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It's a first-time buyer's real estate market

It was the right time for Paul Stronza to buy a home.

The house, in the Tampa Heights neighborhood near downtown Tampa, was in the right location, with most of the features he and his partner wanted, offered by a motivated seller at the right price.

That price was less than the maximum they had decided they could afford. Either one could carry it alone, and they're confident that their jobs, in the automotive industry and in insurance, are reasonably bullet-proof.

"We looked for almost two years" before buying the house last June, Stronza, 44, said. "Prices had gotten to the point where I was comfortable." They bypassed homes whose inflated price tags made him say, "These people are absolutely crazy." They financed with a 30-year, fixed-rate FHA mortgage.

In these chaotic days in the housing market, Stronza and his partner are model buyers: people with jobs, decent credit and a down payment who stick with solid, plain-vanilla financing.

"We're back to the basics," says Stu Williams, an executive vice president at SunTrust. "If you've saved a little money and you want to buy a house to live in for five, seven, 10 years, it's a good time to buy. It's the wrong time if you think you'll turn the house in a year."

It's also the wrong time if you're an investor who intends to make a few quick repairs and do a fast flip.

There's too much inventory on the market, and prices are too low, to make a killing. The days of a 20 percent increase in value in a single year are over. But if you're an investor who intends to hold the property for a while, "there are some good buys out there that would bring sufficient rent to cover your obligations," said Duke Tieman of Bruce Taylor Real Estate in Safety Harbor.

Right for new buyers

It's a good time to buy a home if you're a first-timer or a buyer who doesn't have one house to sell before buying another.

The economic stimulus package just signed by President Obama includes a refundable tax credit of up to $7,500 for first-timers who buy a house by Dec. 1. (Income limits apply. ) That is expected to drive a lot of new buyers into the market.

Many of them will be people who were priced out of the sky-high market of the past few years: police officers, firefighters, teachers, nurses — people with steady, reliable jobs and decent incomes.

Those buyers are good candidates for mortgages financed through the Federal Housing Administration, like the mortgage obtained by Stronza and his partner. FHA insures mortgages, it doesn't lend money. It currently will insure mortgages up to $291,000 and requires just 3.5 percent down. "That means you can buy a house for $120,000 or $150,000 and you only have to come up with $4,000 or $5,000 down," said SunTrust's Williams.

"People are pretty shocked about that."

"You can get into a home for what it costs to move into a quality rental," Tieman agreed, what with first and last months' rent and security deposits for rental apartments.

"But be realistic," urged Tieman, who works with many first-time buyers of modest income. "It will not be the largest dream home you've wanted all your life. It will be a good quality home. Start your investment and in seven years you can move up."

For conventional mortgages, down payments of 10 to 20 percent are typical these days. That's another blast from the past, from the days before no-down-payment mortgages, interest-only mortgages, no-documentation mortgages (no need to prove your income) and other toxic products that played a major role in getting the housing market where it is today.

Be prepared to work

If you're thinking of buying these days, the first investment you're going to have to make is time.

"It's shoe leather," says Nancy Huhta, an agent with Keller Williams South Tampa who worked with Stronza and his partner. "It's a full-time job for an agent and a buyer at this point. There's so much inventory and so many well-priced homes on the market."

Buyers should be prepared to spend a lot of time reviewing online listings, then driving around looking at homes and touring those that seem like strong possibilities.

"You need to see everything that meets your needs, because you never know," Huhta said. Many homes on the market are bank-owned, which means the bank foreclosed and took back the house when the previous owners couldn't keep up their payments. Others are "short sales," which is when the lender is willing to let the house be sold for less than the current owners owe. In both cases, "there's a lot of leeway in offers." That can mean buyers look at homes priced at more than they're qualified for because there's wiggle room for the seller to accept a lower offer.

Huhta and others cautioned that short sales can be "headache and heartbreak." Buying a "short" can be "a long, slow process," she said. More agents and lenders are becoming more adept at handling them, she said, but they can take months to close. Buyers who are relying on government home-buyer assistance programs for part of their down payment money may find that the program has allocated all its current release of money before they can close.

Short sales are typically sold "as is." FHA-insured mortgages typically require buyers to make certain repairs at their expense before closing, but some contracts on short sales and bank-owned property allow the seller to keep the house on the market right up to closing in hope of getting a better offer. Read your contract carefully.

It's always a good idea to have a home inspection of a property you're planning to buy, but particularly for a home that has stood vacant — a foreclosure, an investment property that was never occupied, a short sale.

Some angry homeowners facing foreclosure trash their homes or remove appliances and air-conditioning systems, Huhta said, so it's important to get an expert opinion of what the house is going to need and what that might cost. "You can make a $100,000 mistake if you don't have an inspection," she cautioned, adding that the few hundred dollars an inspection costs is money well spent.

Back to the basics

The Tampa Heights home Paul Stronza bought hit the sweet spot: most of what he and his partner were looking for in the right location at the right price. Built in 1923, it has three bedrooms and two baths in 1,344 square feet on almost three-quarters of an acre. That's perfect for these avid gardeners with three dogs. It also has a pool (a must-have), it's out of the flood zone (a must-have) and it's in great shape, with hurricane-worthy windows, new mechanicals and new or almost-new top-of-the-line appliances.

It doesn't have a garage, and it doesn't have the master suite they'd like, but the size of the property means they can add both. The price they paid — $271,000, slightly less than the asking price — leaves some cushion in their budget to finance those projects. "I would have paid more for this house," Stronza said. "We'll be here forever."

The previous owner apparently intended the same thing, but felt a call to do missionary work in Mexico, hence the sale.

A few years ago, Williams, of SunTrust, said he was seeing buyers extending themselves to the max to buy as much house as they could with all the upgrades and extras. Now, in these back-to-basics times, "people are buying what they can afford, basic, solid housing." They're not stretching for the frills.

Here's another trend he's seeing: Buyers from up North, who can't sell their existing homes yet but are looking ahead to retirement, are finding that they can afford homes in depressed markets such as Hernando and Citrus counties. A home of 1,500 square feet, a few years old, that might have cost $150,000 a year and a half ago is now on the market for $70,000 or $80,000. "They're saying, 'I can buy my retirement home now and carry it for $500 or $600 a month without renting it.' That's a recent phenomenon. We're seeing a lot more of that in Spring Hill and Citrus County."

"It's a good time to buy if you're realistic and understand what's happening," said Tieman, the real estate agent.

Typically, as prices rise, interest rates fall, and vice versa. "This is the first time we have low prices and low interest rates." Mortgage interest rates are currently about 5.25 percent for a 30-year fixed-rate mortgage.

"Did the bottom of the market fall out?" Tieman asked. "It got back down to where it was supposed to be."

Judy Stark, former Times homes and garden editor, is a freelance writer in St. Petersburg.


Should you buy

a home now?

YES, if . . .

• You have a job, and reasonable expectation that you'll keep that job.

• You have decent credit (it need not be perfect), pay more than the minimum on credit card bills and are current with other obligations such as car payments and student loans.

• You have a credit score at least in the mid 600s.

• You have a down payment.

• You have proof of income (past tax returns, pay stubs).

NO, if . . .

• You have no job, or you think you might be laid off from the job you have.

• You have a spotty employment history, starting and leaving many jobs in a short time.

• You owe a lot of money — on credit cards, car payments, student loans — and are living paycheck to paycheck, barely one step ahead of the bill collector.

• You have no down payment.

• You would have to rely on overtime and bonuses (rather than base pay) to cover your mortgage payments.

Good time to buy?

Yes, if you're a

first-timer with a steady job.

Low prices, lots of inventory, old-school financing.

Make an offer!

It's a first-time buyer's real estate market 02/27/09 [Last modified: Friday, February 27, 2009 12:02pm]
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