Amid a housing shortage in Idaho Falls, with housing prices rapidly increasing, first-time homebuyers can be especially vulnerable to real estate and mortgage challenges.
Ross Farr, a mortgage loan officer in Zions Bank’s home finance division, spoke with the Post Register about best practices for first-time homebuyers.
Farr’s recommendations include knowing your qualifications, assembling the required paperwork and preparing financially.
Idaho Falls is experiencing a housing shortage due to a number of factors, including eastern Idaho’s ever-increasing population and homebuilders who can’t keep up with the demand for new houses.
The inventory of homes on the market can’t support Idaho Falls’ growing population, with current homes spending an average of 30 days on the market. And the toughest listings to find are houses valued at $150,000 or less.
Current homeowners, looking to upgrade, are among the tightest segment of Idaho Falls’ real estate market, Farr said. Homes in the $250,000 to $350,000 range are the most difficult to find. When “move-up” buyers can’t find a new home, they stay or choose to build a home instead, slowing down the market and limiting options for first-time buyers.
Prices in the high $100,000 range is the sweet spot for first-time homebuyers, Farr said.
While homes under $150,000 are more affordable, often they’re older. Farr said first-time homebuyers should avoid buying older homes, unless they have the skills to fix major structural issues.
“If you’re working full-time and she’s a new mother, you won’t be able to take care of an old home,” Farr said. “Stay away from the old homes if you’re a first-time homebuyer, unless you work in the trade.”
But before even looking at homes, potential buyers should have a few things in order.
First, if a first-time homebuyer’s credit score or savings aren’t tip-top, they shouldn’t disqualify themselves from being approved for a loan, Farr said. A loan can be secured with a lower credit score than most people realize. And down-payment assistance can be gifted from a family member.
“You can get a mortgage with a credit score as low as 580,” Farr said. “The industry is eager to prop up first time home buyers.”
Second, paperwork — including tax returns, pay stubs, bank statements and job history — should be organized before applying for a loan. It will make the process smoother and mortgage officers won’t have to chase down documents.
In a tight market, time is of the essence.
One common mistake made by renters who are looking to buy is not to have documentation of rental history, Farr said. If there’s no credit history, the bank will need documentation of rental and other bill payments.
Farr said applying for a loan is a “financial enema.”
“It’s kind of an invasive process,” Farr said. “But it’s the state of the animal now. First-time homebuyers are just not used to the degree of scrutiny.”
Third, first-time homebuyers should be financially prepared for a loan, which means paying credit card balances, addressing collections and paying bills on time.
Any credit liabilities can affect your loan.
Mortgage rates are low, currently in the upper 3 percent range, which Farr attributes to politics. Since Democrats took a majority in the House of Representatives in November, interest rates have steadily dropped, he said.
Low rates mean it’s a good time to secure a loan, however high cost of housing can equal out the total cost of buying a house.
“The cost of borrowing is lower, but the cost of the purchasing is raised,” Farr said. Ultimately, it’s an “equilibrium.”
Low rates also mean refinancing could be in order for current homeowners. But Farr warns that’s not the best option for everyone. Typically, a 1 percent drop in interest rates could warrant refinancing. Most homeowners in the Idaho Falls area haven’t reached that point since rates began declining, Farr said.
“There’s just not that many people sitting on 5 percent rates right now,” he said.
Refinancing is a viable option for homeowners going through a major life change, Farr said, such as a divorce, death or, in some cases, if the homeowner is thinking about buying a second home. Other than those reasons, “it almost never makes sense,” Farr said.