Buying a home for the first time can be a daunting thought, especially as the cost of homes rises. When looking for a home, it can be helpful to understand what the current housing market looks like and what is available to first-time buyers.
Fernando Contreras, a Kern County realtor for the past 18 years, stated that home prices are at an all-time high, even compared to the 2008 recession. According to a newsletter he sent on December 10, the average sales price for a home in Bakersfield is $409,000.
“The average sales price has increased dramatically in the past 10 years,” said Contreras. “We went from like basically the Great Recession and pricing at all-time lows to right now is a really strong market, and prices are at all-time highs. The prices now are actually a little bit higher than they were before the Great Recession.”
He explained that from 2004 to 2007, home prices doubled or tripled, people were selling their homes, and prices reached an all-time high in 2007.
On December 10, the Federal Reserve lowered the federal funds rate to 3.5 percent in a press release. They stated that both unemployment rates and inflation rising this year were factors in the decision to lower the rate. The Federal Reserve wants inflation and unemployment to be at a rate of 2 percent max.
“I think with the Federal Reserve’s moves where they dropped the rate three times in the last several months, that definitely helps out because the lower rate, people qualify for a bigger loan amount,” said Contreras.
Contreras stated that he is also seeing houses stay on the market longer. He explained that when mortgage rates rose earlier in the year, the average time a house was on the market climbed from 20 to 28 days to 40 days by November.
“I tell my clients if we list a home for sale, we should get an offer within the first 30 days if we are priced correctly. And if we are priced too high and it goes over the 30-day mark, then we need to make some adjustments. But now I’m telling them that it’s taking up to 40 days, the average days on the market last month of November was 40 days before an offer was received on a house for sale,” said Contreras.
As prices continue to rise, Contreras stated Bakersfield is still a more affordable option in California; however, it has become more difficult for first-time buyers, leading to some families having to combine incomes to qualify for a larger loan to buy a home.
“It’s still one of the most affordable spots in all of California. But with that being said, it is because prices have a risen substantially, it is more difficult for first-time buyers. We’re seeing household incomes being combined in order to purchase a home. So obviously, mom and dad work now, they’re getting the son sometimes, their income in order to qualify for the loan,” said Contreras.
He added that Kern County also has lower wages compared to other areas of California, making it harder to buy a home. However, he does know that it’s possible from seeing people be able to work in Kern County and with discipline save the money to but 20% down on a home.
To financially assist people buying a home, there are several first-time home buyer programs available. Contreras mentioned that he typically sees the Federal Housing Administration (FHA), United States Department of Agriculture (USDA), Golden State Finance Authority, and California Housing Finance Agency (CalHFA) loans being used for first-time home buyers.
With the FHA loan, the buyer may only need 3.5 percent of the purchase price for their downpayment.
‘If you’re a first-time buyer for an FHA loan, you go from a $10,500 down payment on a $300,000, to if you’re not a first-time buyer, you need a conventional loan, and it’s 20% down,” said Contreras.
He explained that it is a government-backed loan, which will cover any buyer defaults with the bank.
The USDA has two loan options available for people to either buy or build a home as long as it’s within rural areas. For Kern County, Contreras explained that the loan is can be used in Arvin, Lamont, Shafter, and McFarland. The USDA website has a map to check what areas qualify as rural.
GSFA is another down payment assistance program that is not limited to first-time home buyers. They can assist with up to five percent of the mortgage loan amount.
The CalHFA loan is a down payment assistance program that can also assist with up to 3.5 percent of the purchase price. They do not loan directly to consumers but instead work with qualifying lenders.
Contreras explained that although these programs offer assistance to qualify it is important to have good credit. He recommended being around a 680 score. While people can qualify with a lower score, their chances may be lower.
For someone looking to buy their first home, Contreras said the first step is knowing their numbers and getting all of their documentation together. To qualify for a loan, he stated they will typically ask for tax returns for two years, bank statements for two months, pay stubs for at least a month, and then they will check the applicant’s credit score.
“So obviously, sometimes if you don’t have good credit, that’s where you would want to start,” said Contreras. “People have collections. They just need to have those collections cleared so the credit jumps up to at least to 620. Sometimes, some lenders can do a loan at 580, but it gets very difficult to get those through, so the higher the better with the credit.”
Paying off any collections is important because when qualifying for a home, they look at the applicant’s debt-to-income ratio. So the higher the income and the lower the debt, the more likely an applicant is to qualify for a loan.
To anyone looking to buy a home, Contreres said it’s important to be in the best financial position possible. He explained that while the down payment assistant programs are great, the money still needs to be paid back.
“I know those down payment assistance programs are great, but they’re going to be tacked on to the loan or they’re going to be a second loan. So you’ll still have to pay that at the end of the 30 years. So to be a strong buyer, have a job, work, maximize your income, obviously earn as much as possible, while at the same time saved for the down payment, as much as possible,” said Contreras adding that while it is a lot, the ideal amount to save is 20 percent.