Issue date:
June 26-28, 1998

Sweet deals for young buyers

Cash-poor first-time home buyers are grabbing today's looser financing. Some can even say: "Charge it."

Top tips for new homebuyers Financing is plentiful for buyers these days, but it's a seller's market. New-home sales rarely have been stronger; sales of existing homes are breaking records. What you need to know: Get your credit in shape. clean credit report will get you a better loan rate. So before you apply, dump cards you're not using, don't make purchases that would require inquiries into your report, and make sure no mistakes linger on it. Set a budget. What you can spend on a home hinges on your cash flow, your tax bracket and mortgage rates. Find out what you can afford (and make yourself more attractive to sellers) by getting mortgage preapproval. Lenders have equations to figure out the amount you can handle. But you may not want to get preapproved for every dime of that amount, as that tells sellers just how much you can spend. Know your agent's limitations. Most real estate agents are paid by, and thus work for, the seller. Their job is to get the highest price possible, so be careful about revealing how much you're willing to spend. Another option: a buyer's agent, who works for you contractually (though still often is paid by the seller). For help finding one, contact the National Association of Exclusive Buyers Agents at 1-800-986-2322, or on the Web at www.naeba.org.

First, they agreed to pay $182,500 for a small ranch house in Arlington, Mass. It needed paint and grass seed, but had plenty of potential. Then they went looking for a loan. "We were very nervous," she remembers.

Unnecessarily so, perhaps. The couple qualified for a mortgage from the Federal Housing Administration under a special program for first-time buyers that has looser debt-to-income restrictions than traditional loans. They took out a 1-year adjustable-rate loan, then refinanced into a 30-year-fixed loan at 712 percent in December.

Being a homeowner, Walker says, "feels wonderful."

It's a feeling many young people are buying into. The U.S. Census Bureau says 35 percent of 25- to 29-year-olds owned homes as of 1997, the highest number since the start of the decade. In the 30-34 age group, the number was even higher, and rising: 53 percent.

Why the boom? Mortgage rates are one reason. With a 30-year-fixed loan averaging 7.09 percent recently -- almost 1 percentage point lower than a year ago -- young people are able to get more house for less money. Factor in the tax deduction for mortgage interest, and it's cheaper to own than to rent.

The White House also is helping. President Clinton has pushed for a record 67.5 percent of Americans to own homes by 2000. He's getting close: In 1997, homeownership was 65.7 percent. As a key part of Clinton's initiative, Fannie Mae and the FHA have rolled out programs to help cash-poor first-time buyers.