First step to home ownership, or what I advise clients:
Plan, plan and plan some more.
You are hearing and certainly will hear about all of the bargains that exist in the housing market today. Buying a home should be taken very seriously and the impact to your finances. What has spurred much of what has happened in the real estate and mortgage business today, is not the "sub-prime loans" and such. It is blindly buying a house without understanding the impact and how to manage the finances involved.
If you are considering buying your first home, consider this. How much more is the mortgage payment (including principle, interest, taxes, and insurance) plus what are the expenses in addition to what you are already spending for utilities, maintenance and so forth. What money are you going to have to spend just to move in and what are you going to have to buy immediately (lawnmower?)
Next, once you determined that, take the difference between that and what you currently pay for rent. Take the difference and put it in a savings account. If you can't do that it is a sure sign that you cannot afford the mortgage, keep renting.
Since there are few if any zero down loans available, determine how much you will need for a down payment. FHA is 3 ½%, so on a 200,000 purchase you will need $7,000. If you save the difference between rent and your mortgage expense, how long will it take to have enough for the down payment?
Next is have enough money set aside for emergencies. Emergencies will happen and the last thing you want is to never have the money to pay your mortgage payment. If you don't have the discipline to save, develop the habit. If you are temporarily out of work (no income) or have an emergency expense, you need to have the resources to cover that without creating more debt (credit cards).
Next is you are probably not going to be able to afford the type and size of house your parents own. I'll bet they started smaller and with several homes, worked their way up. Chances are you will not be buying your dream home, that is for a later purchase. You want and need something that is going to provide you with what is going to service your needs today. Remember the average time people stay in a home today is about seven to eight years. Unless you absolutely know that this is it, you're going to be here for the next 30 to 40 years, go for what fits your life for the next five to ten years. Be realistic!
The bargains are here already. In most markets housing has pretty much hit its lows. Don't go in thinking that you are going to "negotiate" another chunk of money off of the listed price. If you are dealing with a full time, professional Realtor, chances are they are very much aware of the market and what a house might sell for. Listen to your advisor. If you don't believe them or don't trust them, find a different one.
Don't play games with the interest rate. First of all if you shop for a mortgage by calling up lenders and asking what their rate is, you are making a huge mistake. The rates change daily and some days by the hour. Nobody can quote and guarantee a rate. The rate cannot be locked (guaranteed) until you have completed all of the necessary paperwork and executed a mutually accepted purchase/sale agreement, complete with an earnest money deposit. So until that time a rate cannot be guaranteed. You need to make sure you are dealing with a competent mortgage professional. Check their references and ask to speak with previous clients. They will tell you what to really expect with who you are dealing with. If you can't get references, do you want to employ them as your mortgage person? Next is lock your rate. In today's credit environment, don't play games with your money trying to save an eighth of a point. You will probably lose. Lock your rate as soon as you can. If you close on your loan and later if the rate is substantially lower, you can refinance on a rate/term refinance to reduce your payments. FHA has a streamline refinance program that is inexpensive and doesn't require a new appraisal. So does VA and most of the current loan products do not have a prepayment penalty. So you can always refinance to lower your rate and payment at a later time if needed.
Be responsible; seek out true, committed professionals that have your best interest in mind. Beware of what seems to be too good to be true. Verify what you are being told and NEVER sign blank documents.
About this Author
Don Davis can be reached at 360-652-9994 or visit his web site at http://www.HTLNW.com for other contact information. Don specializes in residential and commercial lending mostly in and around Snohomish County, North King County, Skagit county and generally in the state of Washington. Don has spoken at numerous workshops and events regarding credit scoring and related topics and has helped many people substantially raise their individual credit rating. If you want to maintain a high credit score or wish to increase and maintain a high score, contact Don to schedule a meeting today.
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