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Why First Time Homeownership Doesn't Come Easy

First Time Ownership Doesn't Come Easy

Not all new buyers can easily move in a new home. Find out why.

For those following the real estate news, it’s impossible not to have stumbled upon government initiatives to spur home sales from first time buyers. Through tax credit explicit in the Housing and Economy Recovery Act of 2008, more Americans are expected to snap up the large supply of houses in the market that are currently depressing national home values. However, not all things can fare well for this large segment of buyers for a number of reasons.

Obviously, first time homebuyers do not have any mortgage experience from which the lender can easily review during application. Since the pre-qualification serves as the first basis of granting potential borrowers the needed amount, it won’t suffice to the credit history that other applicants possess. Most lenders however, screen applicants through secured loans that allow them to verify if the net income of the borrower is sufficient enough to cover the costs of the mortgage. Borrowers then get discouraged by the higher interest rate imposed to them that must come with the lack of credit profile.

Another setback is affordability of houses. With lower prices set in the market today, the median resale price for existing homes has gone by 9 percent over the past two years according to the National Association of Realtors. That may sound good news to those who can meet the minimum cost for financing mortgage payments but for lower-income buyers, it may be a different case all throughout. Usually, they have lower savings or are employed in positions with lower annual gross incomes. Though there may be homes that can match what they can afford, it doesn’t necessarily mean that these are closer to their workplace or their children’s schools. Should they choose to relocate but keep their jobs, they would then suffer the costs of transportation which would constitute a large deduction in their savings.

Borrower and lender mismatch is another problem. Too often, first time homebuyers do not shop for the best mortgages around. Worse, they end up with mortgage bankers who take advantage of their situation by issuing unnecessary fees and closing costs. They may ask more documents for the borrower to submit and they would ask an additional fee now that more forms need to be processed.

Lastly, delays are inevitable these days. A single lender can receive dozens of applications in a single day now that mortgage rates have gone down to 5 percent. As first time buyers, they may not be readily prioritized because those attempting to refinance their homes have existing relationships with the lender. Just imagine the pile of applications and supporting documents that need to be reviewed page by page.

Since a higher credit score increases the chances of earning a better interest rate and loan for the first time borrower, it is necessary that they improve their buying habits and assure employment security in the next ten years. That would be a significant pre-qualification asset. Also, they can ask friends and neighbors regarding mortgage banker references so they can reduce the risk of losing in their transactions. Finally, if they are confident enough to be granted with a mortgage, they should act now while prices are relatively affordable compared two years ago.

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