Home Buying 101 – Step One: Should You Buy? And When?

This is the first of twelve weekly features for first-time homebuyers on buying a home.

Should You Buy? 

This is a question you have to answer on your own.  Here are some questions to get you thinking:

• Do you have a steady source of income both before and after homeownership? 
  • If you’re about to change careers, or having prolems with your current employer, you should hold off on buying a house in the near future in case you become unemployed and don’t have another reliable source of income.
• What’s your credit like? 
  • You don’t need to get a credit report to tell you whether or not you’re likely to have good credit.  If you have creditors calling you day and night or recently had a repossession or bankruptcy, then you probably don’t have good enough credit to get a decent loan.  There are companies who will give you a loan if you have bad credit but it’ll probably cost you. 
  • You have time to fix your credit before getting a mortgage – this will improve your odds of getting a loan, one with a better rate.
  • Next week, I’ll discuss more about credit.
• Do you have money saved for a downpayment and closing costs? 
  • Typically, you’ll need at least 3% of the purchase price for a downpayment and between 2% and 7% for closing costs.  However, some programs like CHFA offer loans to help with the down payment or to pay closing costs. 
  • If you can save 20% of your projected purchase price, this is best.  You will avoid private mortgage insurance (a cost to homebuyers if you do not have 20% to put down) and avoid high or variable rate 2nd mortgages.
• Can you afford to be a homeowner?
  • Are you prepared to handle increases in taxes, increases in utilities, costly repairs such as a new roof, increasing insurance, etc? 
  • Will you be able to manage if the property values decline and you have to sell?  This is the risk of loans with 100% financing – if you take out a mortgage for $250,000 and one year later, your home is only worth $240,000, you still owe the lender $250,000 when you sell.
  • I like this workbook for first-time homebuyers: First Time Homebuyer Budget Guide.
  • Or, try this calculator from Freddie Mac.
• Do you really want to be a home owner?
  • Owning your home can fill you with pride and a sense of accomplishment.  But it can also be a pain.  As the homeowner, you are responsible for lawn mowing, snow shoveling and general upkeep – even when you’d rather be doing something else. 
  • And if you don’t want the hassles of exterior maintenance, is condo living for you? 

The benefits of owning a home are well-known – tax deductions for your mortgage interest, building wealth, using your equity to trade-up, being able to do with your home whatever you choose and the personal satisfaction of owning a piece of real estate.  

And When?

Any time can be a good time to buy, if you’re willing to put in the effort and work with a seasoned agent.  Generally speaking, though, there are some times when you are likely to get the most for your dollar. 

• When there are a lot of homes on the market.  When inventory is high, there are fewer people buying and therefore less competition.  Buyers can shop around and find the best deal.
• When interest rates are low. 
• In New England, any time during the winter and especially at the end of the year.  Great examples would include vacant properties and bank owned properties, where the owners have to worry about burst pipes or vandals.  Even with houses that are occupied, less people are looking for houses at this time of the year and some sellers are happy to unload a house at a lower price just to be done with selling.
• When a house has been on the market a long time.  Don’t automatically disregard a home that has been on the market for more than more than 60 or 90 days.  It doesn’t always mean the house failed inspection, the sellers are unreasonable or that the house is a mess.

I’ll be commenting on the local real estate market within the next few days, so stay tuned.