5 Rules for Home Buying

There are 5 general rules to buying a home – at least as far as I am concerned. If you follow these rules- you can enjoy a successful home buying experience!

1. Save for a down payment: I understand that you do not have to have a down payment for VA loans and only 3.5% for FHA loans. However- having a 10% or higher down payment can improve your interest rates, lower your monthly payments and provide a buffer for in market downturns. Also- closing costs (fees charged by the mortgage lender and title companies) run around 3%. In a buyer’s market like we have now- agents negotiate for the seller to pay the buyer’s closing costs. However- when the market shifts (and currently some banks holding foreclosure properties will not pay these costs) closing costs will be the buyer’s responsibility. Something to keep in mind when you are determining how much money to save.

2. Live within your means: Mortgage lenders approve buyers based on the gross income. As a home buyer it is important to take into consideration what is realistic- after taxes, food, gas, clothing, movies, etc- what is a comfortable mortgage payment for you? Base your decisions on what you can afford on what you make currently- not what you might make next year if you get a raise. With home prices down to 2003 prices- affordability has gone up. Find a home that fits your budget- and focus on things like location, floorplan and ammenities. Don’t focus on paint color, countertops, fixtures, etc- these are things that can be changed over time- and gives an opportunity for you to personalize the home to your tastes.

3. View this purchase as a long term investment: enough said. Home buying is not a “get rich quick” scheme. I know you may have seen the informercials on how to get rich in real estate- but the market is different now and it is an investment in your future, not next week.

4. Each home market is different: while there may be similarities in housing markets across the country- downturn- this does not mean each city or region is experiencing the same level of foreclosures, sales, etc. Pay attention to comparable properties that have sold in the neighborhood in which you are looking, the number of foreclosures in the area and number of homes on the market.

5. Watch for market indicators: Pending sales is the indicator used by the NAR to determine where the market is headed. We have experienced a huge increase in pending sales for the month of October. While this is being attributed to the First Time Homebuyer Tax credit- this credit has not only been extended, but another aspect added to current home owners who wish to move up. While the holidays- November and December are notoriously a slow time in real estate- an increase in pending sales is expected. Also- keep an eye on appreciation percentages- a normal, healthy market experiences 4-6% yearly appreciation. When you see appreciation levels going up and up and up (we saw an increase from 32% to 93% in some areas of the valley in 2004-2006)- this may be a sign we will be experiencing a housing market downturn in the near future.

And finally- at the risk of sounding cliche- please contact a educated, experienced Realtor to assist you and provide answers for the many questions you will have when buying a home!