Have You Been Waiting to Buy a New Home?
Here’s Why It’s Time to Make Your Move.

So, you’re thinking of buying your first new home? You’re not alone. First-time buyers — all buyers, really — are suddenly everywhere, visiting model centers, browsing the web and perusing home-related magazines.

The Jacksonville market — which includes Clay, Duval, Nassau and St. Johns counties — may well end up 2013 with the nation’s biggest leap in total home sales, based on figures released in RealtyTrac’s 2013 U.S. Residential Sales Report.

As of this summer, Jacksonville’s sales were up 43 percent vs. the same period in 2012, with the research company projecting that 42,413 homes would be sold by year’s end. That would make Jacksonville’s year-over-year percentage increase No. 1 out of the nation’s 50 largest metro areas.

RealtyTrac also calculated Jacksonville’s median sales price, which was $127,250 as of June. (The median price is the point at which half the sales are higher and half are lower). That’s a scorching 14 percent increase. Nationwide, sales prices are up just over 12 percent.

So, by pretty much any objective measure, it’s a good time to buy a first home. But have you done YOUR HOMEWORK, SO TO SPEAK? Have you saved up some cash for a down payment? Checked your credit score? Looked into financing options?

The Northeast Florida Association of Realtors (NEFAR) calculated a somewhat higher median sales price of $159,000 in June, but with a similar year-over-year increase. NEFAR also announced that the average sales price, which is calculated differently from the median, edged above the $200,000 milestone for the first time since 2007.

Many factors are spurring sales and putting upward pressure on prices. There are fewer foreclosures, fewer short sales and excess inventory has been largely absorbed.

Plus, although mortgage interest rates remain near all-time lows, recent upticks have persuaded once-reluctant buyers that it’s time to get off the fence and make a move.

That optimistic — perhaps a bit frantic — attitude is likewise reflected in the numbers. As of July, according to NEFAR, the number of local pending sales, those for which contracts were written, had risen to 2,342 — the highest since 2005.

Also bolstering the market is an improving employment situation. According to the University of North Florida, the market-wide unemployment rate was about 6.8 percent as of mid-summer, roughly three-quarters of a point lower than the national rate.

That isn’t to say loans are impossible to get. They aren’t as easy to get as they used to be — which is probably a good thing — but if you have decent credit and know what to expect, you should be fine.

So, by pretty much any objective measure, it’s a good time to buy a first home. But have you done your homework, so to speak? Have you saved up some cash for a down payment? Checked your credit score? Looked into financing options?

Everyone interested in becoming a homeowner should prepare early with orderly finances, solid information and plenty of patience for what could be a long and complicated process.

Since the housing market’s collapse in 2008, mortgage lenders have become more demanding in the documentation they require for financing a home sale.

That isn’t to say loans are impossible to get. They aren’t as easy to get as they used to be — which is probably a good thing — but if you have decent credit and know what to expect, you should be fine.

Here’s a primer on what potential first-time buyers need to do before they take the plunge:

First, order your credit report. You can request a free copy of your credit report from the three major credit bureaus — Equifax, Experian and Trans Union — via annualcreditreportcom. There are plenty of scams out there regarding credit reports, but you can use this link with confidence.

If you see accounts on your credit report that you don’t recognize, or if there are negative marks against you, act now to clear them up. Don’t be surprised to find bills you believe have been paid or balances with companies you’ve never even heard of.

Lenders like to see a low ratio of debt to credit, so it’s important to have more credit available than you use on a monthly basis. They also like to see long-standing lending relationships, so don’t close your oldest credit cards. However, if your balance on those cards is more than 30 percent of the allowable line, then pay it down.

Conversely, too many open lines of credit can impact your score negatively as well. The smartest move is probably to close recently acquired, low-limit credit cards that you no longer use and don’t really need.

And try not to buy anything — a car, for example — that requires anyone other than a mortgage lender to run a credit report. Multiple inquiries, even if you don’t ultimately borrow any money, can hurt your credit score.

Second, create a monthly budget. In your calculations, set aside whatever you’ll be required to pay as a homeowner that you don’t now pay as a renter.

This includes the home mortgage, mortgage insurance, property taxes, maintenance, utilities, association fees or any other expenses that are currently your landlord’s responsibility.

Forcing yourself to live within this new budget month after month will teach you what you truly can afford. It will also help you pay down credit card debt or put more money aside for a down payment.

Getting an idea of what your mortgage payment might be is relatively easy. Just enter the words “mortgage calculator” in your Internet search engine and hundreds of websites will pop up. Pick one, find the simple form and enter the amount you anticipate financing.

You’ll also enter the term of the loan (likely 30 years) and the anticipated interest rate (the average 30-year, fixed-rate mortgage was 4.59 percent as of late August). The monthly payment based on those numbers will be calculated automatically.

Of course, that could all change — you may end up borrowing more or less and you may not qualify for the most favorable mortgage rate. But it’s a good starting point.

If your goal is to keep your monthly payment under $1,000, then you’ll have a general idea of the maximum amount you can borrow and still remain under that threshold.

A good rule of thumb is this: every 1 point interest-rate jump adds about $83 per $100,000 borrowed to your monthly payment. That likely wouldn’t be a deal breaker for most people so you shouldn’t allow the rush to avoid a modest rate increase force you into home you’re not entirely happy with.

It’s also helpful to consider some historical context, especially if you’re a first-time buyer and haven’t been in the market before. Mortgage interest rates in the 4 percent range were unheard of until 2010, and rates in the 5 percent range were unknown prior to 2003.

In the early 1970s, rates hovered in the 7 percent range and spiked up above 9 percent in late 1975, late 1976 and most of 1978. At the end of the decade and throughout the 1980s, rates rarely dipped lower than 10 percent and even hit 18 and 19 percent for a brief time.

So, yes, rates have gone up lately — but they are still near historic lows.

Also, start keeping your financial statements and pay stubs in a file, where you’ll put new documents as they arrive so that everything remains current. Mortgage lenders will eventually be asking for much of this material.

Any lender will need to see documentation of your income, employment, at least two years of IRS filings and records of your 401(K) fund and other assets.

If you’re buying a new home instead of a resale, you’ll need to take the same preparatory steps. But many new-home builders, especially larger national companies, may offer their own attractive financing packages, either directly through a mortgage subsidiary or via an affiliated lender.

Third, consult a psychic. Okay, that one was facetious. Nobody can predict the future. But the smart money says that you should buy a home only if you’re reasonably sure you’ll be staying put for at least five years

Consider your personal and professional plans and try to determine whether there’s any chance you might move to another city for work or add to your household through marriage or childbirth, both of which have implications for your income as well as the size and location of the home best suited for you.

Fourth, find a qualified agent. Most new-home builders have internal sales departments and highly qualified people manning their models and sales centers.

But independent real estate agents also work in the new-home market, and can be especially helpful if you’re from out of the area and need someone who knows the lay of the land.

A good real estate agent can advise you on new communities and individual listings in established neighborhoods. He or she can also negotiate the price, walk you through the financing process and serve as an objective voice when emotion threatens to overtake reason.

Fourth, investigate potential lenders. Whether you work with a specific lender or a mortgage broker who can connect you with many different lenders, it’s important to shop around.

You don’t want to let a quarter-point-lower rate tempt you into using an Internet-based lender, and then be unable to reach the underwriter when you’re in the middle of a fast-moving bidding war.

And yes, bidding wars are back — at least in some neighborhoods.
Your lender can walk you through your financing options and the pros and cons of each one. You’ll also get a realistic view of how much you can borrow, based on your income and credit.

Ask your lender to run a hypothetical scenario so that you have a written estimate of the monthly principal and interest payments, closing costs, insurance fees and property taxes.
Your lender can also walk you through your credit report and offer suggestions on boosting your score.

In addition, he or she will know how long it might take for clean-up actions to be reflected in the credit bureaus’ records, and can use the information you provide to determine what you can reasonably expect to borrow.

Finally, armed with all this information and confident that you know what you’ll be able to spend, start looking for a home you love.

After all the tedium leading up to the actual search, you’ll enjoy strolling through model centers confident that you can make your home ownership dreams come true.