Finally, it's a buyer's market out there.
For years rapidly rising prices kept many first-time homebuyers out of the housing market. But as home values slide further downward and interest rates hover at relatively low levels, it may be time to start looking to buy that first house. That is, if you have a secure job, can afford higher down payments than were required a few years ago and can meet lenders' much stricter income and credit requirements.
If you are about to get into the housing market, this is all good news. But before you begin visiting open houses, recognize that the old home-buying rules no longer apply. You want to approach buying your first house with a financially realistic point of view.
Remember: You're investing in a place to live, not speculating in the stock market or even putting money into a savings account. So keep it simple. Buy smarter. Buy cheaper.
Determine what you can afford. Mortgage lenders have tightened their standards and are requiring larger down payments. Typically, they want buyers to spend no more than 28% of their gross monthly income on mortgage payments, real-estate taxes and home insurance.
To figure out how much you can afford, use online calculators at realestatejournal.com or bankrate.com and get pre-approved for a loan.
Be sure you also have cash for closing costs like legal fees and title charges. The total typically reaches 3% to 4% of the house price, but differs by state and mortgage product. Also be prepared to pay for moving expenses and ongoing maintenance.
Know your market. Gone are the days of "sure thing" home purchases when buyers would bid up prices and then watch the values of their houses soar like tech stocks in 1999. Today, if buyers are bidding at all, they're far more likely to insist on lower prices and to walk away if they don't get what they want.
Now more than ever, location is crucial, down to the neighborhood and street level. Focus on good school districts, crime statistics and any impending construction or public works that could increase or decrease the value of a home. Conduct preliminary research online at Web sites like Zillow.com, Trulia.com and greatschools.net.
Haggle. Don't assume the seller is even in the right ballpark with his asking price. Most real-estate agents and sellers only look at comparable sales prices, or "comps," of similar homes in similar neighborhoods. Take a lesson from property investors and appraisers instead and check out prices from other angles as well.
Consider what it would cost to buy land and build a comparable structure. Insurance companies can provide general cost estimates, but for a thorough assessment consider hiring an appraiser (search online by zip code at AppraisalInstitute.org).
Also compare your estimated monthly costs for the mortgage, taxes and other expenses with the cost of renting a similar place nearby. If you can rent virtually the same house for a much lower cost, the seller is asking too much.
Builders, sellers and banks are eager to unload unoccupied houses, giving the buyer more leverage to ask for lower prices or incentives. And don't overlook REOs ("real estate owned" properties) held by lenders.
Buy for the long haul. Most first-time homebuyers don't buy the house they're going to end up in forever. But experts suggest that in a downward market, people should purchase a home only if they intend to live there for seven to 10 years. If you're not planning to stay in the house for long, it may be wise to watch from the sidelines