The Louisville, Kentucky real estate market is more competitive than ever for the first-time buyer. It is not uncommon in 2017 to see homes sell within hours for thousands over list price. Keeping that in mind, we want to help the first-time buyer as they take the first step toward homeownership by avoiding these pitfalls:
1. Being judgmental (about yourself)
One of the biggest hurdles in the ACTION it takes to become a first-time buyer is just filling out a loan application. Many times a first-time buyer will ASSUME that they will be rejected due to past experiences. That fear of rejection keeps them from what may be the best option for them and their families. Consult a qualified Realtor or mortgage loan officer. An experienced agent asks good questions and can put a first-time buyer in touch with who they need to move forward. Just because a first-time buyer doesn’t have a down payment, or experienced a change in jobs, or maybe had a bankruptcy in years past, or simply have a credit score that you think is lower than it should be – none of those things by themselves need to disqualify them from being a first-time buyer. A first-time buyer can get more credit tips and tricks here. If you are a first-time buyer in Kentucky, you can click here to apply online.
2. Putting the cart before the horse
That’s an expression my folks used whenever I tried to do something in the wrong order. In this case, a first-time buyer shopping for the perfect house before getting pre-approved to buy it is “putting the cart before the horse”. Every first-time buyer really needs 3 things: 1. Price – An amount that the bank will loan them. 2. Terms – a general idea of what it will cost them each month. 3. Peace of Mind – an assuredness that the bank has seen and reviewed their credit, bank statements, tax returns and paystubs and know about any alimony or child support payments being made by them so they can shop with the confidence that their pre-approval is GOOD.
3. Good bankers and good lenders are the same thing
I often here that people give up once their bank, the “people” who know their financial position best and longest, turned them down for a loan because …their credit wasn’t a 680 …they weren’t on their job for a year …they didn’t have 5% down payment. Banks and credit unions look at mortgages different than a mortgage broker or direct lender. Often, they are looking for portfolio investment opportunities that are of a higher caliber (credit score) and lower risk (down payment/job stability). The mistake a first-time buyer may make is thinking that their checking account history, although it may be good, has a significant bearing on their loan decision. It doesn’t. And more often than not, banks and credit unions have more limited options and more stringent requirements than mortgage brokers. Ask your Realtor for their recommendation. A “High-Octane Realtor” will want to work with a seasoned pro that will get you to the closing table and make the experience faster and better for everyone.
4. First-time Buyers have to wait until they saved 20%
While we want to every first-time buyer to be in a solid financial position before buying their first home, the media myth that you can’t buy unless you have saved 10-20% of the purchase price is just #FAKENEWS. There have been down payment assistance programs offering 100% financing in Louisville, Kentucky since 1971. There are times when special first-time buyer grant programs are also available as well as special tax rebates that will save you thousands of dollars over the course of the loan. Currently, credit scores of 620 and up are eligible for these programs. With 3.5% of the price down, a 580 score may be acceptable.
5. Only consider the payment
Homeownership is an investment. Investments mean that first-time buyers put money in with the strategy and expectation to get more money out of it. If a first-time buyer is approved for $100,000 but tells me they only want to buy a $80,000 house because of the payment then I’m going to suggest that they do the math. The difference between payments is roughly $120 ($30 per $5,000). If the $80,000 house will need a new roof and has a multitude of other issues the buyer could quickly see themselves spending more than $4 a day as they slowly deal with each item as it breaks. It is important to develop a budget, using realistic numbers, and REALLY see what is affordable – regardless of what your approval amount is.
6. Getting too emotional
I tell all of our first-time buyers, “Emotions cost dollars”. When a buyer falls in love with the house the conversation with their Realtor changes from “how much off the price do you think we can get it for?” to “GET ME THAT HOME!”. Emotions cost dollars. It’s okay to absolutely love the house you look at (we want you to be happy) but don’t get so caught up in the moment that you are willing to make a bad financial decision against the advice of your trusted Realtor.
7. You’re signing your life away
Signing a contract is serious stuff. However, it is important for a first-time buyer to understand the difference between making an offer on a house and signing the documents to buy a new car. When working with Louisville Market Realtors your agent should be using a GLAR board standard contract. It is 7 pages long and details all the terms and conditions of the sale. The standard document can be filled out to include 4 ways to terminate and walk away under the terms of the contract. 1. It can be contingent on your financing – if you can’t get the financing that you pre-approved for, you can cancel. 2. If the house does not appraise for greater than the purchase price on the 1st appraisal. 3. If the house is more than 10% smaller than the listing states. 4. If you have a licensed inspection with a written report and request to terminate within the inspection period. I’m not an attorney and you may want to consult one if you want legal advice, but I am sure that an offer with these contingencies can protect you and clearly define HOW you buy the house and give you protection if the loan or the house doesn’t shape up to what you expected.
8. Its not over til it’s over
From the time a first-time buyer has been pre-approved all they need to do is hold the boat steady. They are golden – just as long as they don’t change. Once pre-approved don’t quit or change your job, buy a new car or furniture on credit, close your credit cards, pay late or increase your debt.
9. Depositing “found” money
This last one is the one that is overlooked the most but can upset a deal quickly and takes the most work to undo: DON’T DEPOSIT large (over $250) sums of money inconsistent with your regular banking pattern. I’ve heard them all – “My buddy paid me back from the money he owed me for 2 years”, “I sold some things on Craigslist”, “I won at bingo”, “I sold a junk car” – There is nothing wrong with trying to store up as much cash as you can for the down payment, but before you put it in the bank, consult your loan officer and see IF it can go in the bank and HOW it needs to be documented. If your buddy paid you back finally but there was never a promissory note, it is better to keep it as cash and DON’T deposit it. If you need it to pay your regular monthly bills, leave your paycheck in the bank and pay your bills in cash or get a money order. It would put you in a WORSE situation by depositing undocumented money without the loan officer’s blessing.
Mark Atteberry is the Principle Broker for Louisville Market Realtors in Louisville, Kentucky where he coaches and encourages nervous first-time buyers. He can be reached at 502-224-1039.