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Buying a home can be a particularly stressful, and time-consuming process. Buyers may learn through experience some valuable lessons for buying a home. Here are 5 useful tips for first-time homebuyers to consider when entering the real estate market.
#1 Get your documents in order
To apply for a home mortgage, you will need income and tax documents. Typically, lenders will ask you for 2 recent pay stubs, 2 previous years’ W-2s, tax returns, and the past 2 months of bank statements. Having these documents in hand will save you a lot of time when buying a home.
#2 Watch the market
Stay up-to-date with the housing market on both a national and local level. Just like the stock market, timing is key in the real estate market. If inventory is decreasing, it may be best to buy a home quickly before more buyers enter the market and spark a bidding war. If there are clear signs that the market is unstable in the area, you may want to wait or look for a home in a different city.
#3 See if the HOA contract allows renting
It is common for homeowners to have the long-term goal of renting out the property when they decide to move. It can be a big disappointment to find out after you buy a home that your neighborhood does not permit rentals. Make sure to check the homeowner’s association contract before buying a home if this is your goal. Here in Bozeman, for example, the city has a temporary ban on short-term rental permits in its historic neighborhoods
#4 Read the ENTIRE contract
Buying a home will be one of the most important, and obviously expensive, purchase in your life, so don’t overlook or ignore the terms of your contract. If there is anything you don’t understand, ask your mortgage broker and your real estate agent to clearly explain the terms to you.
#5 Meet the neighbors
You might forget that you’re not just buying the house, you’re buying the neighbors too. Have you watched the movie Neighbors? Don’t end up like Mac (Seth Rogen) and Kelly (Rose Byrne) and wait until after buying a home to find out that your next-door neighbors are a bunch of college kids who throw wild parties every night.
Buying a home can be a particularly stressful, painstaking process, especially for first-time home buyers. To prepare you for the real estate market, follow these 5 steps toward buying a home.
#1 Save Years In Advance
Down payment requirements depend on the loan program, ranging anywhere from 3% to 20% of the home value. Zero down payment loans are also available from the USDA or VA for those who qualify. Most buyers should expect to put a large sum of money down to buy a home, so it’s important to plan on saving years in advance.
In addition to the down payment, is the closing costs. While it depends on the state, closing costs can add several thousand dollars on the cost of the sale. Some sellers may agree to cover the closing costs for the buy, so be sure to consult with a real estate agent to try to work that into the contract.
It’s also important to save for additional cash reserves after buying a home. Not only is it a requirement by some lenders, but is also financially safer to not put all your eggs in one basket.
#2 Estimate What You Can Afford
The next step is to determine how much you can afford putting into a home. The size of your approved loan will be determined by your income, the down payment you saved for, assets, and debts, liabilities, and other obligations.
The general rule of thumb for homebuyers is to stay within a price range that is no more than “three to five times than your annual household income”, or “payments under 36% of household income.”
#3 Keep An Eye On Your Credit
To get a good loan with good rates, you need good credit. As the determining factor in the mortgage loans and interest rates you qualify for, it’s essential to keep a close watch on your credit score. It’s possible for errors in the calculation of your credit score, so be sure to check for mistakes and dispute it if one exists.
#4 Get Pre-Approved For A Mortgage
There are a couple of advantages of getting pre-approved before your home search. A pre-approval will allow to know exactly how much you can afford, as wells as put you a step ahead other buyers toward making an offer on that perfect home you come across.
Before getting pre-approved, you will need to be pre-qualified. This is a simple process of providing your mortgage lender with your income, asset, and credit information. The mortgage lender will then determine how much you’ll be approved for.
Getting pre-approved goes a step further, requiring documentation of your W-2s, bank statements, pay stubs, and possibly your federal tax returns.
Once pre-approved, you’ll be ready for a mortgage loan. Having this pre-approval signals to sellers that any offer you make is serious. It’s a competitive market with today’s low inventory and high buyer demand for housing, so having this advantage over other buyers is important.
#5 Hire A Real Estate Agent
Hiring a real estate agent is single most important step to take before making an offer on a home, especially if none of the above steps were taken. A home, for most people, is the most expensive investment you will make in your lifetime. A good real estate agent will make all the difference in the successful sale of a home, whether buying or selling.
There is a long list of codes and regulations associated with real estate, which changes every year, and can be complex to fully understand and abide by. Real estate agents are required, by law, to stay up-to-date with these codes and assure that nothing is violated.
Being experts in the industry, real estate agents can also catch certain faulty features of a home that you may overlook.
Hiring a real estate agent is worth the investment because real estate agents have the knowledge and experience in the local market to effectively negotiate a better sales price, while assuring the contract is without flaws or loopholes.
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Hart Real Estate Solutions—Your Trusted Guides
“First Time Home Buyer : The Late-2016 Guide to Buying a Home” by Dan Green
As generations grow older, new waves of people are entering the housing market. After graduating college and beginning their career, people in their 20’s begin to look for their first home. These new buyers make a major influence on the nationwide demand in the housing market. To keep housing rates at a healthy level, the amount of vacant houses need to meet the number of new market entrants. Today, concern has risen over our current housing shortage.
With 318.9 million people in the U.S., and 16,585,415 vacant homes in 2015, only 5.2% of this growing population will be able to find a home to move into this year. According to the U.S Census Bureau, 1,055,000 new homes were built in 2015, which is small in comparison to the number of buyers entering the market. First time buyers are typically between the ages of 20 to 29.
With 13.8% of the country’s population in this age group, there is a larger influx of new buyers than houses available.
Considering the rising student debt and housing prices, the housing shortage just adds to the ever growing challenge for first time buyers.
With baby boomer’s now seeing their millennial grandchildren in their twenties, we are experiencing a large expansion of the number of homeowners in this country. Now these millennials are out of college, starting a career, and looking to buy a house.
Millennials have surpassed their parents’ Gen-X and their grandparents’ Baby Boomer generations as the largest American generation to date.
This influx in housing demand continues to be a challenge for the construction industry, which is still recovering from the 2008 financial crisis.
Something to keep in mind, however, is that the birth rate is not constant. After the millennial generation, the birth rate started to decline. The population of ages 10 to 14, accounting for 6.7% of the population, is .4% less than the age bracket 15 to 19, which is 7.1% of the population. From there, the birth rate continued to decline. Ages 5 to 9 lowered to 6.6% of the population, and ages under 5 are 6.5%. This decrease entails how the housing market will react in the years to come. If the birth rate continues to decline, then we will see a reversing trend in the housing shortage.
Along with many other factors, population is major determinant of long-term market trends. Keeping all other factors constant, a large bubble in our population will affect future housing trends. When construction fails to keep up with the growing demand for more houses, we experience a housing shortage. Then, as demand supersedes supply, prices increase. This is why it is useful to look at the U.S. Census reports to foreshadow future housing bubbles.
At Hart Real Estate Solutions, we stay in tune with the latest market stats to anticipate changes in the real estate market. We don’t just present meaningless data either, we analyze it to find noteworthy correlations and estimate projections of what to expect in the future. Subscribe to our monthly newsletters to keep yourself up to date with the latest news and reports, which may help answer some questions you have about real estate, or just provide you with interesting information. Have any questions about your home? Contact us on our website, or give us a call for a free home consultation at (406) 599-6961.
A study commissioned by the City of Bozeman in April has concluded that the city should reconsider the intensity of its regulations in its Conservation Overlay District. Downtown residents within the district, currently have to apply for a certificate of appropriateness before being allowed to make exterior modifications to any properties. The study concluded that although district regulations had helped preserve historic buildings in the area, it was also a major contributor to the lack of infill development in the city, keeping home inventory low and affecting home affordability in Bozeman.
According to the study, there are not any detached, single-family homes in the conservation district that are affordable to residents making 80% or less of the city’s median income. The study believes that by allowing and welcoming infill development, Bozeman can keep its historic charm while helping lower home prices downtown.
The study noted that vacant lots are scarce in town and suggested Bozeman start offering incentives like smaller lots, ground accessory dwelling units (normally ADUs are above garages etc, but do provide rental income to the homeowner and another bedroom for a Bozemanite.
The study believed that by replacing the overarching district with a collection of districts would help provide more specific regulations to neighborhoods. With code relaxations, 35 properties within the district would be eligible for renovation, expansion and densification.
As the overlay district, in a sense, operates as the city’s Home Owner’s Association, the study’s findings are not surprising. Although the study still suggests keeping control in the hands of the city, essentially, each historic district would operate as regulator for the quality and consistency of specific neighborhoods, like an HOA would. That would allow the city to lower standards in one area, while maintaining them in another, helping them preserve historic homes while also increasing downtown density.
After flirting with eminent domain for the second time in a year, this time, commissioners approved and will move forward with plans to use eminent domain to acquire an easement at the corner of Davis and Baxter Lanes.
The city has been trying to widen the two roads and add crosswalks and signals to the intersection. More often than not, owners adjacent to these streets would lose part of their land to the road expansion. Usually, the city and property owners can strike a deal in payment for land, but sometimes owners do not want to give up a piece of their property.
Eminent domain is when a government body forcibly purchases private land from an individual for the overall benefit of the public.
In this case, the owner’s of a 5 acre parcel at 5001 E Baxter Lane, did not want to sell 19,000 square feet of land to the city for the $38,400 dollars offered. When the owner’s did not accept the city’s offer, City Commissioners chose to use eminent domain to force the sale of the land, allowing them to improve the congestion.
Commissioners did say they believed that eminent domain was the only option remaining to them in order to fix the intersection and its heavy traffic. Here lies an example of the growing pains Bozeman will continue to face as it expands.
Bozeman and neighboring towns within the greater Bozeman district have outpaced all other Montana cities in utility hook up orders in 2015. As new utility hook ups are one of the best ways to measure a town’s growth, its clear the Gallatin Valley is attracting new residents.
The data was taken from a report measuring electric and gas connections from 2013 through this year. Utility hook ups have increased year-over-year since 2013. Bozeman outpaced Butte and Helena with approximately 1,000 new electric connections in 2015. Billings only had around half the number of connections made. There have also been 600 gas hook ups so far this year, compared to 400 in 2013.
Bozeman and the greater area are in a construction boom and have been for a few years now.
Interestingly, construction growth receded slightly in 2015. 94 single family home permits were issued through September 2014, but this year only 81 permits have been approved. Of course, these numbers are in direct comparison and were major steps up from the number of permits approved during the recession. In addition, the number of permit applications has gone up drastically, even if they are not meeting approval requirements.
As Bozeman grows, it will need to be managed by city officials. However, the recent economic and real estate growth has been much needed, so Bozeman will need to find a fine line between solid economic growth while maintaining the beautiful open spaces that attract so many to the Gallatin Valley.
The US Jumbo Loan market continues to perform extremely well in 2015 after an already wonderful 2014. A jumbo loan is any loan where more than $417,000 is borrowed for a home purchase. In high priced markets, jumbo loans are not counted until someone borrows $625,000.
In 2014, jumbo loans took 19% of the total mortgage market, which had not been seen since 2002. In 2015, that number has risen to 20%. Even more enlightening, after only taking 1% more market share for total mortgages, jumbo loans took 36% more dollar volume than in 2014, reaching 160 billion in the first half of the year. Among other things, that difference in dollar volume really highlights how much stronger the overall housing market has become in the past few years. Home values continue to rise across much of the US, raising the average dollar spent on each loan taken out.
The Federal Reserve did not raise their interest rates in the first half of the year as many experts predicted, and high-end borrowers took advantage of low rates to refinance their home. But when the Fed ultimately raises the rates, its not expected to seriously hamper the jumbo loan market because most jumbo borrowers have significant assets and cash reserves.
Jumbo loans never dipped below conforming loans as they did last year, suggesting it was more than just low rates that have been re-attracting jumbo borrowers to the housing market.
So far in 2015, rates hit their lowest in April at 3.82% and their highest in June at 4.15 percent.
The total value of all homes in the United States grew for a third straight year according to zillow.com. The total value of all homes in 2014 reached 27.5 trillion dollars, up 1.8 trillion from 2013.
In 2013, home values had grown up to 25.7 trillion, up 1.9 trillion from 2012. From 2012 to 2013, home values rose by 7.9 percent. From 2013 to 2014, home values rose by 6.7 percent.
Between 2007 and 2011, home values had lost nearly 6.3 trillion. The attached graph indicates the new growth in comparison with the recession (updated through 2013). With 2014’s continued growth, the graph reveals a positive trend.
The value of homes is increasing, whether it’s through a rising inventory of new homes or prices themselves are going up (though probably both). So long as growth can remain consistent overall, the housing market should continue stabilizing and improving.
If you thought real estate prices were soaring in the greater Bozeman area, at least you can hang your hat on the fact that New York City will always set the standard for high prices. New York University paid $157 million dollars for two buildings in downtown Manhattan in an effort to expand for their growing university.
708 Broadway and 404 Lafayette St. share approximately 151,000 square feet between them, a respectable expansion. However, in comparison to the price they paid for the two buildings, the cost per square foot comes out to more than $1,000. The properties were vacant at the time of the sale. NYU wants to use the building as a new fitness center and NYU believes the purchase will be cost effective over time.
Unfortunately, the buildings sales history reflects poorly on the school. The price they paid was unheard of right after the crash. These same buildings sold for 39 million in 2005, before the crash even occurred. The sellers were real estate investors, who clearly made a killing on their 2005 purchase. Real estate values have sky rocketed in Manhattan mainly due to the recent demand by offices and retail stores for downtown Manhattan locations. NYU’s timing for their purchase seems questionable, especially because they are an institution that has a buffer from the harsh economic effects of a market crash compared to individuals.
I always enjoy seeing real estate prices and purchases in major cities because they remind me to always stay within reason and educate myself about a market prior to making a major purchase.