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.)
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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.
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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.