Buying a home has traditionally been the biggest purchase a person can make. Homeownership is also integral to achieving the American Dream.
The advantages of owning over renting are many, including the creation of wealth over time through equity, pride in owning, and community pride. There is also no fear of making too much noise, as is the case with apartment dwellers.
According to the latest census figures, the national homeownership rate is around 65%. Alabama’s rate is higher at 72.5%.
With over 100 people moving to the Huntsville metro area every week, the housing market is booming. This is great news for sellers, but it can be frustrating for buyers. According to the Alabama Center for Real Estate, supply was down 58% in May from the previous year. The median selling price increased 14% year-on-year.
Zelda Friedman, 2021 president of the Huntsville Area Association of Realtors, said nine days is the average length of time a home is on the market in the metro Huntsville area.
“This is a historically low number,” she said.
First-time buyers should not be afraid, however. There are a number of programs to help buyers, some of which are offered by the City of Huntsville.
If first-time buyers are not yet ready to enter the market, there are some benefits to be expected. Those who dream of swapping an apartment patio for a front lawn are often not financially ready to take the plunge.
Lauretta Moore, a planner with the Huntsville Community Development Department, said buyers need to do their homework and put themselves in a better financial position before buying a home.
âBorrowers with income issues, they are discouraged,â she said. âIt’s hard to compete with investors with cash. The best thing you can do is invest in yourself because when you’re ready you don’t have to prepare.
Friedman said it’s increasingly common to see desirable properties in a bidding war. Like Moore, she said this made it difficult for first-time buyers to compete.
âI’ve seen salespeople deposit a lot of money (to close the deal),â she said.
Go to school
The most important thing buyers can do is educate themselves not only about the market, but also about the financial responsibilities leading up to closing. Buying a home, especially for first-time buyers, isn’t as easy as finding one, getting a loan, and signing on the dotted line. It is an often arduous process that can take weeks – sometimes months – to complete.
âThe biggest hurdles for first-time buyers are having a down payment and a credit history,â Moore said. âBefore anyone even looks for a house, they need to know what they can buy. “
Fair credit scores range from 580 to 669, while 670-739 is considered good. Credit scores of 800 and above are considered excellent. A higher credit score is important because it often determines the interest rate on the mortgage.
Most real estate agents first ask potential buyers if they have a prequalification letter from a bank or lender. The letter requires a credit check, which can lower your credit score. Moore said potential buyers should avoid services promising free credit scores and stick with the “big 3” credit bureaus – TransUnion, Equifax and Experian.
If buyers have serious credit issues that need to be addressed, Moore said they should work with professional credit counselors before they become homeowners.
For first-time buyers who wish to deepen their knowledge, courses and programs are available, including one co-facilitated by Moore through community development in partnership with the Family Services Center (FSC).
Community Development also offers an annual fall housing exhibit that brings together experts to discuss funding available for housing programs as well as advice for buyers and tenants.
Other courses, like the one offered by the National Association of Real Estate Brokers-Huntsville, specifically target underserved people. The FSC and the Huntsville / Madison and Limestone Counties Community Action Partnership, along with local HUD-approved housing agencies, also offer homebuyer education and credit counseling courses.
âThe best thing a potential buyer can do is learn as much as possible so that they can present themselves as being financially responsible, with good reserves and a good credit rating,â said Moore.
Even if first-time buyers scrimp and save for months, it can be difficult to find enough money for a down payment. To this end, Community Development offers a Down Payment Assistance Program (PAD) that provides up to $ 7,500 for down payment and closing costs, depending on individual needs. Applicants must meet the eligibility criteria and be prepared to live in the property for at least five years.
The program was established in 2004 at the request of Turkessa Coleman, a community development planner. She was troubled by the challenges faced by low to moderate income buyers and worked with the US Department of Housing and Urban Development (HUD) to secure additional funding for the program.
I think we all desire to achieve that level of the American dream, and homeownership is that thing. Providing first-time home buyers with the tools and resources that already exist will help them get there.
She said many families have been helped by the program, including a woman Coleman saw again several years after buying a home with DAP funds.
“She told me, ‘It was the best decision I could have made,'” Coleman said, adding that the woman was a single mother with two children. âNow she’s moved on to a better job, a bigger house and her children are thriving. These types of stories fill my heart because it becomes more than just a down payment; it is a community solution.
Community Development also offers the Single Family Home Ownership Program, which offers new three bedroom, two bathroom homes to eligible applicants in the Terry Heights and Edmonton Heights neighborhoods.
Once the potential buyers have their financial situation in order, they can then begin their research. Friedman said having a real estate agent can make a first-time buyer experience much smoother.
Real estate agents can also help buyers obtain financing or educate them on what is available. Some banks offer loans without a down payment, but the interest rates can be much higher. Depending on the loan, a lender may also choose to waive the loan origination fee, which can save buyers money.
Loans vary by lender, and this is especially true for government insured loans like the FHA, VA, and USDA. These loans are not only dependent on economic eligibility but also on the condition and location of the house.
When it comes to a buyer’s wish list, Friedman suggested making a list of must-have items. She added, however, that homebuyers shouldn’t expect to find a home that ticks all of the boxes. She also said buyers shouldn’t be discouraged if their first offer is rejected. Buyers should also know that a home is not under contract until the seller signs the offer.
âI’ve seen buyers fall in love with a house and party, only to find out they didn’t have the house,â Friedman said.
When the seller accepts an offer, there are still a lot of hurdles to overcome before they can call the movers. The home’s appraisal value must meet or exceed the loan amount before the mortgage terms can be finalized. Buyers are also urged to have the property inspected for possible problems, which is an expense to be borne by the buyer.
In the case of a pre-existing construction, Moore suggested having a survey done to ensure that the advertised size of the land and the square footage of the house match the seller’s description. This represents another personal expense.
Once the appraisal and inspection is complete, buyers are usually inundated with a mountain of documents related to loan terms, title and deed. Despite the challenges and frustrations, however, local housing experts say there is nothing quite like the feeling of buying a first home while buying in the local community.
âI think we all want to achieve that level of the American Dream, and homeownership is that thing,â Coleman said. âProviding first-time home buyers with the tools and resources that already exist will help them get there. “
Click here to learn more about the educational resources offered by the Family Services Center. You can learn more about the educational resources of the Community Action Partnership here.