When the housing market is bad
Home values have dropped, there’s a lot of inventory on the market, and rates are low.
What that means is this:
- The prices of homes are lower than they were 4-5 years ago
- A lot of people are trying to move, can’t afford the payment, or tried to build a spec home before the “bubble burst”
- Interest rates are at a 40 year low!
What this means for you
The best time to buy a home is now, but is this a good time for you to take advantage of this housing trifecta? You must consider the following before even looking at properties for sale:
Do you want to buy a home?
Owning a home is a wonderful thing. You have a place you can call your own, your wife gets to customize it (furniture, drapes, wall color, flowers and outdoor plants, etc…) and you get to put all your tools in the garage. Awesome, right?
How much can you afford?
Most people believe they can afford a home that has the same monthly payment as renting, but as you can probably guess from the things mentioned above this is absolutely not true. Curtains, couches, new liners for the cabinets, there are numerous things to buy when moving into your new place. Also, you pay all the repairs and maintenance yourself, not to mention the increase in real estate taxes and house insurance over time.
How much time can you dedicate?
Mowing the lawn, raking the leaves, painting the soffits, power-washing the siding, there are a number of things that will monopolize your time in the name of “home ownership”.
So, are you ready?
Financially, there are a number of things you need in order to buy a home or qualify for a reasonable mortgage. Note: If you are paying cash for the house (no mortgage) then this is a no-brainer. Find something you like and buy it! Otherwise:
Save for a down-payment
The more you put down on a house the lower you balance, the less interest you pay over the life of the loan, and any down payment of 20% or more of the value of the house will keep you from having to pay PMI (insurance for the bank that protects them from loss in case you lose the house).
Be patient and get yourself a deal!
Since there is so much inventory on the market, prices are down, and interest rates are low you can take your time and find yourself a deal! Experts suggest you look at a house at least 3 times before deciding to sign the papers, that way you are certain this is the house for you.
Don’t buy the most expensive property in the neighborhood
One of the greatest financial benefits of home ownership is growth. If you buy the best place on the block then your house will not appreciate as much as a “normal” house down the street. The same goes for building: Don’t overbuild the neighborhood.
Pre-qualify for a mortgage
Run some numbers to see how much you can afford. Dinkytown.com has some awesome mortgage calculators. Just remember to add insurance and taxes to the normal mortgage figure (principal an interest). You do NOT want to become house poor.
Qualify for the best rates
There are three ways I know of that will allow you to qualify for the best rates out there. The most common one is the FICO score (credit score) which is a number based upon your debt payment history, amount of debt outstanding, credit (debt) history, new credit, and types of credit. This is my least favorite because it does not take into account non-debt items like rent, the electric bill, or even your cell phone payment. A better way would to be to include ALL your payments to prove you are an excellent candidate for a home mortgage.
If your credit is bad
How do you prove your credit worthiness if your FICO score isn’t stellar? Maybe you had a problem keeping up with your payments a couple of years ago but have been on-time for the past 2 years. That should count for something, right? It does. There is a new option on the table, and a company called eCredable. This is a company that WILL include all your payments (rent, electricity, cell phone, etc) in your AMP Credit Rating. Getting your credit rating verified doesn’t happen overnight, so this would be something to start when beginning to look for a house.
You can learn more by visiting eCredable.com/MoneyPlanSOS or listen to an interview with eCredable CEO Steve Ely.
The time is now
You don’t need to panic and rush out today but things will not stay this way forever. If you have a decent down-payment and are ready for homeownership then the time is now. Give yourself 3 months of looking and pre-qualifying and I expect you will enjoy having a place you can call home.
