What’s Keeping First Time Homebuyers on the Fence?
by Rick Koze
With mortgage rates at very favorable levels and apartment rental rates rising, it is hard to understand why the first time homebuyer has not been a major player in the new home buying market. This remains the only weak area of the home buying market both locally and nationally. And yet, it is one of the most important market segments of the homebuilding market and economy overall.
It’s quite possible to purchase a 1,600 square foot townhome for less than $1,350 per month (before tax benefits of ownership) with current mortgage rates hovering around 4.25 percent. This coupled with rental rates that have increased significantly over the past four years, make home ownership – versus renting – a no brainer from a financial perspective. Banks have relaxed their mortgage underwriting standards somewhat over the past year and there are some programs that require minimal down payments. And, prices for new homes are still at very attractive levels, which means that there are still great deals out there. This brings the possibility of equity appreciation as the market continues to recover.
So why are first time homebuyers on the fence?
Understanding the Process
When first time buyers come into one of our Kay Builders sales offices, we often find that they are intimidated by the home buying process and mortgage process in particular. They are concerned about money for a down payment, monthly payments, the ability to afford the monthly payment, their ability to qualify for a mortgage, and the horror stories they hear about a cumbersome process.
The truth is the process is not at all difficult. We recommend a meeting with one of our mortgage advisors to get prequalified. There is no harm in doing this and there is no cost, so why not see what you can afford?
A home is something you can have forever, which can be a nice form of stability during tumultuous times.
The preapproval process will also give the customer a good idea if there are credit issues that are holding them back. The good news is that many of the times, improving a credit score can be easy and one can often see great results over several months by following the suggestions of the credit advisor.
Knowing where you are from a credit perspective and how to improve your score is important in many facets of life. For example, many employers look at a credit score when making hiring decisions. As for the monthly payments, it can easily be calculated so you know where you stand. One positive is that with a mortgage it is possible to lock in your monthly expenses for a much longer period relative to apartment rental rates, which continue to increase substantially.
PMI/Down Payment/Closing Costs
FHA financing is by far the most popular mortgage source for first time homebuyers. It has many benefits in that credit requirements are a bit lower and down payment requirements (typically 3.5%) are low. We encourage buyers to get on a savings plan to accumulate money for a down payment, look at borrowing from a 401(k), or seeking a gift from their relatives or parents. You would be surprised at how often a relative is willing to help out.
It is widely known that Private Mortgage Insurance (a monthly premium to insure against default) rates for FHA programs have increased, but there are ways to manage this. We suggest the option of making a one-time PMI payment up front that is rolled into the loan. The builder can pay this as part of the closing costs and the monthly payment can sometimes be lowered by hundreds of dollars.
Convenience
Some first time homebuyers believe it is not convenient to own a home. For some, that means staying close to the neighborhood or area of town where they are comfortable. For others, it might mean having a garage attached to the house to avoid the elements, or a fence in the back yard for the protection of a child or a pet.
Convenience means different things to different people. But, whatever the reason, the purchase of a new home should be motivated by improving quality of life. Think about the long cold winter of this past year. Wouldn’t it have been nice to drive in and out of a warm garage and to have not had to scrape ice off your car windows every day?
Stability/Flexibility
One of the major issues facing the younger generation of buyers is stability. Some are concerned about their job prospects and some just do not think they want to be responsible for a home. But, a home is something you can have forever, which can be a nice form of stability during tumultuous times.
Consider the ability to fully customize the place where you live and make it yours and consider the privacy you can have when a home is yours. This is something you cannot do if you rent, live at home with your parents, or are living with a roommate. Kay Builders allows you to make revisions to all of its floor plans and select options at a much lower price than you might think.
Also consider that maintenance costs for a newly constructed home are typically very low and you might even save money due to the greater energy efficiency new homes have. Finally, owning a home versus renting an apartment provides a greater opportunity to enjoy your outdoor living space. At Kay Builders, we focus on enhancing your outdoor life, making it easy and cost effective for you to add a private deck, patio, fence, outdoor Jacuzzi, outdoor kitchen, garden or custom landscaping.
So maybe it is time to take another look. Maybe it’s time to start building equity in a new home, while creating your own private and peaceful sanctuary.
