Rents are rising in many areas, making homeownership a more alluring alternative to renting. That's a major reason mortgage specialists are now predicting an uptick in activity among prospective first-time buyers.
“In some areas it's now less expensive to buy than rent. Although the real estate market still isn't super robust, more buyers are moving off the sidelines,” said Ray Eickhoff, a regional vice president with Fairway Independent Mortgage, a mortgage banking firm with offices throughout the country.
Eickhoff said the widespread view that the economy is gradually recovering is the primary factor strengthening many neighborhood markets.
But Scott Lanoff, a mortgage broker who heads his own firm, American Success Mortgage, cautioned that all purchasers can expect a rigorous mortgage application process, given that lenders now operate in a much more demanding regulatory environment compared to the period before the recession.
“I've been in the mortgage field 27 years and it's never been harder to get a home loan,” he said.
Keith Gumbinger, a vice president at HSH Associates, which tracks mortgage rates countrywide, says there are currently many fewer companies in the mortgage market. Even so, he said homebuyers can still command the attention of many good lenders.
Here are a few pointers for prospective first-time homebuyers:
Get an early jump on the mortgage search process.
The mortgage market is always evolving. In addition to the traditional 30-year fixed rate mortgage, new loan products are constantly developed by the industry.
Most innovations involve adjustable-rate mortgages of one type or another. But they can differ dramatically in their names, terms and conditions.
Gumbinger said both first-time buyers and repeat purchasers need as much lead time as possible to educate themselves on mortgage basics, to sort through alternative home-loan choices and to compare lenders and rates.
Gumbinger suggested mortgage shoppers seek consumer information through his firm's website, www.hsh.com.
Of course, most home-loan applicants now favor traditional fixed-rate mortgages. But Gumbinger said buyers who expect to stay in the home they purchase for just a few years might consider a so-called “hybrid loan” on which the interest rate stays firm for three to 10 years before adjusting to market levels, because the initial rate would be lower than that of a fixed-rate mortgage.
Hold out for a lender willing to give you face time.
Gerri Detweiler, a consumer finance expert and author of “The Ultimate Credit Handbook,” encourages first-time buyers to seek a lender who will instruct them on the intricacies of home loans.
“A reputable mortgage lender should spend at least 30 to 60 minutes with you on the fundamentals and should help you to begin fixing flaws on your credit reports,” Detweiler said.