Ushering in the new year calls for reflection, goal setting and an awful lot of well-meaning intentions of setting foot on a treadmill. Whether it’s the pressure of tradition or because you’re a sucker for self-improvement, setting resolutions and sticking to them can be either daunting or remarkable tasks. For some of you, that might mean getting your financial ducks in a row to buy a house. Figuring out where to get started might oddly resemble the ‘chicken or the egg’ question, but it doesn’t have to.
The first step (ok, after you’ve created your Pinterest board and pinned your way through Game of Thrones, completely missing out on Jon Snow’s death. Oops, hope we’re late enough into the game that that’s not a spoiler for you!)… Ok, get started talking to a lender. For some ball park numbers, it's always convenient to punch numbers into an affordability calculator. A lender is going to take it to the next step and will be one of your best financial allies before, during and even after the home buying process. How many of you are saddled with student loan debt, a car payment and maybe a small credit card balance from that European vacation last summer? Although these debts are all considered negative equity, they are generally treated differently from a lending point of view. Your mortgage broker’s expertise lies in advising you how to address them to maximize your credit score and locking in the lowest rate without completely liquidating very valuable down payment funds necessary to be competitive in this market.
“So where do I even start shopping for a lender?” might be plaguing you at this point. Always get a referral, plain and simple. Simply picking out a mortgage broker from the yellow pages (errrr, google search) does not promote the confidence that your Realtor or colleague’s first hand experience and testimony can. Also, lenders love referrals from previous clients - they are the highest form of compliment and lenders work hard to please their referral network. Once you’ve identified a few lenders and loan products, the pre-approval process is fairly simple. With a matter of just a few documents and a lender’s assessment of your financial landscape, you’re one step closer to your pre-approval letter. Worried that shopping around might damage your credit score? Good news is that the feds permit you to shop for the best rates for a single loan purpose without taking a hit to your credit. Don't just compare rates and fees - assess their communication style and clarity. One of the greatest strengths of a lender is their ability to anticipate and articulate any potential hangups during underwriting.
Now that you know what it will take to finance a home and the cost associated with obtaining a mortgage, it's time to put it into action. Maybe you're advised by the lender to reduce debt, increase your credit score, or sock away more liquid funds. Sometimes achieving those goals requires as little as a few days, but often it can mean months or a year. Don't get discouraged! A client once told me that she "practiced" her mortgage payment each month as a means to become accustomed to living on a housing budget that exceeded her current rent. By doing so, she accomplished two very important principles: 1) appropriated the difference between her rent and projected monthly payment to debts, while 2) acclimated to a sustainable and affordable lifestyle that she might expect to live with a mortgage.
Rent so high that it's nearly impossible to save for a down payment? One of the most ubiquitous complaints I hear from clients is that their rent absorbs more of their income than they'd like to admit, and they're not alone. With rents rising at a record rate, Portland is outpacing nearly 95% of American cities for housing costs. The Fair Housing Council of Oregon and Portland Metropolitan Association of Realtors (PMAR) have partnered to create Homeownership Opportunities Northwest (HOWNW) and it's intent is to provide buyers with access, information and resources to affordable homeownership for Oregonians. Check out HOW NW's site or message me for help determining if you qualify for down payment assistance.
Finding yourself in a period of lull does not mean you have to halt all house hunting activities. In fact, this is an ideal time to acquaint yourself with the market, talk to your Realtor about pricing trends, house types and explore neighborhoods that are unfamiliar to you. The valuable arsenal of information and experience you gain will help when it comes time to start writing offers.
[step two-and-a-half-ish: but get started early]
Have your Realtor comb the listings for potential property and tour what's available on the market. Like I mentioned before, you set yourself up for success when you are able to grasp what is available in your price range in the neighborhoods you want to be in. One of my favorite aspects of the home buying process is that buyers gain more than just a new home: they learn so much about themselves and their ability to trust their intuition just by getting a few tours under their belts. At closing, I ask buyers to evaluate how their new home compares to the first one they professed love for in the infancy of their search: I've never once heard that this one wasn't their One.
Keep your expectations reasonable. Whether you're moving from a softer market, or can recall the days of Portland's inexpensive recession-era apartments, prices are bound to cause some sticker shock. You might be vying for a close-in bungalow or ample property to stretch out, and you're likely to encounter sellers who are taking advantage of a saturated buyer market. Feeling priced out of a neighborhood? Getting creative can give you the competitive edge. Keep a list of your absolute "must-haves" and "absolutely-nots" to keep the focus, and rethink exploring neighborhoods that offer similar amenities where you can find more for your money. Or consider purchasing under your budget so that you can allocate extra funds to renovations. You'd be surprised that Portland boasts some pretty spectacular pockets in unlikely areas. And don't underestimate the experience that your Realtor has to help you put together compelling and competitive offers when it's time to pull the trigger on your One.