Your first home: Five ways to know when you're ready to buy

[Jan 6, 2010.]

 

The National Association of Realtors (NAR) reports that their Pending Home Sales Index dropped 16 percent in November compared to October. This indicates that there are plenty of homes available, and with current low mortgage rates, this could be a great time to buy a home. If you aren't sure, here are some things to consider:

• Understand the actual expense of owning a home: Your new welcome mat and lawn mower are just a start. You'll need money for home and lawn maintenance equipment or service, utilities, and trash collection. You'll pay for hazard insurance and possibly mortgage insurance. Property taxes are typically assessed by a local taxing authority that can also issue additional assessments for infrastructure improvements. Savings are essential for covering unexpected expenses. One more thing: If you buy a condominium or a single-family home in a neighborhood with a homeowners' association (HOA), you'll pay monthly fees.


• What's your credit score? The three major credit bureaus use the FICO credit scoring system. You can can obtain one copy of each credit report each year for free. Credit scores are also available, but must be purchased. It pays to research your credit reports and raise your credit scores by paying off debt. Mortgage lenders typically post their lowest available rates, but anyone with less-than-perfect credit pays additional fees or points for lower mortgage rates.


• Affordability: Paying for a home loan is not the same as squeaking by on the rent for the one-room flat you had in college. Mortgage loans are a major financial obligation, and if you don't have adequate savings, you could be in trouble in the event of unemployment, natural disaster, or long-term illness. You'll also need funds for a down payment and closing costs.


• Are you established? Of course, people do move, but you should be reasonably confident that you're staying put for at least a couple of years. If you have doubts about committing to home ownership, this isn't the time to buy a home.


• You're buying because you want to: Don't let relatives or friends talk you into buying a home before you're ready. Heed your instincts; take time to think through and address your concerns. If you're not ready to buy, then don't. Foreclosure is a lot worse than telling everyone that you're waiting until the time is right.

There's no question that the combined opportunities provided by the federal homebuyer tax credit, low home prices, and rock-bottom mortgage rates are providing buyers with lots of buying power. So if you want to buy, get started by shopping for a mortgage before looking at homes.

 

About Author:

Karen Lawson is a freelance writer with extensive experience in mortgage banking and home loan loss mitigation programs. She holds BA and MA degrees in English from the University of Nevada, Reno.