Here Are HBI’s Top Five Tips for First-Time Home Buyers in 2016

The housing market has changed dramatically over the last few years, swinging from boom to bust and now entering a full recovery. It’s a lot to keep up with. So let’s do a little catch-up. Here are the Home Buying Institute’s top five tips for first-time home buyers in 2016.

Top 5 Tips for First-Time Home Buyers in 2016

Loan limits have been revised. Mortgage rates are expected to climb. Home prices are leveling off in many cities across the U.S. These are just a few of the ongoing trends that are “baked” into our list of tips for first-time buyers.

1. Consider buying sooner rather than later, to save money.

The Federal Reserve recently raised the federal funds rate for the first time in seven years. Most economists expect home loan interest rates to rise gradually in 2016, partly as a result of the Fed’s policy shift. This is something home buyers will want to keep an eye on.

The economists at Freddie Mac recently predicted that 30-year mortgage rates would climb to around 4.7% by the end of 2016. They 30-year average is hovering around 4% right now, so that would be an increase of about 70 basis points (0.70%) over the next 12 months or so.

Home prices are another factor creating urgency among buyers, as we head into 2016. While home-price appreciation is expected to slow in many cities during 2016, that doesn’t mean it will stop entirely. It’s likely that house values will continue inching upward next year.

Tip for first-time buyers: There is no way to predict the future, in terms of mortgage rates and home prices. But the educated guess right now is that both will rise throughout 2016. So buyers who put off their purchases until later in the year could potentially pay more for a home and a mortgage.


2. If you’re planning to use a mortgage, check out the new loan limits.

New loan limits were introduced in November and December, for both FHA and conventional mortgage loans. For the most part, the 2015 limits were carried over to 2016 with no changes. But in 39 counties across the U.S., conforming loan limits will increased in 2016. Additionally, FHA limits went up for 188 counties across the nation where home prices have risen sharply.

Tip for first-time home buyers: If you’re planning to use a mortgage loan to buy a house in 2016, you’ll want to review the new limits for your county. You can find FHA and conforming loan limits for every county in the U.S. on LoanLimits.org.


3. Research your local housing market with an eye on sale prices.

First-time home buyers sometimes have unrealistic expectations. They want to check every single box on their wish lists, even when their budgets fall short. This leads to frustration and heartache. It can also cause problems during the negotiating stage.

These problems can be avoided with a bit of homework. Before you start house hunting in 2016, spend some time researching home prices. Visit property websites like Trulia, Zillow and Realtor.com. Zoom in on your local market and look at recent sales prices. This is the best indicator of what you can get for your money.

Tip for first-time home buyers in 2016: Shopping for a home without knowing the market is like going into a business meeting with a blindfold on. That’s no way to handle a major investment. Read everything you can find on local housing conditions, home price trends, market leverage, etc. Be a well-informed house hunter!


4. Get a budget on paper, before you go any further.

Pop quiz. How much of a mortgage payment can you afford to pay each month? If you don’t know, you’ve got some homework to do. All too often, first-time home buyers rely on their lenders for budgeting advice. But that’s something you have to determine for yourself, and it’s best done early in the home buying process.

Most financial advisors recommend that you spend no more than 28% of your monthly income on housing costs. Another rule of thumb is to keep your total monthly debts (including the mortgage and everything else) below 36% of your gross monthly income. Statistically speaking, this is a manageable level of debt for most people.

First-time buyer tip: The numbers above are just guidelines. Your budget should be fine-tuned to match your financial goals, spending habits, and comfort zone. So feel free to deviate from the “rules” if needed.


5. Check your credit score to see where you stand.

Credit scores are a big deal for mortgage lenders. When you apply for a home loan, the lender will review your credit score to see how you’ve repaid money in the past. That’s what this three-digit number shows — it’s a direct reflection of your previous borrowing history.

Lenders have different standards for credit scores. So there’s no single number that will make or break your chances of getting approved. Generally speaking, a FICO credit score of 620 or higher will put you in a good position to buy a home, while a score of 750 or higher could help you qualify for the lowest interest rates. But here again, the numbers are not set in stone.

So there you have them, our top five tips for first-time home buyers in 2016. In closing, I leave you with one final tip. If you want to stay informed about housing conditions across the U.S., follow us on Twitter.