From OCregister.com 3/16/14
Statistics show that number of first-time buyers is falling. A California Association of Realtors survey showed, for example, that about half as many first-timers bought houses in 2013 as in 2009.
DataQuick reported that FHA loans, which first-timers rely on, fell to 1 in 10 mortgages in Orange County last month, less than half the rate of three years ago.
With the spring homebuying season now in full swing (March through June are the year’s four busiest months), here are 10 tips for first-time homebuyers:
1. Determine what you can afford
The first step is to meet with a lender, review your finances and find out how much you can afford to spend on a home and how much you have for your down payment.
“If they only qualify for a $300,000 house, they shouldn’t be wasting their time looking at a $500,000 house,” said Maritza Reyna, education manager for the Consumer Credit Counseling Service of Orange County.
Experts warn also not to shop for the most expensive home you qualify for, unless you truly can live with the payment that comes with it.
“Banks stretch,” said Robert Ortola, an agent with Keller Williams Newport Estates and a speaker in an eight-hour Homebuyer Education course offered by the CCCS.
“It doesn’t matter how much the banker will tell you you can afford,” Ortola said. “Are you comfortable with those mortgage payments? Are you going to be house-rich and life-poor?”
2. Take a class, read a book
One of the most common mistakes novices make, according to former loan processor and author Carolyn Warren, is to blab to an agent that this is their first time and that they really need his or her guidance. It’s like wearing a sign: “Charge me more.”
“You’re saying to them upfront, I don’t know what I’m doing. I’m uneducated,” said Warren, author of “Homebuyer Beware” and another book on mortgage rip-offs.
It’s better to do your research first, she said.
“Read a good book or two,” she said.
The CCCS and NeighborWorks Orange County, for example, provide courses each month covering how to shop for a home, getting a mortgage and how to close the deal.
Chapman University will host a Homeownership Day from noon to 5 p.m. March 29, with 30 sessions covering mortgages, the homebuying process and investing.
3. Shop for a mortgage
Don’t use whatever lender your agent recommends without doing some independent shopping.
Another classic mistake: calling 10 lenders and asking for their interest rates. A lender can’t be held to those quotes, so “it’s just going to lead you to the smoothest talking liar,” Warren said.
It’s better to look up mortgage rates online, then call three or four lenders and mortgage brokers and ask them for a written list showing their fees.
“The lowest rate is no good if you’re paying too much in fees,” Warren said.
4. Check for down-payment assistance
Before you shop, check to see if you qualify for one of the down-payment assistance programs.
In Orange County, a family of four can qualify for state and federal assistance even with an income as high as $108,350, said Karla Lopez del Rio of NeighborWorks Orange County, a HUD-approved housing assistance agency.
“Don’t assume your income is too high,” Lopez del Rio said. “These special programs, no one’s going to tell you about it if you don’t seek it out.”
5. Get pre-approved
Getting a lender to pre-approve a loan before you shop can make your offers more attractive, while avoiding deals falling apart because loans don’t get approved during escrow.
Get all the documentation you’ll need for the loan process –W2s, tax returns, pay stubs, bank account statements. Find out from your lender exactly what you’ll need.
And go to AnnualCreditReport.com to get your free credit reports from all three major credit agencies. Experts recommend you contact TransUnion, Equifax or Experian and pay $8 to $10 to get your credit score as well. (You don’t have to subscribe to their monthly monitoring or other services.)
Follow the steps for correcting errors or repairing your credit.
“Show the seller, ‘We’ve already done the research. We can afford the house,’” said Ortola, who is one of the speakers at the eight-hour Homebuyer Education course offered by the Consumer Credit Counseling Service of Orange County.
When shopping for a home, don’t make big purchases of items like a new car; don’t get new credit cards or otherwise open up new lines of credit. Keep your credit card balances below 30 percent of your credit limit. Big purchases, new credit lines and high balances can affect your ability to get a loan.
6. Pick an agent who’s right for you
Get referrals for agents from friends and family, then talk to each one. Look for someone with whom you can communicate.
“Interview them a few times,” Ortola said. “You have to see how they communicate and how knowledgeable they are.”
“Keep in mind that they work for you,” added Reyna, the education manager for the Consumer Credit Counseling Service. “If you’re not happy with that Realtor, you can fire them.”
Jay O’Brien, part owner of a new Re/Max Prestige office in Costa Mesa, warns buyers against letting a home’s listing agent also represent them. That “double ending,” though legal, raises the question of how well the agent can represent the buyer’s and seller’s competing interests, he said.
“The agent’s interest in those instances is to close the deal,” said O’Brien, who will speak at Chapman’s Homeownership Day. “It’s very difficult to be in somebody’s corner and really represent their best interests and negotiate on their behalf when technically you have the exact same fiduciary responsibility for the other party.”
Another thing to remember: Commissions are negotiable. Sometimes agents are willing to lower their commission to help make a deal happen.
7. Find a home you can afford
Real estate columnist Ilyce Glink suggests making a wish list of where you want to live and what you want to have in your home.
But don’t fall so in love with a particular home that you don’t see its flaws, experts say. Move on if the asking price is unrealistic or the seller is unreasonable. Or if the bidding rises beyond your budget.
Also, don’t be deceived by real estate listing euphemisms like “cozy,” “historic” and “needs TLC.”
“It’s not cozy. It’s small,” Lopez del Rio said. “It’s not historic. It’s old.”
8. Scope out the neighborhood
Your agent likely can provide local school ratings and area demographics. You can get crime reports from local police departments and the Orange County Sheriff’s Department or their websites. OCRegister.com, for example, has maps showing incident reports on its city pages.
Then, walk and drive the neighborhood, returning at different times of the day and different days of the week. Visit local supermarkets to see who goes there.
And talk to the neighbors. That’s the only way to learn about the neighbor from hell, the incessantly barking dog or whether trains blow their whistles nearby.
9. Make a realistic offer
Ortola advises first-time buyers to find out what comparable homes sold for, learn the true value of the property and make a realistic offer. A good agent will be diplomatic but honest if your offer is too low.
“In a seller’s market, the buyer doesn’t have negotiating power,” Ortola said. “There still are cash offers out there. You might have to make 10 offers before you buy a house.”
If the home is priced right, bid the asking price – or a little over, Ortola said.
However, you might run into trouble getting a loan if your offer is higher than the lender’s appraised value of the home. Lenders won’t approve the loan if the appraisal is less than the loan amount.
10. Find a good home inspector
Talk to two or three inspectors rather than blindly accepting one your agent recommends. Get referrals from family and trusted friends to make sure you find someone working for your best interest and who isn’t trying to help his or her friend, the agent, close the deal.
“A bad inspector can turn into a $15,000 plumbing problem,” Lopez del Rio said.
Be aware of deadlines during escrow. And respond in a timely manner to the home and termite inspections, seller disclosures and the preliminary title report so you don’t miss your chance to opt out if a problem arises.
Read your loan documents or get someone you trust to help you understand what’s in them. The two most important things to look for in your loan packet, Warren said, are the settlement statement (listing all the costs and fees of the loan) and the note (the actual loan contract).
Above all, be skeptical, Lopez del Rio said. Continually evaluate what your agent and other advisers tell you.
“They can make you think (a property) is your dream,” she said. “Don’t get pushed into something you can’t afford. It’s better to have a dream where you don’t wake up and find out it’s a nightmare.”