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It's the right time to buy a home

Housing hasn't been so affordable in decades, and mortgage rates are near historic lows. Here’s what you need to do to buy your dream home.

By Stacy Johnson Apr 25, 2012 1:04PM

This post come from Angela Colley at partner site Money Talks News.


Money Talks News on MSN MoneyI've wanted to buy my first home for a while, and when my landlord told me that my rent was going up to $900 a month, I got serious about it.


So I researched the estimated value of the house I rent now ($160,000) on my local property appraiser website. Then I plugged the number into a mortgage calculator. If I owned this house, my total monthly payment would be $817. In other words, I could pay my mortgage, property taxes, and homeowners insurance for $83 less than what I pay in rent each month.


I'm not alone in thinking it's time to buy.  In the video below, Stacy Johnson talks to a real-estate professor who says if you've been sitting on the sidelines, now's the time to get in the game. Then read on for a checklist to get you started.


Post continues below.

This professor isn't the only bearer of good news: Check out this recent post on Smart Spending for more encouraging statistics, and also this one: "Why now is a good time to buy a home." 


But get informed before you do anything. Last year, mortgage website Zillow surveyed prospective homebuyers for a study on mortgages. Homebuyers gave the wrong answers to basic mortgage questions 46% of the time, and 44% admitted they don't understand the mortgage process. So if you're confused, you're clearly not alone. Here are some steps to take:


Make sure you're ready. Housing turnaround or not, being a homeowner doesn't work with every lifestyle. Ask yourself:
  • Is my job secure? Taking on a huge debt might lead to financial trouble if you lose your job in a few months or years, especially if finding a new job requires relocating.
  • Do I plan to stay put? I know I want to spend the rest of my life in my city. If I buy a house now, I won't be selling it for a long time. But if you're not sure where you'll be five years from now, renting often makes more sense. That's partly because using a real-estate agent to sell a house can cost 6% or more. Sell your home before you have that much equity and you'll lose money.
  • Am I in transition? Even if you're not changing towns, you might still need to change homes. Life changes like marriage and kids can require a different house.
Know what you can afford. You don't want to end up house poor and struggling to pay your other bills because your mortgage is too expensive.
 

Image: Shaking hands with Realtor © Design Pics/Don Hammond/Getty ImagesYour house payment -- including the mortgage, property taxes, and homeowners insurance -- shouldn't exceed 28% of your monthly gross income. To determine the most you can afford each month, multiply your annual take-home pay by 0.28 and divide that number by 12. (Or try MSN Money's calculator.)


Shine up your credit. Lenders have strict credit requirements after the housing market apocalypse. In 2011, the average credit score approved for a Fannie Mae or Freddie Mac mortgage was 760, according to CNNMoney. The average credit score for an FHA approval was 700. To qualify for the best conventional loan, you'll need at least a 740 credit score, Bankrate says. (Estimate your credit score for free.)


Order free copies of your credit reports through AnnualCreditReport.com, then check out "3 tips to raise your credit score -- fast" and "9 fast fixes for your credit scores" for ideas on boosting your scores before you apply for a mortgage. You should check your credit at least six months -- preferably a year -- before home shopping so you'll have time to improve it before applying for a loan.


Get your down payment together. These days, many lenders want at least 20% down, but even if they don't, the bigger the down payment, the better. Zillow analyzed 3.6 million mortgage inquiries and found that the best loan rates came with an average down payment of 28%, according to USA Today.


If you go with an FHA loan, you can qualify with a lower down payment, as low as 3.5% of the purchase price, says HUD. But make sure you have it before you apply. Also be aware that without 20% down, you'll be faced with an extra expense: private mortgage insurance


Get preapproved for a mortgage. Once your credit is good and you have your down payment together, it's time to apply for a mortgage. Do it before you start home shopping and be sure you're preapproved for a loan. That means the lender has agreed in writing to lend you up to a certain amount. This is critical, because preapproval means that unless your financial situation changes, you basically have that amount of money in your pocket and can pounce when you find your dream home.


Build your team. Buying a house isn't a solo project. You'll need a good lender and a great real-estate agent to get the best deal. Before I selected a lender, I used the Nationwide Mortgage Licensing System and Registry to make sure they were licensed in my state, and checked the BBB and complaint sites for past problems. Then I followed the advice in "Buying a house? Pick the right pros" to find a real-estate agent I wanted to work with.

Know your housing market. As Stacy said in the video, real estate is local. National statistics aren't important; what's happening where you're buying is.


Find the answers to the following questions. Some you can get by reading the local paper, some by contacting your local chamber of commerce, and some by talking to your real-estate agent:

  • How long are houses sitting on the market? Your agent can tell you the average number of days it's taking to sell homes in the neighborhood you like. You'd like to see these numbers dropping.
  • How many homes are available in the neighborhood? Falling numbers indicate demand is gaining on supply.
  • What's the employment picture? Is the unemployment rate falling?
  • Is the population growing? If you're in an area with shrinking population, that could be a bad sign. 

More on Money Talks News and MSN Money

14Comments
Apr 25, 2012 3:51PM
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Is my job secure? Taking on a huge debt might lead to financial trouble if you lose your job in a few months or years...

A job you can guarantee as secure for at least a few years?  I think this criteria pretty much eliminates everyone in the country.Open-mouthed

Apr 25, 2012 9:35PM
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Houses should be thought of as an expense not as an investment.People who push you into this mind set are salesman,so they can make a comission. Rember it hard to make a decision for a 20 to 30year comitment.
Apr 25, 2012 9:59PM
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Consider that you will want not only a down payment, but a downpayment that is not your emergency fund.  As a homeowner you need to be well prepared for the little surprises in life and home emergencies such as a blown water heater or broken furnace can set you back thousands.  Breakdowns happen on their own very unpredictable timetable. I'm sure it is also a tempting idea to tap your 401(k) or other retirement savings as well.  Refrain from doing so.  Your take home pay should be viewed as actual take home - AFTER you pay yourself first. Be smart - don't let this housing downturn cloud your judgement or make you a slave to your mortgage.
Apr 26, 2012 10:06AM
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Has there EVER been an article on this site advising AGAINST buying a house?
Apr 26, 2012 9:30AM
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I would never want a house payment that ate up 28% of my income - scary!  I don't think I ever topped 15%.  Houses come with lots of maintenance costs and tend to generate "wants" as well (furniture, appliances, drapes, ... ). 

 

You need to be able to pay more than the suggested payment each month on your house - that way you'll have plenty of flexibility to handle the un-expected and will hopefully pay the dang thing off way early.

Apr 25, 2012 8:47PM
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It sounds good the American dream and all that why we can even get you a little to no money down loan.  NO it is not a good time to buy we are on the edge of another shakeout from the fast money no security crowd which will drive house prices even lower.  Just wait until the exemption for interest is no longer deductible on your home mortgage.  The crush of houses for sale in light of a no interest deduction will make the current crisis look like a cake walk.
Apr 26, 2012 10:11AM
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Why would a real estate agent say it's time to buy? Go figure.
Apr 26, 2012 9:35AM
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If you are a first time home buyer and have done everything in this article, yes it is a great time to buy. On the other hand, we are trying to buy our dream house, but first we have to sell our current house. We're asking $20,000 less than what we paid for it in 2002. The realtor keeps reassuring us that our house shows well, yet still no offers after five months. Great time to buy, terrible time to sell.

I'm sorry, but unless you live in the slums you haven't cut your price NEARLY enough and it is only going to get worse. Expect to take at least a 20% hit to capital and probably more.

Apr 26, 2012 10:13AM
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Real estate is local and involves a fundamental approach as a part of your long term fiscal position, generalized negative perceptions maybe correct depending on your area but there is no valid argument stating that it is not a good time to buy.  Prices and rates are low...fact. 
Prices aren't going down, down, down, it depends.  Maybe but areas are also rising.  There's no standardized position on how much your home is gaining or losing value.  Find out what your local absorption rate is so you can understand how long it could take to sell and don't buy a new house every 5 yrs so you can falsely fulfill some weird sense of moving up in the world.

There are other considerations such as owners tend to care about their neighborhoods and community.  Mortgage interest deduction is a nice perk.  A home requires maintenance along with your car and your facial hair.  Working on your home is good exercise which we all need.  Don't over extend yourself with your new home and understand that one of the basic fundamentals of finance and investing is that the "markets" will exist both up and down.  If you are a negative person continue hiding money under your mattress and don't bother considering anything in a long term position.





Apr 26, 2012 9:28AM
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Now is NOT a good time to buy. The price of housing is going to keep going down, down, down for a while. Until the real price of housing goes below the historic average of housing it will keep going down.
Jun 11, 2012 6:27PM
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Get pre-approved for a mortgage ? HA !! That's a laugh. Just go out there n' try to.
I've been trying to for the last year n' all my answers are NO. They want me to hit up my 401k & drain it, even tho I have no need to use it to pay my mortgage. (according to their calculations I do tho )

If U can afford to & can get approval, yes...go ahead & buy a home now. Prices are far below where they should be on most. U just hafta dig around some. Don't let the realtors convince U into buying something that's overpriced now. (n' there are many) Some angry homeowners are sticking to their guns & want their price no matter what. I can't say that I blame them. I would too. But for now...hold onto what U have n' buy more !! (IF U can find any, since the banks seem to own a lot of them themselves already & are holding on 'til the prices return to what they were) Eventually, they all will come back up. When ? I dunno. Hopefully, your not too old n' can stick around to wait for it. (I don't think I'm gonna make it)
I think those who have a lot of savings available to spend will make it. An' the poorest of the poor will likely get help. But all the rest in between are gonna lose. An' that includes me. Maybe, most of U too ?
I see that no matter which candidate who gets in & wins the next election, somebody's gonna take a fall. A BIG one !!
This is not the country it used to be. No where close to it. Our dreams have been shattered.Our hopes are no where in sight anymore. It's a land full of depression n' lost hope. We'll just be scraping by n' not really being able to enjoy life at all.
Where has The Land of The Free gone to ? Where are all the Brave ? It certainly isn't showing in the actions of our current Congress.
I'm just sick of all the heartache & heartbreak. U work all your life to get"somewhere" Yet where has that "somewhere" gone ?



Jun 11, 2012 5:56PM
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I always thought that buying my own home was like a savings account. That's what we were always taught anyway. Then the crash !! Now I'm out by $100K with no way of getting it back. Not happy !!
I have this huge piece of junk & headache sitting on my back, that I can't get rid of unless I take that $100K loss. Sorry folks, I can't afford to do that.
So I have my own home, but it isn't worth putting another dime into, so I have to live in it as it is. No improvements or upgrades. Let it rot. Only do absolutely necessary repairs n' let it go.
It's gonna make for a lot of homes for sale one day that need a big bunch of upgrades & improvements for sale. Maybe barely worth their after the crash prices.
I'm ticked, cause I'm stuck paying the stupid bank a whole lot more money than my place is worth. Who gets to keep that money ? U guessed right. The Bank !!  It's supposed to be MY money n' the bank gets to keep the interest on it. What happened here ? Aren't they "double dipping"?
According to the legal profession, this is not allowed in this country. It's against the law. So whose gonna get arrested 1st ? Hmmmmmmmmmmmm.......???

U might ask...Do I wanna rent ? No, I don't. I just want my house to be worth what I paid for it. Either that....or a law should be passed to force every bank who's holding a mortgage to lower the principle on it until I owe no more than the house is now worth.
Who should pay for it ?
The government. The same one who gave all those banks, all that free money. They had no right to do that. It should've been given back to the worthy homeowners who got screwed !!
Not those who don't keep up with their mortgage payments, but those who do.
I'm sorry about the ones who lost their jobs, but there are too many who just never could afford that mortgage n' the banks were wrong to give them any financing at all.
An' because they did this back then.,.....their rules are tougher, so I can't even qualify to refi anymore.
Thanks a lot U jerks !!
I can prove left n' right that I pay all my bills & will continue to do so. But they don't give a rap. Neither does the government. So they'll just keep taking n' taking n' taking away from me until I have nothing left to live on. An' I'll pay it. All because I'm honest & trustworthy & I pay my bills !!!
If I had to beg, borrow n' steal in order to pay my bills, I would. But what do I get ?
I get a BIG NO !!

Apr 26, 2012 11:52PM
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