To most of us, a big change in life such as buying a house and moving out from that sweat, cozy apartment where our handy laptop shares the same dining table with dishes – could be a little daunting at the first thought; Not to mention the exponentially growing anxiety during the house hunting process in a hot market. All too often – the worry that we will not qualify; the delusion that our dream home, our financial security, or our family’s best interest will be put in jeopardy — are among the top factors that prevent or postpone us from buying and owning a home at the right time.
According to Steve Cook, in spite of all those favorable conditions for home buyers – such as soaring rents, unprecedentedly low rates, improved income, good inventory and fair house prices – an outrageous 54 percent of potential buyers didn’t seize the time and make 2014 their year to become homeowners. The reason? Fear of rejection to be qualified for a mortgage.
Fear of rejection froze out 54 percent of potential buyers
— Steve Cook
Isn’t that shocking? Well, the even more shocking thing is that — you may not believe but ask any realtor — so many potential buyers, even financially capable and with a growing family demand (such as pregnancy, new family members…), decided not to proceed with a home purchase and missed the best timing (hint: 2013 – early 2015), just because they were scared by making bad decisions, undiscovered home problems, or bidding offers…
As indicated by the data and so many live examples, most of the first-time home buyers need a little push and a little acumen to proceed – even if they are financially ready. So let’s talk about it – not the “talk the talk”, but to delve it a little deeper: debunk the myths of the common fears and get to know how to deal with them.
No 1: Mortgage
Many people worried about mortgage the first thing when it comes to home purchase – in many different ways. Indeed, with a tedious approving process, so many different options and complicated terms, mortgage could be intimidating. And there are so many questions you may ask when it comes to mortgage:
- – Am I going to qualify? What about rates?
- – How much down pay and loan should I apply for?
- -What if I had a financial emergency in the future? …
Well – thanks to the easy accessibility to so many great resources nowadays, there are even more ways to handle these vexations and not lose our sanity and determination:
Use a free online mortgage calculator to find out the specific numbers that you will need to pay down and pay off monthly. Here are a few options you can choose depending on how you prefer to reviewing numbers:
- http://www.mortgagecalculator.org/: the very detailed breakdown
- http://www.mortgagecalculator.org/calculators/mortgage-payment-calculator.php: with tax and insurance taken in to account, also – you can print out the form
- http://www.mortgagecalculator.net/: quick, easy and user-friendly view
Well, with just a few clicks, you can get a basic understanding on how much financial impact a house purchase may have on your bank account. And you can easily decide the price range you should be focusing on from these numbers.
Mortgage Rates Comparison:
Next, you could shop for mortgage rates. Again, there are some great tools that can help you get a quick overview:
- Consumersadvocate: Compare and review the top mortgage lenders nationally: but you have to go through them one by one and do your homework
- Bankrate: Give the option to find and compare home loan rates based on loan type, location, credit score and more
After going over these steps, you now should have had a solid understanding on mortgages types, loan rates and the key elements of a home loan – don’t be bothered by the fact that you are still a little confused about some specific terms such as “open mortgages”, “amortization period” & etc., you are not looking into this to pass an exam and become a broker – now it’s time to pick up the phone and make a few calls.
Talk To Brokers:
Now it’s time to make a few appointments and talk to the experts: don’t be afraid or repellent of “being sold” – remember, you get all FREE services until now; and you have the choice to talk to as many brokers as possible to compare and figure out the best solution to your benefits – and the best part of it? You are proactively learning with guidance from professionals which would save you lots of time and wouldn’t be achieved if you just sit there and burrowing terminologies.
To screen out the mortgage brokers that best fit your situation, don’t forget to search/filter by location, reviews, and strengthens – for example, some brokers are good with dealing W2 (self-employed) as the income resource applications, some are more experienced with H1B visa holder applications.
If you worked with a full-service real estate agency which means they provide in-house mortgage brokers, that’s even better – talk to them as these associated brokers are usually more focused and more dedicated.
No 2. Job Security
This should sound familiar, as you all take it for granted that job security is a prerequisite of purchasing a home. This is especially prevalent among young professionals and immigrant buyers – even if they are more financially capable sometimes. The fact is, in today’s economy, there is no 100% job security in almost any industry. You will never foresee the next big layoff, and how it might impact your financial condition in the long round. If you’re holding yourself from purchasing a home just because you don’t feel secure enough with your current job, you’ll probably find you’re never ready for owning a home.
For those Americans who haven’t taken the home-purchase plunge, 26 percent say the lack of a down payment is the biggest obstacle, followed by concerns around job security and having too much debt (both 18 percent). — 2013 The COUNTRY Financial Security Index®
I am not saying that you should not take job security and income stability into consideration for your home purchase decision; however, when a rising trend of a market is so certain (like in 2013), you should not shut yourself out from that market just because you feel your job is not secure enough. Being prudent is good, while over-reacting may impair your intelligence to make a wise decision. Tips:
Instead of taking job security as a potential threat of home buying, break it down into the following questions:
- Do you have enough down pay for the home that you want? Can your income cover monthly mortgage and regular expenses?
- Do you have enough emergency fund in case you lose job for a temporary period? How long it can support you?
- Can you find a new job quickly in case you are laid-off? How long it may take? – This might be tricky, but take this into consideration, not necessarily a question for definite answer; instead, a mental preparation for any possible situation.
- Any other income source? Such as 401k, insurance, stocks…
- The home market and the potential appreciations/depreciations? In worst scenario, if you had to give up the property, how much gain/loss it might be and can you accept that?
Listing and pondering on these questions can help you get a much clearer picture to make the right decision with confidence.
No. 3 “Real Estate Bubble”
I don’t see a nationwide bubble in real estate right now at all
Many people worried about “housing bubble” in late 2013 when the real estate market started to pick up – and what happened today? 90% of them feel regretful for not buying at the time, as the national house prices have appreciated by 17% over the past three years and the growing trend is not showing an immediate change; in some cities, this number is soaring high: in San Francisco, prices have increased by 50% and have surpassed the 2005 peak; Atlanta, Houston, Los Angeles…tops the chart as one of the fastest growing markets with an over 20% appreciate rate each.
Of course, house prices won’t be climbing up all the time, but the market is not going to drop sharply or crash like in 2008 in the foreseeable future – according to Warren Buffett at the 2016 Berkshire Hathaway’s yearly meeting, “I don’t see a nationwide bubble in real estate right now at all,” and “I don’t think we will have a repeat of that (housing bubble)”.
If Warren Buffet’s remark is not convincing enough, ask yourself these questions:
- Does your family need a bigger space, a better school zone, a yard for kids…? If owning a house is an undeniable need for your family?
- What’s the cost of owning a property versus renting? And what’s the gain of each?
- If you don’t buy now, what’s the best time to buy? Can you foresee that?
No 4. Maintenance Cost
Among all the worries and fears, this is probably the most reasonable one – because it is something you can absolutely foresee. It is inevitable to pay upkeep costs and maintenance bills as a homeowner. Tips:
A few things you should consider to mitigate your maintenance cost/risk:
- Hire a good house inspector before signing an agreement
- Compare house conditions during house hunting
- Train yourself for some house maintenance skills such lawn mowering, yard cleaning, light carpentry…
- Think about and compare insurances to write off potential large maintenance bills, such as ice dam/roof recovering
No. 5 Home Value Depreciation
This is related to No.3, and it is a frequently asked question from many first-time buyers. Although you can take Buffet’s remark as an assurance of the favorable macroeconomic background for house purchase these days, you should be cautious of potential home value declining due to specific conditions of a particular home, such as neighborhood, school district, commercial development nearby, maintenance/renovation difficulties… and so on.
Homes that usually have a higher appreciation rate:
- In a desirable school district with nice neighborhood
- Location: such as cul-de-sacs; not too close to highways, intersections, prisons & etc.
- Newer, or well developed and maintained
- Cube/garden appealing
No. 6 Location Flexibility
Many working professionals and young families hesitated to buy a home due to the assumption that owning a home will become a burden and limitation when they wanted to move to a new place for a better job opportunity, or trying a new life style.
Well – partially true, it could be a lot of works and anxieties moving to a new place and dealing with a property transaction. However, this is absolutely a short-term mindset rather than a mature thought with clear vision and investment motivation.
Tips: Answer the following questions to have a better vision of the future:
- What’s the percentage of possibility that you will move to a new place in the next few years?
- Do you have an agenda of the move?
- What’s the status of the home market of your current place? Is the home value going to grow? Can a property be a good asset to keep?
- Do you need a property to enjoy a better life? Do you have better investment channel?
No 7. Bidding offers
Due to the high amount of buyers who regretted for not buying in 2013 and 2014, 2015 Massachusetts home markets — and many other upper-level markets — witnessed the phenomenal “bidding offers” – a fairly priced house easily got 20-50+ offers before the deadline, and got sold 10k+ or even 50k+ higher than its listing price.
This is extremely vexing to many first time buyers – but, if you let this frustrate you and stop you from house hunting, you’ll probably miss a still-good timing and have to wait for quite a long time for the next rising tide. Tips:
Bidding offers should really not be your fear or frustration, but a push for strategic approach:
- Try to make a shortlist of “must-have” and “can-compromise” features, review and discuss it with your agent thoroughly to make sure that she/he understand it well and can help you hunt these ideal homes at an early stage (when it just hit the market or even before it publicly listed)
- Figure out and wait for a better timing – if it’s a hot school zone, the market will usually cool down a little bit after September
- Set up a ceiling price and let your agent know
- Don’t be afraid to bid in even if you thought your price is not competitive: you’ll never know what will happen; don’t give up too quickly
- Interact with your agent and and let him/her do the evaluation and CMA (comparative market analysis) for you, but make the decision yourself
Buying a home for the first time could be intimidating and a very anxious experience: you need to face and conquer your fears and anxieties to accomplish one of your most important investments with confidence and strategy. Even if you decided not to proceed with the investment in the end, you still need to speculate the questions on this checklist to make sure that your decision is correctly made:
- Understand mortgage
- Break down job security concerns
- Look into data when it comes to “real estate bubble”
- Think twice about the maintenance costs
- Learn more about home value indicator
- Envision your moving agenda if you do have one – if not, envision your investment agenda
- Get over the “overbidding” panic