Homebuying 360: Buy Right

You've heard about the interest rates. Money is cheap. Sellers with right-priced homes are getting multiple offers. (When was the last time that happened?) New construction is underway in Northeast Ohio because the inventory of existing homes for sale is down.

There's pent-up demand for homes, notes Felicia Hengle, president of Ohio operations for Coldwell Banker Hunter Realty.

"The marketplace has changed dramatically over the last five years," she says. "It's definitely a seller's market."

Buyers are winning too.

"The customer has tremendous buying power," says Ryan Puzzitiello, president of the Home Builders Association of Greater Cleveland and vice president of sales and marketing at Parkview Homes. Based on information from the association's economic forecast meeting in February, he suggests homebuyers begin their search now as interest rates are predicted to rise slightly over the next six months to a year.

Should You Rent or Own?

This is really the initial question first-timers should consider. Sure, interest rates may be near historic lows, making it a good time to buy. But, is it a great time for you?

That depends.

Are you looking to settle in and get rooted? Or, does the thought of living in the same spot for more than a few years feel a bit restrictive? If you know where you want to be and plan to stay there for a good five years, then now is an ideal time to purchase real estate.

"With today's low interest rates, you can get a lot of house for your monthly payment versus what you may be paying in rent," says Howard "Hoby" Hanna, president of the Midwest region of Howard Hanna Real Estate Services.

With an interest rate of 3.5 percent on a 30-year fixed mortgage and 20 percent down, the monthly payment for a $100,000 house would be $448, Puzzitiello says. You'll also need to factor in property tax, insurance and any utilities covered in your rent. "If you're out there renting for $800, you can afford the monthly payment for a $180,000 house," says Puzzitiello.

Buyers can leverage those low interest rates to buy more house or just get into a house in the first place. "The affordability index is now about what it was in 1995," Hengle points out. That means you can buy more house today for a payment that you would have made in 1995. (Low interest rates rule.)

Move It On Up.

If you're living in your first home and wondering if now is the time to move up, Hengle says, you may be able to maximize your investment and sell faster than in recent years.

Rather than renovating, consider selling to get what you really want.

Sit Down With a Lender.

Before you search for homes, get prequalified for a loan. While there are plenty of online tools that allow you to complete the process without stepping into a bank, Hanna suggests a face-to-face meeting.

"A lender will walk you through the process and explain what monthly payments could look like, what taxes will be and help you determine what you can really afford," Hanna says.

Know Your Numbers.

You were prequalified for a home loan of up to $350,000. But is that what you can actually afford?

Consider expensive hobbies. (Golf much? Like to scuba dive in the Caribbean? Plan to hit the slopes all winter?) Remember to account for college and credit card debt.

"Your housing should not cost more than 28 percent of your total gross monthly income," says Tony Pellegrino, secondary marketing manager, mortgage banking department, Northwest Bank. That figure includes homeowners' insurance, property taxes and homeowners association fees.

Get The Lowdown On Down Payments.

Traditionally, lenders love to see a 20 percent down payment for a home loan. But that's actually not the norm today for first-time buyers. Many loan programs are designed to get buyers into properties for a fraction of that down payment cost.

How does 3 percent down sound?

"A lot of first-time buyers think they can't afford a house or that they need a huge down payment, and that's not necessarily true," Hanna says. "You can get into a house with a minimal down payment and pay private insurance, which allows buyers to get into a house quicker."

Private mortgage insurance — or PMI — generally adds 0.5 percent of the total loan amount to your mortgage payments for the year. "That PMI goes away once homeowners achieve a certain value of the house," Hanna says.

Investigate first-time homeowner programs and loans for veterans or active-duty military (if that's you). If you have not owned a home for three years, then you are considered a first-timer again and can access those low rates, Pellegrino says.

Forget Perfect.

You have looked at every home in your price range on the market, but how do you know you've found the one? For first-time buyers struggling with when to make an offer, Hanna says, there is no such thing as a perfect pre-existing home. (Even when building, you might make some concessions based on your budget.)

Sometimes, the "perfect house" is not within your budget. "They can afford $200,000 but the home they really want is $400,000," Hanna says. "The key is to find the home that works and maximize it."

You Can Still Score.

Is your credit score a little bit scuffed? You don't need a 730 to secure a home loan. Certain home loan programs are more forgiving, Pellegrino points out. For instance, with Northwest Bank's first-time homebuyer program, buyers put down 3 percent and must have a credit score of 660 or higher.

"If they don't meet that, we would then look at a 5 percent down possibility, and they would need a 640 or higher credit score," Pellegrino says.

If buyers don't meet that mark, there are loans available for credit scores in the 620 range, but those require a minimum 10 percent down.

Don't Lose Out.

Multiple offers are common in today's seller's market. That means homes are closing at higher than listing price, and sellers are making fewer concessions. With fewer houses for sale and low interest rates, buyers must be prepared to present their best offer.

Or they better be willing to lose.

First, get over price tag and consider your monthly payment with today's low interest rates. For every $1,000, you can figure $3 to $4 on a monthly mortgage payment. So giving a seller $5,000 over asking price can equate to an extra $15.

"Don't second-guess yourself," Hengle says of making the move on a hot property with multiple offers on the table. "Know what your top-end is. Be ready to go there."

Waiting To Build.

Statistically, millennials are waiting longer to buy homes than previous generations, and this makes sense. They're saddled with more college and credit card debt.

"First-time homebuyers are delaying their purchases," says Paul Spenthoff, vice president of operations at Pulte Homes.

So by the time they're ready, some are prepared to build rather than choose from existing inventory. "We have product that many first-time homebuyers are purchasing," Spenthoff reports.

Culture is changing the demands of first-time buyers. Houzz, Pinterest, HGTV and social media has cultivated a taste for move-in ready, Puzzitiello says. "So, new houses and houses on the market that are updated and priced right are moving," he says.

Build Community.

Location has always ruled in real estate, and that story hasn't changed, says Stan Katanic, vice president of land acquisition and development at Pulte Homes. But if you build, does that mean you have to trade prime location to get upgrades? Not exactly.

Trigger The Sale.

Homebuyers looking for their dream house may not find what they want for sale — yet. But don't fret.

"If you have an agent engaged, he or she will find that house for you," Hanna says.

Real estate agents work to create markets for those buyers with a sharp idea and bigger budget, Hanna says.

Agents talk. They give each other tips when desirable houses are coming on the market before they're listed, Hanna says. An agent may have a client who's thinking of selling — and a willing buyer can trigger the sale.

"Whether their dream home is $400,000 or $4 million, working with an agent is really important because of the networks they have," Hanna notes.

The move-up and dream homebuyers have a good idea of exactly what they want — especially for those choosing new construction. "They want a house designed around them," Puzzitiello says. "Maybe they had a living room they never used and a kitchen they wished was larger. They're looking for a house that better suits their lifestyle."