There's one segment of society not complaining about the housing market: first-time home buyers. As housing prices drop, and with free — or zero percent interest — money available from government assistance programs, now could be the time to buy. Here's an overview of what you need to know.
Patti Ewald, Times correspondent
What can I afford?
Before you start looking, you should visit a lender and get preapproved for a loan amount. Don't confuse this with getting prequalified, which is little more than a guess by the lender about what you can afford, says Jim Moran, a broker/associate who specializes in first-time buyers at the Countryside office of Prudential Tropical Realty. Preapproval means the lender has verified documentation given by the buyer and is ready to offer a loan.
What is the debt-to-income ratio?
It measures how your debt compares to your income. You can find it by adding up your monthly debt (credit card payments, car payments, child support, etc.) and dividing it by your monthly gross income. A 36 percent or lower ratio is required by most lenders.
How do I find my credit rating? What does it mean?
You can get a free credit report at annualcreditreport.com. A good score can get you a lower interest rate.
What will my monthly payment be?
The lender can tell you. Be aware that if you use one of the many home-affordability calculators online, they do not include taxes and insurance, Moran says.
Conventional or FHA loan?
According to Cheryl Allen, a loan officer with Bank of America, "FHA is the way to go. You only need 3.5 percent down and the rates are good. They are also more lenient with credit scores." And consider this: HUD offers government-owned, foreclosed homes for only $100 down to Florida home buyers, with FHA financing.
For conventional loans, most require a 10 to 20 percent down payment. You can find an FHA-approved lender at hud.gov. If you want to apply a cash "gift" from a family member toward the sale, a loan officer can explain its restrictions.
Should I get a real estate agent?
Since sellers pay the real estate agents, it would be foolish for a buyer not to take advantage of their expertise. Find an agent who sells houses in your general price range. Ask what the average sales price of his or her last 10 listings were, says Jerry Spilatro, executive director of the Community Service Foundation, which runs seminars for first-time home buyers.
How much should I offer?
Look at recent sales of comps — comparable properties — to help you determine a home's fair market value.
Be wary of trying to get a steal on a bank-owned home. A short sale means the bank is willing to take less than is owed on the house. But short sales take a long time to process, and might eventually fall through. Foreclosures are a possibility but you'll find a lot of competition from cash buyers, says Delia Davidson, a real estate agent with R.W. Caldwell Realty in Gulfport who specializes in first-time buyers.
What happens at closing?
Closing costs will vary considerably — many are related to the loan the buyer is getting, Moran says. "The loan officer will provide the buyers with a good-faith estimate for their review (during the loan process) so there aren't any unexpected surprises at closing."
Patti Ewald is a freelance writer based in Gulfport. She can be reached at [email protected]