Here we are in 2011. You have been renting and saving money for the last few years, watching the real estate market and wondering when is a good time to buy your first home. You see mortgage rates have bottomed out and have risen slightly, home prices are still declining but may also reach bottom soon, so now you are ready to start looking.
You have taken your real estate agent’s advice and have been pre-approved for a loan – and can afford a home up to $450,000 (though closer to $400,000 would be better). You have also mapped out neighborhoods in San Jose that you are interested in, and are ready to start looking for your “dream” 3 bedroom home.
So what should you expect? This is where your real estate agent can help, but here are some points to consider as you begin your search:
- Depending on the neighborhood, there may be a small selection of single family homes available at this price range. Would you consider a townhouse? You probably will find a larger living area with a townhouse, perhaps newer – but at the expense of a yard, HOA fees and sharing walls with neighbors. But for the fees, you could be gaining benefits such as a pool and no need to perform yard work. This is a typical decision a first-time homebuyer needs to make – particularly in this price range.
- Many homes in this price range are not regular sales but are short sales (lender approval needed for sales worth less than loan amount) or REO sales (bank owned houses after foreclosed on seller). You should talk to your real estate agent about the impact of buying these homes – for example there can be a long wait and possible rejection for short sales – and for REOs there can be questions about quality of house and often multiple bids if initially priced low. Expect these homes to be sold AS IS – so you need to understand the importance of the property inspection and negotiate well upfront – you cannot expect the seller to fix problems.
- Here is some interesting statistics for San Jose homes in this price range. Currently there are 355 houses for sale in San Jose in the $350,000-$450,000 price range. 170 are short sales, 48 are REOs, and 137 are regular sales. Note that some of the regular sales might have been REO or short sales bought by investors and then quickly resold (flips – often includes some remodeling) for a profit. Please note that this will continue to be true if the price range was higher – though as price gets higher the percentage of regular sales increases – but you still need to be aware of the impact.
- As a new homebuyer, can you afford 20% downpayment. Many new homebuyers qualify and should consider FHA loans, where downpayment is 3.5% though you will need to pay for mortgage insurance. Make sure you talk with your lender about your loan options.
I hope this article helps set expectations for the first-time homebuyer. Definitely rely on your professional realtor and lender. Please review the complete first-time homebuyer series on my HomeBuyers page. If you want additional information, please send me a note (Request Information box).
