Understanding the housing market to get a realistic idea of home prices in the area you want to buy in is essential. It’s a good idea to understand each market in your area and what your options are. Schools districts are an important factor to consider if you have kids or plan to have a family. They are also an important aspect of future resell demand. Being in a desirable school district is a plus.
While looking on Zillow and other related websites is a good starting point to get an idea of home values, understanding realistic home values can be better approached by working with a realtor. It's important to get an accurate understanding of the market you want to buy in. Do as much homework as possible and visit houses online and in person. Driving through neighborhoods at different times of day really helps you get a feel for them.
In some markets, there will be multiple offers for houses, this is when you must be 100% prepared, which leads to our next topic.
BEGIN TO INVESTIGATE YOUR LOAN OPTIONS.
You need to have some idea of how much a house payment will be relative to the house market you wish to buy in. Generally there are to main things to consider; how much you can put down and the cost of the home.
It’s important to be aware that purchasing a home for the first time is a huge giant step. It’s a good step and a step towards success. Your mortgage payment with taxes and insurance will become your biggest and most important financial obligation. You may not have the luxury of having a comfortable payment if you live in a high cost area such as California. Usually incomes are relative to the cost of real estate but some areas are higher cost. By putting more money down you can achieve a smaller payment. Don’t be afraid if your new payment is higher than what you are anticipating; it most likely will be. This is a part of the deal, to get the house you want you may have to sacrifice some of your prior lifestyle expenses to make it happen.
Why it’s good to have some savings or a rainy day account
If you can plan in advance and have a good idea the total cost to buy your home you may want to make sure to have some reserves. Some loans require reserves but most conventional loans do not require this unless you own multiple homes. FHA does not require reserves.
6 months of your home payment including taxes and insurance is a good figure to try and target; so for example if you’re housing payment is 2k per month you will want 12k total for reserves.
If you have 5-10k; that’s good enough to give you a cushion; you may also want to consider purchasing a home warranty so you do not have to pay out of pocket or use credit cards in case any thing in your home stops working and needs to be repaired. Often realtors will offer to pay this for you as a part their service.
What is mortgage insurance?
Mortgage insurance is required whenever you put down less than 20%. FHA loans require mortgage insurance no matter how much you put down.
Mortgage insurance or MI will insure loans in case of default to cover any loss to the lender over 80% of the value of the foreclosed home.
For example if a home goes back to the bank; the loan amount on the defaulted note is 200k and the house is worth only 190k the lender would recover the full 200k upon sale and mortgage insurance would cover the 10k difference.
It’s something you pay to insure against loss to the lender for any home that is financed with less than 20% down.
Should I try to time the market?
NO- you need a house to live in. You are paying to live in the house just like renting except you own it.
I say no about timing the market because you the buyer have no idea what will happen after you buy your home. You may think you are buying the bottom of the market and yet the market keeps going down. You need a place to live and making mortgage payments are forced payments to yourself.
One thing a prospective buyer may be able to do in certain markets is to look for supply of inventory and who is a buyer in your market. Are these real estate investors buying? traditional home owners? foreign buyers? All good things to consider; if there is a fair amount of supply of inventory, is it being bought up once prices go down to a certain point. If inventory is going down and home sales numbers show an increase from the last report, prices are the next to follow.
Interest rates play a huge role as well. Lower rates tend to stimulate buyers and buyers and markets usually become more active.
