"When we moved back to Wisconsin, we started looking for a houseand decided we couldn't afford one. Then we started looking again in January,and it was one headache after another," Jonah Kolterjahn said. "Weweren't even sure we'd get a loan commitment."
Fortunately, it took just one open house to get thecouple on the path to homeownership. After connecting with a real estate agentand spending four weekends viewing houses, they were ready to make an offer.
This process wasn't hurdle-free, but the Kolterjahnswere able to find the resources they needed to assess their finances, compareproperties and make an offer with confidence. Plus, they acted quickly enoughto edge out other buyers looking to take advantage of the $8,000 federal taxcredit for first-time home buyers, which ended April 30.
Though the creditand a separate $6,500 creditavailable to repeat home buyers, which also expired on April 30helped to movemany properties out of the local real estate market, it also created afrenziedand in many cases, competitiveatmosphere for buyers and sellersalike, as well as real estate agents and lenders.
"The tax credit made us unbelievablybusy," said Julie Luettgen, a real estate agent for Bay View Homes.
Still a Buyer’s Market
Stressful conditions aside, the federal tax creditsdid their job by eliminating a substantial amount of local housing inventory,according to Mike Ruzicka, president of the Greater Milwaukee Association ofRealtors (GMAR). And though the credits are not likely to return, it's still agood time to buy, especially for those who want to make a long-term investmentin a home, and not hope to create a short-term path to house-flipping riches.
"There's still an 11- or 12-month supply ofhouses, which is more than ideal, and prices are down 20% to 30% from theirpeak three years ago, so it's still a buyer's market," Ruzicka said."And with interest rates as low as they are now, it's almost like gettingfree money."
By "low," Ruzicka means 6% or less on a30-year fixed-rate mortgage. As of press time, interest rates are hoveringaround 5%, making home-buying and mortgage refinancing very appealing.
Sure, it's a buyer's market, but the outlook's notso shabby for sellers, said Shorewest Realtors sales associate NancyMeeks.
"If you're selling your house right now, youshould be just fine if it's priced properly," she said.
The rule of thumb? If it's been on the market 200days, it's probably overpriced. And if similar homes within a mile of yours arereceiving offers in 30 days, they're probably at the right price point.
So don’t be discouraged if you must sell a housewhile you’re transitioning into a new home. Meeks said listing your home at theright asking price typically leads to a 60-day close.
“Some people are assuming that buyers are going tocome in and low-ball their price, so they want to puff up their price by 20%,”Meeks said. “This is hurting the sellers because the buyers don't want to evenlook at their [overpriced] houses. The thing is, Milwaukeeans aren't quite likepeople other places. They like to sit and wait and watch houses; they don'tlike to low-ball. They will watch your house until it rots away.”
Plan in Advance
But don't rush off to an open house just yet: Youneed to plan if you're seriously considering a real-estate purchase. Even ifyou're nervous that interest rates will risea likelihood if the FederalReserve raises rates this summer, as TheNew York Times predicted on April 10it's not wise to rush, said RobSeetan, a mortgage loan officer for Brewery Credit Union.
"The 'smart' people are saying that we haven'tquite reached the bottom for the Milwaukeemetro-area market. We're a year or two out from that, I think, so if you buynow, you're probably going to lose equity over the next year," he said.
Others disagree and think that the Milwaukee market may have hit the bottom.
Then again, a home’s purchase price is not the onlyfactor a buyer must consider. Low interest rates can make a purchase worthwhilein the long run.
“People are understanding that it's worth it to jumpnow because rates are so low,” said Shorewest’s Meeks.
In other words, buyers must be prepared to hang ontotheir home for several years to see a return on their investment. This meanshaving enough money to pay the mortgage and other expenses such as homeowners'insurance each month.
"That's why the first thing buyers should do istalk through their plans with a Realtor, even if they're two years away frompurchasing," Ruzicka said.
Remember, all real estate agents, even that niceperson who drives you around town to see any number of homes, work for theseller unless they are hired as a buyer’s agent.
Luettgen noted that real estate agents, especiallybuyer agents, can locate lenders willing to work with individual buyers'financial situations.
"If you're looking to buy, you want a lender topre-approve you for a [mortgage] loan sooner rather than later," she said."Some sellers won't even look at your offer without a pre-approval,especially if they have others on the table. And pre-approval helps you figureout what your budget might be."
That said, the Home Buying Institute, an onlineresource for buyers, recommends checking credit scores and resolving creditproblems first, then applying for pre-approval, before contacting an agent.
This doesn't have to mean going it alone at thelender's office, though. Home-buyer-education organizations like the nonprofitSelect Milwaukee can help buyers prepare to have their finances scrutinized andguide them through other tough decisions.
It's a process that helped the Kolterjahns find someextra money to pay for their home, too. In addition to qualifying for a FederalHousing Administration (FHA) loan, the couple received a Select Milwaukee grantand successfully closed their purchase with the local branch of a nationalbank.
The Credit Crunch
Although the days of easy credit and no-money-downmortgages are over, it isn’t impossible to get a good mortgage and make a downpayment.
"Many people think that to get a mortgage loantoday, you have to have impeccable credit and make a down payment of 20% [ofthe home's price]," said Ray Schmidt, Select Milwaukee's executivedirector. "For the most part, that's perception. Lenders are requiringslightly higher standards for evaluating creditworthiness, and this means moredocumentation for the buyer. But more is being required of the entiretransaction, which benefits the buyer, too."
A down payment of less than 20% requires most buyersto purchase private mortgage insurance but doesn't prevent them from houseshopping. And while lenders now want buyers to provide pay stubs, plus a creditscore of at least 620 for those seeking an FHA loan, they also want sellers toprovide extra details about their property's condition and value.
FHA loans like the Kolterjahns' are an especiallygood choice for first-timers, Seetan points out, since they require a downpayment of just 3.5% and come with a specific set of quality requirements.
"FHA makes sure there's no lead in the house,and there are all sorts of other restrictions to protect buyers, especiallyinexperienced ones," he said.
Finding Value
But perhaps the most important question for buyersand sellers is, “What, exactly, is this house worth?” An appraiser’s opinion,plus some market research, can help put a dollar amount on a home.
"You can put in all the granite countertops youwant, but they're not necessarily going to add to the home's value, especiallyif the value of the house next door is falling," Seetan said.
In other words, it's important for buyers to studyhomes nearby the one they have their eye on. And buyers who want a fixer-uppershouldn't aim to create the crown jewel of the neighborhood, Seetan said, sinceit will be compared to the lower-value homes that surround it.
But a diamond in the rough is the right choice forsome, Schmidt argued: Appraisers' opinions are important to keep in mind, butthey're not the be-all and end-all of value determination. Plus, substantialsubsidy for repairing a foreclosed home may make one a good buy.
"Depending on your income, where the house islocated and a few other factors, you may be eligible for up to $30,000 infederal stabilization money to help you if you intend to live in that home andfix it up," Schmidt said.
For instance, through the city of Milwaukee's Neighborhood StabilizationProgram, a family of four with an annual income of less than $84,840 can get upto $20,000 to occupy and repair a home in several city neighborhoods with highforeclosure rates. Program participants also receive technical assistance tobring the house up to code, from help estimating costs to monitoring of theconstruction process. (More details are available at milwaukeehousinghelp.org.)
So, while now is a good time to jump into themarket, don't forget to do your homework. Research neighborhoods, grant andloan programs, lenders and the properties themselves. More importantly, trustyour gut when you're feeling overwhelmed and don't hesitate to ask for help.
And take it from Seetan, the man with the mortgagemoney: "If you find a deal, there's a reason it's a deal. Make sure youfind out what it is."
