competitive market analysis and conduct your own research online at sites like Zillow.com.

Price, however, shouldn’t be your only financial consideration. The days of easily obtainable money are behind and borrowers will find the requirements much more stringent than a year ago. Review your financial situation, collect data and get pre-approved for a mortgage. Current recommendations are that your monthly-housing-payment-to-income-ratio falls between 28 percent (conservative) and 33 percent (aggressive). That is, the total of your monthly housing payment should fall between 28 and 33 percent of your gross monthly income. Affordability calculators are available at sites like BankRate.com and RealEstateJournal.com.

Realize that loan programs requiring no down payment (so-called 100 percent financing) are scarcer than a year ago. For instance, Milwaukee-based Mortgage Guaranty Insurance Corp., which insures lenders in the case of default, no longer protects 100 percent loans. For mortgage applicants, it now requires a minimum credit score of 620 and down payment of 3 percent - $3,000 for every $100,000 in purchase price. A 3 percent down payment for a house priced at $195,900 – the national median existing home price in February – is approximately $5,877. A down payment of 10 percent is $19,590.

EYES ON THE FUTURE

There’s nothing quite as satisfying as coming home to a place that’s all yours. But don’t jump into the first home that suits your need. Make your purchase a strategic one. Many experts suggest that you should buy a home only if you intend to be there for seven to 10 years. Housing bubbles – periods of long price expansion – take time to come down to more affordable levels. While some markets may have touched bottom, others still are on the way down. A first-time buyer should plan to be in the house for a long time for the planning to pay off.

Some of the rules have changed for first-time homebuyers. Still, many of the mechanics remain constant, regardless of the market. Evaluate your situation – job, education, family. All of that should be part of the equation when deciding to purchase. If the variables don’t add up, it might be wise to wait a while longer.

CHARLES KOVALESKI

is president of Attorneys’ Title Insurance Fund, Inc. (The Fund), the leading title insurer in Florida and the sixth largest title insurance company in the country. Acknowledged as the Florida residential real estate expert, The Fund has been in business for more than 50 years and supports a network of more than 6,000 attorney agents statewide who practice real estate law. The Fund, based in Orlando, underwrites more than 300,000 title insurance policies for owners and lenders in Florida every year. For more information, visit www.fundhomeinfo.com.