Financial Health Guy.Com

Laura and I have been looking at houses to buy for the last few weeks. It has always been a goal of ours to own a home, and now seems like a good time to purchase one, despite everything going on in the economy. We've been planning to do this for months, for a variety of reasons, and our savings and earnings are at a level where we feel we can properly afford to do so. If, like us, you've been waiting for the perfect time to buy a house, this might be the year to take that leap if you have a job, money in the bank, and it is the right decision for you.

Among the reasons for our move is our current rental property. We live in Northern Virginia, and recently found out that our monthly rent is going to increase nearly 50% at the start of our new lease term (May) even if we sign another annual lease. Note that this is for a small two bedroom apartment So we have plugged the numbers, and with the currently depressed market prices for homes in our area, know that we can actually pay less per month (including everything - utilities, mortgage, insurance, fees, etc.) by buying a house so long as it is below a certain value. So we are taking the plunge!

Here's a breakdown of what's good about the housing market right now according to Bills.com.

"For individuals who have a steady source of income, good credit and cash in the bank, today could be an excellent time to purchase a home," said Bills.com president Ethan Ewing. "Low prices, a large inventory of homes for sale, low interest rates and beneficial government programs have made this year one of the best ever to buy a home, especially for first-time home buyers."

Also from Bills.com:

The median sales price for U.S. homes was 14.8 percent lower in January than it was a year earlier. And first-time homebuyers can benefit from the tax credits implemented as part of the 2009 American Recovery and Reinvestment Act (better known as this year's economic stimulus package).

Mr. Ewing offered these tips for individuals and families thinking of investing in a piece of America this year:

1)

Know your score. Check your credit score before you make any decisions. Credit scores range from 300 to 850. The median U.S. credit score is about 693, according to Experian, one of the three main credit reporting agencies. A score below 680 usually results in a borrower being charged a higher interest rate or being denied credit. In this economy, you will need a good score to qualify for a mortgage. If your score is lagging, wait a few months. In the meantime, pay every bill on time, pay down as much debt as possible and increase income if possible to improve your chances. If possible, ask creditors for increases on your credit limits to help out the "credit available" aspect of your credit score - but do not tap into the addition.

FHBGuy Says: Definitely find out your credit score, but not from a highly advertised site like freecreditreport.com because they make their money by signing you up for expensive subscription services. Annualcreditreport.com is the place to go - you are legally eligible to receive one free report from each of the three major companies per year. Also, if you are going to ask for a credit limit increase, do so as soon as possible. You may be denied, but if you are approved, the longer you have that increased credit availability the better.

2)

Do not stretch too far. Often, borrowers are told they can qualify for a higher mortgage than they can comfortably pay. It is wise to keep housing expenses below 35 percent of your total income. Leave breathing room in your budget so that if something unplanned does occur, you will be able to keep your home. If you are not certain, wait to buy.

FHBGuy Says: This is very often the case. I was approved for a mortgage that would monthly cost more than double what I could comfortably handle. Just because you are approved for an amount doesn't mean you should spend it! Figure out what you can afford to pay per month for your mortgage and calculate the maximum loan amount based upon that - then subtract 15%.

3)

Know the full costs of buying. The down payment and principal and interest on a mortgage payment are only the beginning of home-related costs. For a typical mortgage payment, "escrow" payments, or the costs of home insurance, property taxes, and, in some cases, private mortgage insurance, can total hundreds of dollars per month in addition to principal and interest. Determine the property tax amount - the largest part of the escrow payment - by checking with your real estate agent or county property tax assessor before your buy.

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FHBGuy Says: A good lender will walk you through all of the steps on this, but do your own research. Look into county tax records (available in the public domain, generally online!), find out what the lending company charges in fees, and get an estimate of what the PMI and other insurances will cost. Also beware expenses you haven't considered - utilities are generally higher for a house than an apartment, for example.

Be sure to not deplete savings or cash on hand when making a down payment, since new home owners often must complete initial work on the home, such as painting, flooring, landscaping or bringing an older house up to date. After that, a rule of thumb is to budget 1 percent of the home's purchase price per year for home repairs and upkeep.

4)

Understand private mortgage insurance (PMI). Mortgages with less than a 20 percent down payment require PMI in case the owner defaults on the loan. When the home owner pays the mortgage down to 80 percent or less of the home's value, the home owner can request the lender to cancel the PMI on a conventional mortgage and stop paying the additional amount. Meanwhile, PMI is tax-deductible, at least through 2010.

FHBGuy Says: In some cases, credit unions may not require you to pay PMI, which can reduce your monthly payment by hundreds of dollars, even if they have a slightly higher rate. Consider the total monthly payments you will be making, not just the interest rate.

5)

Check for prepayment penalties and other provisions. If your loan has a prepayment penalty, borrowers face hefty charges if they pay it off early. This provision also can apply to future refinancing, so be forewarned. To determine if there is a prepayment penalty, review the Truth in Lending disclosure or ask your lender to find out.Prepayment penalties have come under increased scrutiny since the mortgage crisis began, so if you find your loan has one, voice your dissatisfaction directly and clearly to your lender or broker.

FHBGuy Says: Again, a good lender will tell you all about this, but be sure to specifically ask. Get every answer in writing, and make sure that the contract you sign has all of the provisions you want!

6)

Consult a tax advisor. First-time home buyers including people who have not owned a home for at least three years qualify for a tax credit of up to $8,000 if they purchase a home before Dec. 1, 2009. The credit does not have to be repaid if the buyer keeps the home for at least three years. In addition, all home owners qualify for tax credits for certain home energy efficiency improvements made in 2009.

FHBGuy Says: Tax incentives are great and can be very helpful, but don't depend on them when calculating your payments. Tax laws change frequently, and at best you won't see the refund money for several months. Instead, when you get the refund credit, use it to fund your IRA or put it into long-term savings!

7)

Buyer beware. Some of the lowest prices on homes today are "fixer-uppers" or homes sold "as is" because of foreclosure. Invest in a home inspection before agreeing to purchase any home. You may even be able to split the cost of this inspection - typically less than $400 - with the seller. The inspection will inform you of any faults in the home and help you determine the approximate cost to remedy those problems. Without an inspection, you could wind up owning a home that requires thousands of dollars of repairs.

FHBGuy Says: I know from experience that this is the case. One house we looked at was beautiful and we thought fit everything we needed. To someone with no home inspection experience it looked great, but upon the inspection we found out that the home was in fact a lemon, and needed more than $25,000 in repairs. Fortunately we had put a clause in our offer stating that it was contingent on the home inspection - be sure to do this!

Tags: Budgeting, buying a house, economy, experiences, goals, home, house, housing market, Income, long term

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Posted in Real_Estate Post Date 07/17/2020