First Time Home Buyer

The media was flush with stories about the virtues of home ownership aas well as the availability of easy financing terms during the housing boom of a few years ago. Fast-forward to today. Real estate values continue to fall nationwide and foreclosures, gas prices, unemployment, and inflation are on the rise. Widespread doom and gloom permeates the media. The subprime mortgage crisis is widely publicized.

With all the negative press covering the economy and particularly real estate, it is easy to come to the wrong conclusion about getting a first time home buyer’s loan. The picture painted far too often in the national news makes it appear that loans for first time buyers are now difficult, if not impossible to obtain.

However, the fact is that owning a home is an intregal part of the American Dream. Society believes so strongly that home ownership is good for Americans that we have built it into our national policies and tax code. Interest on a home mortgage is deductible from your income taxes, and the government backs a number of mortgages to make first time home ownership possible for many people. There are a number of loan options available from Federal, State, and Local Municipalities that can be customized to your specific situation. The most populat include FHA, VA and loans backed by Fannie Mae and Freddie Mac.

Virginia Hays, the association executive for the Central West Tennessee Association of Realtors, states, “The basic loans that homeowners rely on most often are readily available.”

If you invest a fair amount of time to become informed about the loan options, down payment assistance programs, as well as outright grants available to first time home buyers, you can both save money and put your home ownership plans on a very firm foundation. Armed with this knowledge, you will be in the best position to take advantage of the current buyers market while it lasts.

Applying for a first mortgage can be a daunting task for the potential first time home buyer. Most first timers do not realize just how much is entailed. Yet, according to many real estate agents, first time home buyers are driving today’s housing market. The segment of the housing market that is actually booming right now is the homes in the $90,000 to $150,000 range. The higher priced home buyers are in short supply. When a home comes on the market that is intended to sell for $100,000 it generally goes quickly.

The first time home buyer is no different than the more experienced home buyer in their specific requirements. Most buyers are looking for a home that is affordable, is in a good neighborhood and has the amenities that fit their lifestyle. Where the first time home buyer differs; however, is in the space desired. Most new home buyers are looking for added room and even extra room to grow into.

Many first time home buyers are finding their dream homes at prices they can afford from the number of homes that are being repossessed by banks. Many banks are finding they have a large inventory of bank owned foreclosures due to repossessions and are selling them cheap just to get rid of them according to one real estate agent with Coldwell Banker.

According to a broker-owner of Re/Max, foreclosures are aiding in the lowered house prices. It is this that helps the first time home owner find the home they desire instead of the starter home that first time home buyers once purchased. When the housing market benefits the seller, the first time home buyers often can only afford the traditional ’starter home’.

There are still challenges that the first time home buyer will face despite being a buyer’s market. There is much to learn and understand regarding the loan process that most first time home buyers are unaware of. The loan process is a fairly complicated process and even with good credit most first time home buyers have never had a loan of this scale before.

To help ease the confusion and often reluctance of the first time home buyer the loan officer and real estate agent come together to assist. Many people applying for a first time home buyer’s loan today can expect to be approved with a Federal Housing Authority loan at a 30 year mortgage with low interest rates.

For a myriad of locations and neighborhoods this is the best time in the last 10 years to buy a home. This is due to the housing prices being low and with today’s mortgage rates still being good. The dream home of many potential first time home buyers is a real possibility with today’s market; making for a happy ending to a beginner’s story.

The fallout from the subprime mortgage crisis now includes another unintended consequence: credit card companies are reducing borrowing limits for tens of thousands of consumers, which then can lead to lower credit scores. This is hitting first time home buyers especially hard.

This is a direct result of the financial world’s widespread effort to minimize exposure to risk. Banks and other card lenders are actively taking steps to protect themselves from immense losses like those they’ve experienced from subprime mortgages.

As credit card default rates start to creep up, credit card lenders are lowering credit limits, which means they are reducing the maximum amount of credit extended to an individual. The American Bankers Association, a Washington-based trade group, states that, in general, credit card lenders are worried that consumers who are faced with a number of ugly economic scenarios hitting at the same time - falling home prices, surging food and energy costs and a weak job outlook - won’t be able to pay their bills.

And lower credit limits are definitely hurting credit scores. This is how it happens: Let’s say a person has a credit card with a limit of $8,000 and is carrying a balance on the card of $2,000. The credit card company worries that large balance may increase the prospects for default, so it lowers the credit line to $2,500.

But in doing so, it drastically changes what is known as the credit utilization rate, an important element in the formula that determines a person’s credit score. In this example, the credit utilization rate has gone up from 25 percent to 80 percent. That is then factored into the calculation of one’s credit score. Craig Watts, a spokesman for Fair Isaac Corporation, confirmed that the credit utilization rate is an important factor in determining a person’s credit risk. The FICO scores, which aim to measure the credit risk of an individual, are the most used credit scores in the world.

The Comptroller of the Currency, one of the government agencies that regulate U.S. banks, requires credit card companies to notify cardholders at least 15 days in advance before making changes in the terms of their account, such as lowering the credit limit. While consumers cannot prevent credit card companies from lowering their credit limit, they can prevent their credit scores from suffering as a result. Simply pay the credit card bill in full every  time you receive a statement and do not carry an balance from month to month. Better yet, only use credit cards in an emergency situation. That will bring benefits in more than one way: you will not have to pay any interest, you’ll help boost your credit score as high as possible, and you’ll preserve your borrowing power.

That’s not what the credit card companies want, but it is definitely in your best interest to do so.