Buying your first home in a red-hot housing market
NEW YORK (WABC) -- We are in the midst of the hottest housing market in two decades, with bidding wars and even middling houses selling for more than the asking price.
So what's a first-time homebuyer to do?
Before you go walk through that open house or make a bid, here is some solid advice to save your sanity - and your wallet.
The first rule for first-time homebuyers is this: start saving before you start shopping. Even a small down payment can be challenging to compile.
For instance, if you're bidding on a $300,000 home, a down payment of just 5% percent is going run you $15,000.
The less you put down, the riskier you are to a lender, and the higher your interest rate will be.
That will make your monthly mortgage payment more expensive, costing you thousands in interest payments over the life of the loan.
And if you put down less than 20%, you'll owe monthly private mortgage insurance (PMI).
For that $300,000 house, the PMI will run you an extra $181 per month, or more than $2100 per year. That adds up.
Consumer expert Andrea Woroch says plenty of people get prequalified from a lender and then shop for priciest home they are approved for.
That's a mistake. You need to take into account added costs like homeowner's insurance, property taxes, utilities and maintenance.
And use a mortgage calculator so you know how much house you can realistically afford.
Shop around for the best loan interest rates. Even a 1-point difference can translate into thousands of dollars in interest and fees.
Research first-time homebuyer programs. You may qualify for an FHA-approved grant or loan, which allows smaller down payments and can be more forgiving of a low credit score.
Credit is critical for a FHA loan. First-time homebuyers require a credit score of 580 or above to qualify for the 3.5% down payment.
If your score's lower, you'll be looking at loan at a whopping 10% down.
So check your credit report and pay down any debt, because lenders really look at how much credit you have to left to use.
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