House hunters face temptations in 2011. Mortgage rates are still relatively low, and thanks to plentiful inventory, the market is on their side. Nevertheless, the changed housing market has brought new aspects to consider when looking to purchase a home. Here are the top five house hunting tips for 2011. (Don't let buying a home bust your budget. Make sure the house you choose is worth the price you pay. Check out 10 Tips For Getting A Fair Price On A Home.)

TUTORIAL:
How To Buy Your First Home

1. Is the Location Still Desirable?
The definitions around what a "good" real estate location is may have changed with the economic downturn. In the midst of the housing bubble, when the masses believed the trend of rapid home appreciation would continue, developers began breaking ground in "up and coming" neighborhoods, to meet demand. Unfortunately, that demand stalled, then, came to a screeching halt. Areas that were once dubbed the "new" neighborhood to buy in may have gone by the wayside, left with little more than empty inventory.

Locations that are still considered favorable may have undergone changes, too. Neighborhoods with a high concentration of foreclosed properties suffer from decreased home values. Fewer taxpayers to support important neighborhood maintenance and community initiatives may mean that over time, the areas' appeal could sink further.

Before house hunting in 2011, research the county auditor's website, and consult your realtor on the amount of time that homes in the neighborhood tend to sit before selling. Also, inquire about foreclosure rates. If possible, try to speak to neighbors about their perspective. It's good to know whether the current residents would still buy in the neighborhood, if they had a choice.

The housing "bottom" has not hit everywhere. Home values are still dropping, and the trend in some areas will continue into 2011, and potentially beyond. Ensure that prices in the area you desire have stabilized to get the most bang for your buck.

2. Qualify Under the New Mortgage Rules
The days of buying a home with no money down are essentially gone, with the exception of some very specific VA and USDA loans, which are reserved for certain kinds of borrowers. In 2011, an FHA loan requires about 4% down, if you have good credit. However, most conventional mortgages will require at least 5% down. On top of that, you'll have to pay closing costs, which can be as high as $5,000. Because many homeowners are taking a loss or small profit at best, they are less likely to "sweeten the deal" by covering those types of costs for the buyer, which was once common practice. Further, lending standards have changed. Lenders will look at what kind of other assets you have in the bank, in addition to a down payment.

3. Your Credit Scores Matter
In 2011, credit scores play a critical role for prospective homebuyers. Not only is a high credit score required to benefit from the low lending interest rates, most lenders won't consider approving a borrower without a credit score above 600. Back in 2010, Bank of America and Wells Fargo both raised the credit criteria for FHA loans they would approve (which used to be the appealing product to borrowers with lower credit scores), from 620 to 640.

4. Foreclosure Buyers Beware
According to RealtyTrac's February 2011 Foreclosure Market Report, one in every 577 housing units in America received a foreclosure filing during the month. That number is far narrower in cities with the highest foreclosure rates, like Las Vegas, Chicago, Miami, Phoenix and Los Angeles. While there are bargains for house hunters in 2011 (the average sale price of a foreclosed home is about $178,000), it's also a buyer-beware scenario. By default, all foreclosures are sold "as is." For the homebuyer, that means risk.

The bank will allow a formal inspection on the property once a bid is accepted, and should it reveal that the cost of repairing a home is far greater than the "bargain" is worth, the contract can be canceled, and the deposit refunded. But bidding on a foreclosed property can be a time-consuming and frustrating process. If you choose to walk away, you will have invested money and effort going through the process of buying and inspecting the home. Even if you decide to move forward with the deal, appraisers will not ignore certain safety aspects like exposed electrical wires, non-functioning thermostats and foundation problems. The result can make it impossible to secure financing for the property. (Learn how to spot hot properties that you can turn around for a profit. See Foreclosure Opens Doors For Real Estate Investors.)

5. Prepare for the Long Haul
The housing market will recover at some point, but analysts disagree on when. Homeowners may have no choice but to stay in their newly purchased home for many years. If you have any uncertainties about the size of home, location or its applicability to your life for the long-term, postpone house hunting in 2011; wait until the market shows stronger signs of lasting correction.

TUTORIAL: Exploring Real Estate Investments


The Bottom Line
Homebuyers have options and opportunities to secure the home of their dreams in 2011, if they proceed with caution. Use these top tips for house hunting in 2011, to ensure you'll get the home you want, at a price and location you can live with for the long term.

Related Articles
  1. Home & Auto

    Understanding Rent-to-Own Contracts

    They can work for you or against you. Here's how to negotiate a fair one.
  2. Home & Auto

    Avoiding the 5 Most Common Rent-to-Own Mistakes

    Pitfalls that a prospective tenant-buyer could encounter on the road to purchase – and how not to stumble into them.
  3. Home & Auto

    Renting vs. Owning: Which is Better for You?

    Despite the conventional wisdom, renting might make more financial sense than you think.
  4. Credit & Loans

    Refinance Vs. Debt Restructuring: What's Best For Your Credit Score?

    Discover key differences between refinancing and restructuring debt in regard to terms, the negotiation process and effect on credit scores.
  5. Credit & Loans

    Guidelines for FHA Reverse Mortgages

    FHA guidelines protect borrowers from major mistakes, prevent lenders from taking advantage of borrowers and encourage lenders to offer reverse mortgages.
  6. Home & Auto

    When Are Rent-to-Own Homes a Good Idea?

    Lease now and pay later can work – for a select few.
  7. Home & Auto

    The Pros and Cons of Owner Financing

    Details on the upside and risks of this type of deal for both the owner and the buyer.
  8. Credit & Loans

    Can Corporate Credit Cards Affect Your Credit?

    Corporate cards have a hidden downside. If the company fails to pay its bills, you could be liable for the amount and end up with a damaged credit rating.
  9. Credit & Loans

    Millennials Guide: Picking the Best Rewards Cards

    There are perks a-plenty on offer, but you have to find the right plastic for your lifestyle.
  10. Credit & Loans

    Your Credit Score: More Important Than You Know

    Credit scores affect key aspects of your personal and professional life. Knowing your score and managing your credit input can make a big difference.
RELATED TERMS
  1. Credit Rating

    An assessment of the credit worthiness of a borrower in general ...
  2. Fair Housing Act

    This law (Title VIII of the Civil Rights Act of 1968) forbids ...
  3. Jamming

    A scam perpetrated by bogus credit repair firms that involves ...
  4. Semi-Secured Credit Card

    A type of credit card offered to individuals who carry a higher ...
  5. Construction Loan

    A short-term loan used to finance the building of a home or another ...
  6. Credit Freeze

    A credit freeze, also called “security freeze,” is a freeze on ...
RELATED FAQS
  1. Why would someone change their Social Security number?

    In general, the Social Security Administration, or SSA, does not encourage citizens to change their Social Security numbers, ... Read Full Answer >>
  2. Can I take my 401(k) to buy a house?

    Once you reach 59.5, you can use the funds in your 401(k) retirement savings account to buy a house or any other expense ... Read Full Answer >>
  3. Can I take my 401(k) to buy a house for my children?

    Under the standard regulations for 401(k) retirement savings plans, you may elect to withdraw funds from your 401(k) for ... Read Full Answer >>
  4. How is market value determined in the real estate market?

    Anyone who has ever tried to purchase or sell a home has probably heard a lot about the property's fair market value, or ... Read Full Answer >>
  5. What types of liens are seen as good and which are bad for my credit?

    Creditors that allow purchases to be made through financing often require property to be pledged against a credit account; ... Read Full Answer >>
  6. What are the typical requirements to qualify for closed end credit?

    Typical requirements for a consumer to qualify for closed-end credit include satisfactory income level and credit history, ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!