First Time Home Buyer Tips in this Challenging Housing Market
Usually, people or buyers like yourself or any other buyer will look for a certain home in a certain area. That restricts you from finding a home, especially in this market when there are still multiple bids. A lot of buyers like yourself are buying to avoid paying high rents, taking advantage of them before they go higher. There are other buyers out there. If you can’t find a home in your immediate area, broaden your search. As of today, September 13, 2022, I looked in Anaheim Hills and there were 56 single-family homes for sale, priced under $2 million. You have 56 homes to choose from. Of course, some will have a pool, and some will have association fees. Some will not have a view, and you may have some features that you want, so that’ll reduce the number of homes that you can actually see. But if you can expand your area, let’s say you go to Yorba Linda plus Anaheim Hills, then you are adding another total of 114 homes compared to 54 homes. And if you had Orange, which is the neighboring city on the left side of Anaheim Hills, and Yorba Linda, the neighboring city on the right side, then you would have over 200 homes for sale in the three cities, compared to 54 homes for sale under $2 million. So, by expanding your area, you both expand and increase the chances of you finding the right home at the right price in the right location. One of the things you can do is to expand your search area and your search criteria.
Explore all the financing options and your alternative financing. Traditionally, when you’re looking for a home, you’re looking for a conventional loan at 5% down or 10% down. But remember, there are also government loans. If you’re a VA, you can find a VA loan, which means that you can buy a home with 0% down. If you’re having a hard time qualifying for a loan because the rates went up, the prices went up. So you’re very tight on qualifying. Maybe you want to go with an FHA loan, which has easier qualifying ratios so you can qualify. Of course, you may pay a higher rate, but at least you can qualify for the FHA loan, which is a Federal Housing Authority loan, i.e., a government loan. Another benefit of an FHA loan is that it only requires a 3.5 percent down payment, as opposed to 5%, 10%, or 20% down payment loans. And there are other options, what we call creative financing. If you can’t qualify for a 30-year loan, for example, many banks now won’t lend to you because the market is tightening and slowing, and prices have risen, so many buyers can’t get the house they want. In other words, because the affordability index is getting lower and lower, fewer people can afford to buy a house, especially in California. The banks, for example, New Res just came up with a loan. It’s a 40-year mortgage. So, instead of getting a traditional loan with a 30-year loan, you can get a 40-year loan. What that does is reduce the amount of your mortgage payment, which helps you qualify. The other alternative within the newly raised four-year loan is the New Res offers a four-year loan with interest-only payments. So I’ll give you an example. On a $500,000 home, your monthly payment on a 30-year mortgage at 5% might be $2,500. The same loan at 40 years would be approximately $2,100 a month. And if you get a 40-year loan on a $500,000 house with a 10% down payment, your mortgage drops to approximately $1,800 a month. Now, that’s a big difference; a $700 a month payment, which is a big difference. So, if you’re having trouble qualifying, you could buy a home at an interest-only rate and then refinance or switch to a conventional loan after 2 to 5 years. So that’s an advantage of going to alternative financing. There’s also seller financing and other creative financing. One of the other ways that the banks used to offer, if you can remember, is if you were in the market or if you had a home in 2002, three, four, and five banks were offering variable rates. They were offering a 1% interest rate for the first year, 2% for the second year, 3% for the third year, and then it jumped to a fixed rate. So those are all variable financing, which is good if you’re in need of those, not good if you want to buy, and if you cannot refinance after four or five years because it has its disadvantages, but there are advantages to getting those loans should you need them. So finding alternative financing and improving your expanding search gives you an advantage.
Look for grants or gifts and down payment assistance. For example, I know the city of Santa Ana, the city of Tucson, and the city of Anaheim in Orange County, California. They used to have programs but may not have them right now. “Check with your city.” A lot of cities give you grants because they want you to buy a home in the city of Anaheim, Santa Ana, or any city that you live in. Of course, there are restrictions and income limitations, but they want you to buy. I know a while back, ten years ago or so, the city of Anaheim had a grant program for police. If you were a police officer and you bought in the city of Anaheim, they gave you down payment assistance. So that was a help for the police force to buy in the city they worked in. So, similarly, they have cities that have different programs. So you may want to check it out. You can also increase your down payment if you want to buy a house but do not meet the qualification requirements. So, if you are thinking of buying a house with a 5% down payment, you may want to borrow 5% from your friends, family, or relatives and make it 10% down so you have a better chance of qualifying. Now, the good thing is, if you do get a gift from your friends, your parents, your uncle, or anybody, the lenders will allow gifts. As long as the person giving you the gift writes you a letter saying that they’re giving you a gift, then you can buy it because now you have a better down payment. And the third thing you can do is look for down payment assistance. Just similarly, there are grants, there are nonprofit organizations, there are other organizations, and there are cities and counties giving downpayment assistance for their residents to buy properties, especially owner-occupied homes. So these are various things you can check out in your area.