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The community where real estate guru Kenneth Edwards lives is like many housing markets across America. After a steep five-year ascent, property values in his neighborhood are leveling off. Houses don't change hands as quickly as before. And local realty brokers are declaring the area a "buyers' market."
But that's small consolation to many attempting to buy their first home in Edwards' neighborhood in a lushly wooded university town. As he notes, junior staff, faculty and researchers from the college are frustrated by their seeming inability to afford even a mid-sized family house. The same holds true for engineers in their 20s and early 30s, who work at the town's computer design company.
Edwards advises those seeking to buy their first home in a high-cost area to think strategically about their options. Here are several tips:
Consider a non-standard mortgage to help you qualify for a larger loan. Keith Gumbinger, of HSH Associates, which tracks mortgage rates for consumers, says those planning to stay in the house they buy now for an indefinite period may wish to consider a fixed-rate, 40-year mortgage. "These mortgages give you a little bit of budget-stretching without any inkling of mortgage-rate risk," he says.
On the other hand, a better bet for first-time buyers who expect a relatively short tenure could be a "hybrid" mortgage. This typically guarantees a fixed rate for five to seven years before converting to a one-year adjustable rate mortgage ！ one that's subject to relatively gradual rate changes on an annual basis.
However, Gumbinger urges caution when considering the increasingly popular "interest-only" home loans ！ meaning no payments on principal initially. This, of course, slows equity build-up. Another drawback is that once the interest-only phase ends, your payments could jump dramatically. He predicts that some first-time buyers won't be able to cover their payments on interest-only loans after the first phase is over.
To learn more, you can download a free online brochure called "The Principal Facts of Interest-Only Mortgages." It's available through the HSH Associates Web site: http://www.hsh.com .
Target overpriced houses. First-time purchasers (and even veteran homebuyers, for that matter) may overlook an important reality of real estate: You can sometimes get the best deals on homes that were priced too high in the beginning.
The trick is to be sure you're among the first to know when the owners of a property in your neighborhood of choice decide to cut their price. Edwards says you should tell your real estate agent to alert you immediately when this happens.
Don't rule out an out-of-fashion house. The cash-flow-conscious homebuyer may want to consider a category of properties a notch above the fixer-upper. These are essentially well-kept houses. The electricity, plumbing and everything else work. But their owners, though conscientious in some respects, have neglected the interior decor. Hence, they may be forced to sell at a price that's well below market value.
One example involved a retired engineer and his social worker wife. The couple had lived in their custom-built contemporary-style waterfront house for 40 years, raising four children there. The engineer kept the heating and cooling systems in order and made sure that roof repairs were done promptly.
When they put their house on the market, a big drawback was its drab interior. The interior paint, wallpaper and home furnishings were essentially the same as they'd been in the 1960s when they moved in.
Given its condition, the waterfront house couldn't fetch anywhere near what the couple sought in their asking price. Soon they gave up and sold it to their grown daughter at a steep discount off its market value.
But, as Edwards says, you should be sure to distinguish between an out-of-fashion house and one with serious underlying issues. He recommends a thorough inspection to determine whether a home has fundamental flaws, such as a deteriorating foundation. These are far more costly to fix than an uninspiring decor.
Locate homeowners who are highly motivated to deal with you. Sellers who must move quickly ！ perhaps due to a marital breakup, job relocation or financial reversal ！ are obviously more likely to let their property go for a bargain price.
Often sellers telegraph their intentions through advertising placed by their listing agent. Perhaps their ads will read: "Seller Motivated" or "Must Move Quickly." If the advertising doesn't reveal the sellers' motivation, a few casual inquiries placed by your real estate agent to the listing agent could do so.
Once you grasp the sellers' motivation ！ and their timing ！ you can customize your contract offer in keeping with their specific needs. As Edwards says, flexible buyers who've also been fully pre-approved for a mortgage are the most likely to command the sellers' attention.
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