First time buyers: What they want vs. What they can really afford. The all-telling mortgage pre-approval.

First time buyers: We all have them. We all love them (hopefully). We all NEED them. Especially in the crazy market we're in these days. They are among the only ones still out there, motivated enough to take advantage of the low interest rates and the $8,000 first time home buyer tax credit. They are a little wet behind the ears, and most of the time they expect the world. That's why it's my job as a Realtor to educate them and make them aware of the reality of home buying. A lot of them (in my experience, at least) are looking to buy in the 250k to 400k price range. What has to be understood about the New Jersey area, is that most of the time, buyers will not be paying for actual house. What they will be paying for is location. I know you have heard "location, location, location," many times before. But the phrase rings the truest in the Northern New Jersey area. To live in Northern New Jersey, in a suburb close to NYC, with a commute of 40 minutes or less to Mid-town Manhattan, in towns like Montclair, Glen Ridge, Maplewood, and Livingston, one cannot expect to spend $350k and expect a mansion with the tennis court, Olympic-size pool, state-of-the-art gym, 8-car garage, live-in butler...but I digress. As much as I would like it to, it is just not happening. To most first timers, it's a harsh reality. This is why I cannot stress enough why obtaining a bank pre-approval is more important now, than ever before.

* * * *

Above, $400,000 home in Oklahoma.

Above, a $400,000 home in Northern New Jersey.

* * * *

For some reason, obtaining a bank pre-approval seems to be a scary thing for buyers. Personally, I have not been able to figure this out. This is why I always recommend a lender that I work with and trust, for them to get in touch with. It's a 10-15 minute phone (or in person) conversation, and at the end of that conversation they will walk away knowing how much they can afford to buy their home. It really is a fantastic piece of information to have, because it takes the guess work out of everything.

Here is a little secret: For a rough estimate to figure out your price range, just take your annual salary and multiply it by 4. Believe me when I say this: it is a very, very, rough estimate. It does not take into account your current debt or credit score, so I don't suggest using it as the end-all and be-all. Banks, these days, are not taking the risks that they used to when granting the pre-approval amount. I mean, can you blame them? A lot of the major banks are in hot water, with people foreclosing on their homes left and right.

Another reason why pre-approvals for first-time buyers are so important- is because it avoids disappointment. I cannot tell you how many times I have worked with clients who were unprepared, and we were looking at houses that turned out not to be anywhere near their price range. They waited until they found their dream home to get pre-approved, only to find out that the home was too expensive. There is no point in falling in love with a property, only to find out that you can't afford to buy it. As a buyer, you may think you know what your price range is, but the bank may disagree. After all, it's their money you are borrowing.

I will leave you with one little piece of advice until next time. Many buyers make a common mistake of making a huge purchase before they get their mortgage commitment. They go out and buy a car, or put an expensive vacation on their credit card that they're not able to pay off immediately. I advise all of my clients who have plans to purchase something big, other than the house, not to do so until after the closing. The bank will see it as additional debt, and they will take that mortgage commitment away from you just as quickly as they gave it out. My advice: house first, new car second! Thanks for reading :)

Next Week: The Top 10 Worst Property Photos Taken By Realtors (in my poinion, of course)!

First Time Buyers

As a young Realtor in this market I am very in touch with the first time buyer demographic, being that I am that demographic. 30...ish years old. So, I find myself dealing with a lot of hesitant, nervous, and scared clients. There is nothing at all wrong with that, and over the past couple of years I have learned to become more nurturing, understanding and patient...very, very patient. If you don't have patience, real estate is not the business for you. Especially in this market.

They say the average home buyer looks at 7-10 houses before making their decision. One thing I have realized is that first time buyers are not your average buyer. They have nothing to compare previous homes to, therefore they tend to look at 20-30 homes before making a decision. They tend to make excuses for why they shouldn't buy, and why they don't like something. But that is all a part of their charm. "This room is pink. I don't like pink." Or, "My cat won't like to look out these windows." Yes, I have heard it all. But it's only nerves and I have become accustomed to it and have answers for preeetttty much everything they balk at.

I was recently working with a really great couple. I am actually still working with them, but we're waiting for the condo they are purchasing to close. For this blog's sake we will call them John and Jane. John and Jane are not from around the NY/NJ area, so they really didn't know what to expect. What they did know is that they wanted new construction: 3+ bedrooms & 2+ bathrooms for under 400k. Doable...yes. Difficult...YES! Especially in these here parts. The very first day I took them to see new condos, they absolutely fell in love with the first thing they saw- 2 beds / 2 baths, top floor, balcony, 1500 sq. ft., top-of-the-line kitchen, hardwood floors, and designer lighting, all in a town with a NYC direct train for 359k! This is unheard of, even in this economy. Now, many "Property Virgins" think for some reason they have to keep looking...and looking...and looking, because there is no way they will find the condo of their dreams (if there is a such thing in a condo) in their first week of house hunting (The average person will live in their first condo for no more than 5 years, by the way). Usually people keep looking because their friends and family feed them 'advice' about the market and the only person they do not easily hear is their Realtor.

Now, one thing you must remember about new construction-condos is that, after a while, all the floor plans merge into one - they are that similar. You walk in and the kitchen is directly to your right or left. It's generally a galley kitchen with a breakfast bar that opens up into the living/dining area. Then the bedrooms are off to the side down a hallway, or in some cases directly off the living area. Pretty standard, and all the materials are basically the same. Stainless steel appliances and granite kitchen counters, etc. In the end, location usually plays a huge part in determining price.

I mentioned before that the condo that John and Jane loved was in a train town with a price under 400k. The train is a good 1.5 miles from the property so they would need to take the town shuttle or drive and park at the station. That is the prime reason as to why the price was so amazing. About 3 months into my condo search with John and Jane, we were walking through a beautiful 3 story townhouse. I stopped dead in my tracks and I turned to them and said,

"OK, guys. We have seen upwards of 30 properties. They all look the same after a while, so it's now a matter of location. I know you love the very first condo we saw because you keep comparing it to everything else we see. I honestly think that you and I both know what you want."

It may have come out blunt...but it worked! You see, the longer a buyer looks at houses, the less likely they are to buy (informal statistics kept by our Team). All the properties get jumbled around in their brain and they get frustrated and overwhelmed. It's my job to not only find them the perfect home, but to keep them sane and focused during the entire process. The very next day they called me, we wrote up an offer and we are closing very soon. After 30 condos, they are purchasing the very first one they saw. I knew that it was right for them (and so did they). They just needed that extra push and validation that all first time buyers need. Rates are historically low in this market, prices are dropping, and with the $8,000 new home buyer tax credit they will receive, it's incentive enough to buy in this shaky economy.

Many Realtors become fed up with their first timers and refuse to work with them, but it's very important not to have that mind set. These people are the building blocks of a new agent's business. These are the people who will buy their 2nd, 3rd, and 4th home from you. These are the people who refer family and friends to you. And starting out in the real estate business, you need to build that client base and work with clients who will teach you things just as much as you teach them. And in order to build that client base, the #1 ingredient you need to instill in all of your clients is TRUST. John actually said to me in a phone conversation when I suggested something regarding the offer, "Nick, I trust you. If you think it's right I will do it."

If your first time buyers think for a second that you have not considered their fears, needs, and concerns, and are only interested in your pay day, it will never work out. Obviously, a commission is nice, but buying a home is quite possibly the largest and most important purchase someone will make in their lifetime. I am honored to be a part of that process and the knowledge they will never forget that I helped them find their first home. That's why I love my job!


NEXT WEEK:
First time buyers: What they want vs. What they can really afford. The all-telling mortgage pre-approval.