First Time Buyers: Get a Ticket on That Gravy Train!

by : Brian Talley

First time buyers please note: predictions for improvements in realty market activity are gaining ground. Yet another prediction, this time by an economist, has forecast that the realty environment is in a position for modest change. The change is due to show by mid 2008, and the reasons for the projected increase in realty activity are also laced with cautions.

Buying conditions have improved and held steady; we are now into our second month of under six per cent on mortgage interest rates. The Federal Housing Administration (FHA) and the Mae/Mac (GSE) loan limits are both temporarily increased. This means hundreds of thousands of borrowers can switch to conventional loans. These conditions are also encouraging for home owners needing new financing, and first time buyers.

One of the cautionary factors that will affect the movement up or down of the housing market is the first time buyer who is currently renting. This type of first time buyer makes up forty percent of first time home buyers, and they may decide to stay renting. Another large group of first time buyers are the grown-up children who live in their parents' basements. They, too, may be scared off by the calamitous realty news of 2007, and decide to bide their time. Is is a shame to miss such low priced bargains!

The National Association of Realtors expects the mortgage interest rate to remain at six percent all year. The eventual trust in the steadying of the financial market may encourage more people to venture into the realty market.

Due to the extensive press coverage, we have all learnt the lessons of borrowing cash on a questionable loan. We understand that the conventional mortgages will contain less surprises than one hastily arranged with a few of the rules 'bent'.

Armed with this new information about loans, and supported by new government legislation, can first time buyers now feel confident? How can they enter the property market at this low-price level that is seen now, and feel safe?

A rule of thumb in realty (and life!) is that there is nothing for nothing. If it looks too good, get a lawyer involved and tell him, in advance, that you will want to protect yourself by having everything in writing. Also remember: a conventional fixed rate mortgage takes most of the risk out of buying a home.

Your monthly mortgage payment will not increase if the interest rate increases. It is fixed, or locked in, so that you can budget your monthly outgoings.

One of the big things to remember in first time buying is that the first home is just a stepping stone. It is not the dream home; even when you have renovated the bathroom and kitchen it will not be your dream home. You are buying into a market that you have not previously entered. There are few markets as lucrative as housing and you need to start that journey.

In the last ten years, the price of houses has almost doubled. This means that you can't save up quickly enough to buy a house. Properties in both Canada and the U.S. have been increasing in value faster than wages have been rising.

Buying a first home is simply a way to grab onto the escalating train ride of the realty market. You may be hanging off the back of the train with the wind howling around your ears, but you are still on the train. You will still arrive at the same destination as the luxury villa owners who sit in first class. You are a homeowner.

Because you are a home owner, you need not worry now about the fact that your savings are not increasing as fast as house prices. (You probably don't even have any now!) Your home, however modest, however small, will keep up with the escalations of the housing market.

This is why you were hanging onto the back of the train. You have arrived. By the time you have held onto your home for a few years, you will have made renovations and built a garage or landscaped the garden or painted it, etc. Your home will be worth more money (a) because of the renovations, (b) because you have paid some of the mortgage off AND (c) it will have increased with the rising market prices.

In a few years' time, your wages are higher, and your equity in the home (how much the home is worth over top of the mortgage) is higher. You can afford a better home. Your next home will be closer to your dream home - you are feeling more affluent. You can afford to buy a ticket on the train and sit down, instead of hanging off by your shirt-tails. You would not have got there without buying the little house that was your first home.