Anyone who’s bought a home can tell you it’s one of the most stressful purchases you’ll ever make. No matter how smooth the process goes—getting your team together, searching for the right place, finding your home, making the offer, getting the offer accepted, and closing—there’s always some drama somewhere, and there are tons of decisions to be made before you ever get the keys in your hand.
Today’s housing market is noticeably different from a few years ago. Between a shortage of previously owned inventory, higher interest rates, and years of inflated home prices, the path to homeownership can feel even more distant. Melissa Hudson, founder of Texas Homes Sold Group—and my realtor—has a magic touch when it comes to walking first-time homebuyers through the process.
(Buyers) typically don't ask enough questions. Now’s the time to ask all the questions. There's never a stupid question. You don't know what you don't know.
“I made it a mission to help people of color,” Hudson says. “Fun fact about me is that I did buy one of those new construction homes right before the market crash in 2008. My home was foreclosed on, I lost it, and I became a renter. That stuck with me. That feeling of having something and losing it. When I became a real estate agent, the feeling was worse because now I know I could have sold that home and made money on it, but I let it go back to a bank. I will never let someone go through that.”
Hudson says home buying is a process, but so are the preliminaries. Educating yourself ahead of diving in can give you a clear vision of where you want to go.
“Don't be afraid to attempt homeownership,” Hudson says. “There are so many renters out there that could benefit from homeownership, and they're afraid to take that first step. Even if your credit isn't good, a good mortgage lender will tell you, these are the debts you need to pay off to bring up your FICO score. Your credit today doesn't have to be the same a year from now. It could be the difference of you working on it and becoming a homeowner.”
After 14 years as a real estate agent, and 200 homes sold, Hudson knows how to buy and sell homes. In part one of my conversation with her, we talk about the current market, whether new construction homes are attainable for first-time homebuyers, and how to find a reputable real estate agent and mortgage lender.
There’s a lot going on with the housing market. What should first-time home buyers keep in mind?
First and foremost, if you’re even thinking of buying in the next year, the first thing I would do is have a conversation with a mortgage lender. All their answers regarding interest rates, what an actual mortgage payment will look like, including your taxes, home insurance, and potential HOA, you’ll know whether it’s affordable or if you’ll have to wait until the interest rates go down. But keep in mind, as the interest rates come down, the competition goes up, and home prices are going to go up.
The difference is going to be between buying a home at today's interest rate and negotiating a price on the home, versus what it would look like to wait for a lower interest rate, and not having those avenues to negotiate. When the interest rates drop in the mid sixes or under, it becomes more of a seller's market. Right now, it's a buyer’s market so the sellers are making the deals.
Identify if you want to have more negotiating power on the price. If so, then you’ll want to buy sooner, if you have capital. Typically, first-time homebuyers don't have the capital.
According to housing market reports there is a shortage of previously-owned homes on the market, which has increased demand for new builds. Are new builds attainable options for first-time home buyers?
Yes and no. If you're a (first time) buyer and your whole life is in a metro area, but you'd like a 30 minute or less commute to work, then yes, you can. Just know you're going to pay more in city limits.
The good thing about new construction is you're afforded an opportunity to take advantage of what they're doing right now. These new construction companies are making a deal with mortgage banks. The bank will sell the [construction company] a loan package for their first 50 to 100 homes and give the company an interest rate of 5 percent. But once the construction company sells those [allotted] homes that’s it.
The resale homeowner has competition with new construction because a 5 percent [interest rate on a new] house increases your buying power. For example, you might have been able to afford a $275,000 house at [the current interest rate of 7.29 percent] to being able to afford a home close to $400,000 at an interest rate of 5 percent. Construction companies are also saying we'll pay the title policy—which is a part of closing costs—and we'll throw in $15,000-$20,000 for you to use at closing.
Where should people who need Down Payment Assistance (DPA) options look?
Most mortgage lenders will have knowledge of DPA programs. If you’re a first-time homebuyer and you want to take advantage of the DPA program, and you want to understand what you can get as a first-time buyer, work with the mortgage lender who has [experience with DPA programs]. You don't want to get a lender that's inexperienced or says something like “we’ll see what I can do.”
You can get that connection through a real estate agent, or you can just shop for mortgage lenders and ask them, “do you understand DPA programs?”
What questions should you ask when you are interviewing real estate agents or mortgage lenders to ensure they’re reputable?
Always work with a licensed real estate agent, they'll have the connections to the mortgage lenders that are licensed and understand what they're doing. Ask your friends and family, “Hey, who did you use? Did you have a good experience with them?” Then go a step further and interview at least two of them.
Also, if you have a trusted family member in a different state [ask them too]. A lot of agents will have access to real estate agents across the nation within our brokerage. For example, I give referrals out in Arizona and Florida because I know these agents and I trust them, and they're going to do a good job.
As an agent, I always make it my duty to give at least two to three options on mortgage lenders. I will tell my client, “This [lender] is a fast talker. This one's bilingual. This one takes you step by step. This one's more nurturing.” Interview them, see what works best for you.
What do first-time homebuyers often get wrong about the home-buying process?
They typically don't ask enough questions. Now’s the time to ask all the questions. There's never a stupid question. You don't know what you don't know.
One of my pet peeves is a first-time buyer walking into a new construction company office without representation. A licensed realtor will understand the buying process and what it entails—also in terms of DPA programs as a first-time buyer.
A lot of buyers don't understand that you still have to save money even if you're getting your down payment for free. On average, you want to save about 2 percent of the home’s price. Many people are like “Oh, my friend got a house for free. They had zero down payment.” It’s got to be a VA loan or USDA loan. All that's great, but you still have to save money, so it's just misinformation. You will have to have some upfront money for inspections, appraisals, earnest money, and your option money deposits. Those are all things that can be explained by a licensed real estate agent.
Now, when you go to the closing table, and you're using grants and programs to help you with down payment and closing costs, then [the 2 percent you saved] is a bonus you can throw right back into your savings.
You’ve owned a few homes at this point. What has been the thing that you wish more people understood about homeownership from the ownership perspective?
Your first home is not your forever home, buy something that’s manageable for you—both in terms of finance and improvement. It may not be the prettiest home or the neighborhood you want to live in forever, just consider it your very first investment. Make sure that it's attainable, affordable, and that you don't get caught up on Keeping Up with the Joneses.
We are not our grandparents, we don't live in our homes for 60 years, most homeowners nowadays will buy their first home and live in it anywhere from four to seven years. Most of them will sell unless they really love their home and want to stay in there forever.
This interview was edited and condensed for clarity.
Perdita Patrice is a Texas-based writer and documentary filmmaker. She enjoys live music, reading, and watching TV. You can follow her on Twitter and Instagram @perditapatrice