Financial Challenges for First-time Home Buyers
Research has found that in August of this year, more than 50 % of home buyers said they were first-time purchasers. This compares to 2015’s figures of about 35% of home buyers identified themselves as first-time buyers. They are shopping for their dream homes, but not without challenges.
Even though more first-time home buyers are hitting the market, they will still face a few hurdles, including low inventory of homes and proving they are credit worthy enough to secure a mortgage. The market is a ripe, but only for those who are able to afford it.
According to market research, the number of buyers that need to improve their credit score has doubled, increasing from about 9.7% of all buyers last year to 19.5% of buyers in August of 2016. Approximately 9% of buyers have reported that they are having difficulty qualifying for a mortgage, which is an increase 5.6% from a year ago.
Part of the reason may be what’s in their savings account. Buyers who reportedly lack an adequate down payment has grown from 16% to 25% over the last year. Though there are programs that offer low down payment options, the buyer must be able to handle the slightly higher interest rate (less money down equates to greater risk to the lender, so a higher interest rate is common) and afford the private mortgage insurance required on the loan. Sometimes these requirements tip the scale and buyers simply do not qualify.
What can you do if you are preparing to buy? Here are few tips to help get you into your first home:
Watch your spending: This is not the time to buy a new car or spend a lot on a luxury vacation. Be frugal for at least 3 months before you start shopping. Lower your credit card balances as appose to increasing them.
Get your finances in order: Know your FICO score and take efforts to get it above 700 to improve your chances of qualifying for financing and securing a better interest rate. Also, start collecting financial records, like recent bank and financial statements, the past two years of income tax filings, and pay stubs.
Know your down payment: The average down payment for 2016 is 11% nationwide. That can vary dramatically; however, several down payment assistance programs also are available to help.
- Get pre-approved: Getting pre-approved will prove you do have the finances in place to qualify for a mortgage and purchase a home. A pre-approval letter as part of an offer will communicate to the seller that you have the ability to close the loan.
It’s a great time to buy your first home, as long as you are financially wise and understand your options. Speak to a mortgage professional to get pre-approved for a specific loan amount. This serves as a guide for your home shopping. Then, be sure to partner with a qualified REALTOR to view properties that are available within your price range.
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