Buying a home is traditionally the largest purchase a person will ever make. Homeownership is also integral to achieving the American Dream.
The benefits of owning versus renting are numerous, including the building of wealth over time through equity, pride of ownership and community buy-in. There’s also no worry about making too much noise, as is the case for apartment dwellers.
According to the latest census figures, nationwide home ownership rate is about 65%. Alabama’s rate is higher at 72.5%.
With more than 100 people moving to the Huntsville metro area each week, the housing market is booming. That’s great news for sellers but it can be frustrating for buyers. According to the Alabama Center for Real Estate, supply was down 58% in May over the prior year. The median sales price was up 14% year-over-year.
Zelda Friedman, the 2021 president of the Huntsville Area Association of Realtors, said nine days is the average length of time a house is on the market in the Huntsville metro area.
“That’s a historically low number,” she said.
First-time buyers shouldn’t fear, however. There are a number of programs out there to help buyers, including some offered by the City of Huntsville.
If first-time buyers aren’t yet ready to enter the market, there are some benefits of waiting. Those who dream of trading an apartment patio for a front lawn are often not financially ready to make the leap.
Lauretta Moore, a planner with Huntsville’s Community Development Department, said buyers need to do their homework and put themselves in a better financial position before buying a home.
“Borrowers with income challenges, they’re discouraged,” she said. “It’s hard to compete with investors with cash. The best thing you can do is make the investment in yourself because when you are ready, you don’t have to get ready.”
Friedman said it’s becoming more common to see desirable properties in a bidding war. Like Moore, she said it makes it hard for first-time buyers to compete.
“I’ve seen sellers put down a lot of cash (to seal the deal),” she said.
Go to school
The most important thing buyers can do is to educate themselves, not only about the market but about the financial responsibilities leading up to closing. Buying a home, especially for first-time buyers, isn’t as easy as finding one, securing a loan and signing on the dotted line. It’s an often arduous process that can take weeks – sometimes months – to complete.
“The biggest barriers for first-time buyers are having a down payment and credit history,” Moore said. “Before someone even looks for a house, they need to know what they’ll be eligible to purchase.”
Fair credit scores range from 580 to 669, while 670-739 is considered good. Credit scores of 800 and up are considered excellent. A higher credit score is important because it often determines the interest rate of the mortgage.
Most Realtors first ask prospective buyers if they have a pre-qualification letter from a bank or lender. The letter requires a credit check, which can lower a credit score. Moore said prospective buyers should avoid services promising free credit scores and stick with the “big 3” credit agencies – TransUnion, Equifax and Experian.
If buyers have serious credit issues that need to be resolved, Moore said they should work with professional credit counselors before pursuing homeownership.
For first-time buyers who want deeper knowledge, there are classes and programs available, including one co-facilitated by Moore through Community Development in partnership with the Family Services Center (FSC).
Community Development also offers an annual Housing Expo in the fall that brings together experts to discuss available funding for housing programs as well as tips for buyers and renters.
Other classes, like one offered by the National Association of Real Estate Brokers-Huntsville, are targeted specifically toward underserved individuals. FSC and Community Action Partnership of Huntsville/Madison and Limestone Counties, as well as local HUD-approved housing agencies, also offer homebuyer education and credit counseling courses.
“The best thing a prospective homebuyer can do is to get all the knowledge they can so they can present as being financially responsible, having good reserves and a good credit score,” Moore said.
Even if first-time buyers scrimp and save for months, coming up with enough money for a down payment can be difficult. To that end, Community Development offers a Down Payment Assistance Program (DAP) that provides up to $7,500 toward a down payment and closing costs, based on individual needs. Applicants must meet eligibility requirements and be willing to live in the property for at least five years.
The program was established in 2004 at the urging of Turkessa Coleman, a planner with Community Development. She was troubled by challenges faced by low-to-moderate income buyers and worked with the U.S. Department of Housing and Urban Development (HUD) to secure additional funding for the program.
I think we all desire to reach that level of the American Dream, and homeownership is that thing. Providing first-time homebuyers with the tools and resources that already exist will help them achieve that.
She said numerous families have been helped by the program, including a woman Coleman saw again many years after purchasing a home with DAP funds.
“She told me, ‘It was the best move I could have made,’” Coleman said, adding the woman was a single mom with two children. “She’s now moved on to a better job, a bigger house and her children are flourishing. Those types of stories fill my heart because it becomes more than just a down payment; it’s a community-based solution.”
Community Development also offers the Single-family HOME Ownership Program, which provides new three-bedroom, two bath homes to qualifying applicants in the Terry Heights and Edmonton Heights neighborhoods.
Once prospective homebuyers have their financial house in order, they can then begin their search. Friedman said having a Realtor can make a first-time homebuyer’s experience much smoother.
Realtors can also help buyers secure financing or educate them on what’s available. Some banks do offer no-money-down loans, but interest rates may be far higher. Depending on the loan, a lender can also choose to waive loan origination fees, which can save buyers money.
Loans vary by lender, and that’s especially true of government-insured loans like FHA, VA and USDA. Those loans are not only dependent on economic eligibility, but also the condition and location of the house.
In terms of a buyer’s wish list, Friedman suggested making a list of must-have items. She added, however, homebuyers shouldn’t anticipate finding a house that checks all the boxes. She also said buyers shouldn’t get discouraged if their first offer is rejected. Buyers should also know a house is not under contract until the seller signs the offer.
“I’ve seen buyers fall in love with a house and celebrate, only to find out they didn’t get the house,” Friedman said.
When the seller accepts an offer, there are still many more hurdles to jump before movers can be called. The home’s appraisal value must meet or exceed the loan amount before mortgage terms can be finalized. Buyers are also urged to have the property inspected for potential problems, which is an out-of-pocket expense to the buyer.
In the case of pre-existing construction, Moore suggested having a survey done to ensure the advertised size of the lot and square footage of the house meet the seller’s description. That represents another out-of-pocket expense.
Once the appraisal and inspection are complete, buyers are usually inundated with a mountain of paperwork related to the loan terms, title and deed. Despite the challenges and frustrations, however, local housing experts say there’s nothing like the feeling of buying a first home while also buying into the local community.
“I think we all desire to reach that level of the American Dream, and homeownership is that thing,” Coleman said. “Providing first-time homebuyers with the tools and resources that already exist will help them achieve that.”