CNN reported recently that not only have home sales (without accounting for
seasonal adjustment) dropped to a low not seen since 1994, but also that the
number of existing (as opposed to new) homes for sale has risen to a record high.
Pundits and analysts have been speculating for a year about whether or not 2008
is the time to buy a home, and even with mortgage companies rolling back their
guidelines to textbook numbers not witnessed since the late 1980’s, the buzz is
that we’re in a buyer’s market.
It’s true that rapidly rising home prices have been keeping first-time
buyers out of the housing market, and it’s also true that we’re at a point
in most areas where home values are sliding ever downward and interest rates are remaining
fairly low, but does that mean it’s time to buy?
In a word…YES.
But you may have to prepare to actually have a down payment these days to buy a home. Many of the conventional loans available are requiring at least 20% to put down, plus an additional two or
three percent to cover closing costs, have stable employment, and have the
documentable income to support guidelines that restrict the ratio of your house
payment to your total debt to 28%. There are FHA options available to first time home buyers, however the days of having the seller contribute to pay the buyer’s closing costs are recently gone.
out what you can afford: There are many online calculators that can
help you determine what payment you can afford, but your best bet is to meet
with a loan officer before you ever look at property. Even in a buyer’s market,
having a pre-approved loan makes you a better risk. In addition to being able
to afford the mortgage payment, remember to include taxes, insurance, your
regular recurring debt, and one-time expenses such as moving vans, when
determining what you can spend.
your homework: Use the Internet to research house prices and
locations, but also to check out school districts, crime statistics, and any
public projects (upcoming or already in process) like new shopping centers or
freeways which might change the value of the house you want to buy. According
to an economist at Massachusetts-based Global Insight, up to 90% of housing
prices are explained by events in the local economy, including neighborhood
conditions and growth.
- Shop smart: First, home sales are usually a matter
of public record, so you can find out what homes in your preferred neighborhood
were selling for about four years ago. Look
beyond mere comps, and research what it would cost to buy land and build a home
similar to the house you’re considering. Then compare the mortgage payment,
taxes, and homeowners insurance,
with the cost of renting a similar house in a similar neighborhood. If you can
rent a home for the same or less money, the seller may be asking too much.
Or rather, have your Realtor negotiate on your behalf. Sellers of vacant
properties, especially, are usually eager to complete a transaction, which
gives you, as a buyer more leverage.
- Buy for
the long term: In current market conditions, if you plan to stay in a home for five to seven years, you should feel confident in moving forward as a buyer. Remember that statistically, most
first-time buyers do not stay in their first homes, so think about re-sale when you buy, even if you think you will stay forever.