Meet fictional 34-year-old identical twin brothers Fred and Ted.
Fred is a marketing manager for an import-export company. Ted is a social worker at a non-profit agency. Both are single and considered to be smart, successful guys. While Fred's annual salary is nearly four times what his brother earns, however, Ted is worth much more than Fred and is already in a better position to face retirement one day.
Why is Ted worth more than Fred?
The difference? Ted became a first-time homebuyer when he was just 26, while Fred still rents, paying off his landlord's mortgage with money and resources that would be better spent building his own personal wealth.
Over the years, Ted tried to convince his brother of the many benefits of home-ownership: tax savings, building equity, the ability to adapt your home to your style and preference without having to get permission from a landlord, and more. Fred knew deep down his brother was right, but something always stopped him from moving forward: Was this the right time? What if he was transferred? What if prices dropped? What if prices started to rise -- along with his insurance and taxes?
Are you the victim of analysis paralysis?
In the end, Fred allowed himself to become the victim of analysis paralysis, continuing to throw his money away on rent, unable to deduct the mortgage interest from his end-of-year taxes and feeling frustrated he hadn't taken the plunge. Meanwhile, Ted saw prices go up and down; he worried at times if he could afford his taxes and insurance; and he had to rent his house out for a year when he took an assignment with an agency out of state.
In the end, though, Ted watched excitedly as the forced savings of paying a mortgage increased along with his equity. And, even though the current market value of his home is less than it was a couple of years ago, it is still worth $250,000 more than what he paid for it in 2000. Fred's entire investment portfolio, including his 401-K, is less than half of that amount.
What's stopping Fred -- and maybe you, too -- from purchasing now?
So, what's stopping Fred from entering the market now at a time when prices are lower than they've been in years, interest rates keep inching downward, and builders and developers in a number of new-home communities are catering to first-time buyers with impressive incentive programs and special financing?
Even though he'd never admit it to his "kid" brother (Ted was born six minutes earlier!), he is intimated about the application process.
Fortunately, we have a few tips to steer Fred -- and other first-time buyers -- in the right direction.
Tips to take away the fear
First, if you're considering purchasing a home, it's important you get your finances in order. Start is by obtaining a copy of your credit report.
According to the Fair Credit Reporting Act, you are entitled to obtain a free credit report once a year, or within 90 days of being denied employment or credit based on your rating. A credit report verifies such things as your name, address, social security number, job history and debt history.
The major credit reporting agencies are Equifax, Experian and TransUnion. Visit any of their Web sites to obtain your free report.
Credit scores range from 300 to 900, with the lower end indicating to lenders that you will be a poor credit risk. Generally, the cutoff point for issuing loans is around 600.
If your credit rating is questionable, it is probably a good idea to improve it before applying for a loan. Paying off debt, canceling unneeded credit cards and even consulting consumer credit counseling services are all steps you can take to get your finances in order.
Locate a lender
The next step is to find a mortgage broker, bank or credit union that can help you secure a loan. A mortgage broker will have access to a number of programs from a variety of lenders, while banks and credit unions will only offer you their programs. In either case, shop around for the best rate, terms and loan fees (in many cases you can negotiate these down).
To make things easier and more convenient, many new-home builders have in-house lenders who can offer a preferred rate, excellent terms and numerous incentives. While it is not mandatory that you use a certain lender, it is worth at least considering, since it can translate into big savings.
Finding the home of your dreams
Once you choose a broker, bank or credit union, you should ask to be pre-qualified, which is an initial assessment of how much you can afford and will give you leverage in your home-buying search. Prequalification is different from pre-approval, which is a more complete analysis by a lender of your ability to pay for a home as well as confirmation of how much is to be borrowed.
Now comes the fun part -- finding the home of your dreams. Once you know how much you can realistically afford, you can work with a sales associate at a new-home community and/or a Realtor® to choose the neighborhood, floor plan and upgrades that work best for you and your family.
When you settle on a home that is the best fit, you will execute a sales contract on the property being purchased. You should give this -- along with the other items listed in the sidebar -- to whomever you decided will be handling your mortgage.
Retire early with Ted
Just as with owning a home, the road to closing will be filled with twists, turns and potholes -- and at times it will seem like you're signing your life away -- but, in the end, it will all seem worth it. Just ask Ted? He's hoping to retire at 55 with the equity from his home, while Fred may still be working and paying rent … unless he moves quickly.
With the current market prime for first-time buyers, take the lead from Ted and become a homeowner in 2017!
Garrett A. Foster - Copyright © 2017,
Orlando Sentinel
