Should I buy a house now or wait until later? This has always been a common question among first-time home buyers. But with the uncertainty of our current economy, this question becomes even more important. In truth, nobody can answer this question for you. It’s up to you, the home buyer, to decide whether or not it’s a good time to take the plunge.
Five Good Reasons for Buying Now
Should you buy a house now, or wait until next year? Here are five things to consider when making this important decision.
In May 2009, housing starts rose by 17% over April. This surprised many economists, who were not expecting such an increase. This rise in housing starts (new construction) indicates rising confidence within the building industry. This kind of trend usually coincides with housing recovery in general.
Many economists are saying that the housing market has reached bottom in many parts of the country. In other cities, prices are still falling but are expected to reach bottom in the near future. This means that buyers could get into a home at “rock bottom” prices, and without losing any further value after the purchase.
Mortgage rates have been at record lows for several months now, but they are starting to rise. During the week of June 8, 2009, the average rates on a 30-year fixed mortgage reached their highest point in seven months. Nobody has a crystal ball, of course, but many economists expect rates to exceed 6% by the end of this year (they were around 5.3% at the time of this article). Rising rates are another good reason to buy now instead of later.
“First-time” home buyers who have not owned a home in the last three years can still qualify for a tax credit on their purchase, up to $8,000. Currently, this program is set to expire in December 2009. So it’s yet another reason to buy a house now, rather than later.
Prices are still relatively low in most cities across the United States, but this may soon change. The positive signs mentioned above will be bring more buyers into the market. This will eventually reduce the huge surplus of homes for sale, which in turn will drive prices upward once again.
Here’s what it all boils down to. Only you can decide if now is a good time to buy a house. You need to review your finances and establish a budget, before you can answer this question with any certainty. But there are plenty of good reasons to buy a home sooner, rather than later. So give it some serious consideration!
Brandon Cornett is the owner of Cornett Communications, an Internet publishing company focused on the real estate industry. Visit the author's blog at http://www.cornettcommunications.com/blog/ for more advice on this topic.
Start researching credit scores online, and you will soon find yourself overwhelmed with conflicting information. Save yourself the trouble. This article tells you exactly what you need to know about credit, mortgage loans, and the relationship between the two.
You would be amazed at how much some people obsess over their credit scores. I've seen Internet forums where people share their experiences regarding their scores, what their score was the last time they checked, etc. It's a hobby for these people, like stamp collecting or bird watching.
I am not one of those people. But I do realize the importance of a good credit score when it comes to the home buying process. And that's what I want to share with you today. Here are ten things every first-time buyer should know about the credit, mortgage loans, and the relationship between them.
10 Things You Should Know About Credit
Your credit score does not come out of thin air. It is based on your financial behavior. Good financial behavior will help you earn a good score. Bad behavior on the other hand ... well, you get the idea. So don't blame the credit-reporting bureaus for your score. It comes from your own actions.
In the point #1 above, "good financial behavior" can be defined as paying your bills on time, managing your debt, and using credit sparingly.
There are several types of credit scores. Your FICO score is the one used by most lenders, so it's the one you should care about the most. This score will range from 300 to 850. Just like in high school, a higher score is better.
Mortgage lenders will look at several aspects of your financial condition when considering you for a loan. Your credit score is one of the top-three factors. Your current debt and income levels also rank high on the list.
A higher score will help you (A) get approved for a mortgage loan and (B) secure a good / low interest rate on that loan. A low score will make it harder to do these things.
You actually have three different credit scores -- one produced by each of the three credit-reporting agencies: TransUnion, Equifax and Experian. They do not always match.
At the time of this article publication, there is no way to get your credit score without paying a small fee for it. You will often see "free" scores offered on websites, but it will require you to sign up for some kind of credit-monitoring service. Save your money and just get the scores.
You can get all three of your credit reports (different from your scores) for free, once per year. The government actually mandates this by law. But the only website regulated by the FTC for this purpose is AnnualCreditReport.com.
If your score is low, you can improve it by reducing your credit card balance, by paying all of your bills on time, and by fixing any errors on your credit reports. There's a reason you hear this bit of advice all the time. It works!
There's a lot of misinformation and confusion surrounding this topic. But it's not as complicated as some people make it out to be. Good financial activity leads to a good score. And the reverse is true for bad financial activity. You are in complete control of your credit score -- nobody can improve it but you.
I hope you found this lesson helpful, and I wish you well in your home buying efforts. If you'd like more information on this or any other home buying topic, please visit our website at CornettCommunications.com.
"I don't know how much I can afford to spend on a house, so I'm going to pre-approved by a mortgage lender. They'll be able to tell me how much I can afford."
I hear first-time home buyers say this kind of thing all the time, and it always disturbs me. It's indicative of a false and dangerous notion that is prevalent among U.S. home buyers -- the idea that a bank can tell you what you can afford. This notion is dead wrong, and it's also my motivation for writing this article.
If you rely on a mortgage company to determine your home buying budget, you may end up spending a lot more on a house than you can afford. "How is this possible?" people often ask. "Why would a bank give me more money than I could afford to pay back?" I'll tell you why, and I'll also tell you how to avoid such mistakes when getting a mortgage loan.
How Much House Can You Afford?
You are the only person who can determine what you can afford to pay each month, in the form of a mortgage payment. A lender cannot tell you this. They can only approve you for a certain size of loan -- but that's it. Their responsibility stops there. The lender is not your financial advisor or your friend. They are in the business of making money by charging interest. Period. End of story.
So before you start talking to mortgage companies … before you try to get pre-approved for a home loan … and before you start the house hunting process … you need to determine your monthly budget and maximum spending limits. Many home buyers skip this step altogether, relying on the lender to do it for them. That's why we have so many home foreclosures in the Untied States -- people set their common sense aside and rely too heavily on the judgment of mortgage lenders. Big mistake.
Here are the steps you should take before you start talking to lenders:
Add up your monthly expenses and write that number down on a piece of paper. You can exclude your rent payments, because those will go away when you buy a house.
In your expenses tally, be sure to include everything you spend money on each month. Car payment and insurance, other insurance premiums, credit card payments, groceries, savings, entertainment and recreational expenses, etc. Everything but your rent.
Next, write down your net monthly income. This is your "take-home" pay, after taxes are taken out.
Subtract your monthly expenses from your monthly net income. This is the amount you have to put toward a mortgage payment each month. Your monthly payments on a home loan should not exceed this amount. If they do, you are buying too much house!
Now that you have a firm budget established, you can get pre-approved by a lender to see what they're willing to lend you.
Here's the bottom line. It's possible to get approved for a mortgage that's too big for you. Banks do not care about affordability as much as they once did, because they know they can sell the loan into the secondary mortgage market (through Freddie Mac). So if they give you a loan that's too big for you, and you end up defaulting on that loan down the road, it's not their problem.
So say it with me: "The mortgage lender is not my financial advisor. They are not looking out for my best interest. They are in the business of making money -- period. I need to establish my own monthly budget and spending limits, before I start talking to lenders."
Repeat this mantra as you enter the home buying process, and you'll be on the path to success. If you ignore this mantra, you could become yet another foreclosure statistic down the road.
Brandon Cornett is the owner of Cornett Communications, an Internet publishing company focused on the real estate industry. His website offers a wealth of mortgage advice and other resources for home buyers. Learn more by visiting the author's blog at CornettCommunications.com/blog.
What is going on with the U.S. economy right now, and how does it affect people who are trying to get a mortgage and buy a home? This article will give you a better understanding of the economic problems in this country, and how they affect home buyers.
For one thing, it means you will need a better credit score to (A) qualify for a home loan and (B) get the best rate on that loan. Tougher regulations were put in place as a result of the housing crisis, and these regulations do what should have been done years ago -- they discourage banks from lending to people with bad credit (among other things).
On top of that, we are seeing financial institutions fail because of all the bad loans they made in the past. So banks today are a lot less inclined to make what they feel is a risky loan.
Let's assign some actual numbers to this explanation so it makes more sense:
I recently saw Jean Chatzky, the financial editor for the Today Show, describing how the housing crisis has affected borrowers, in terms of their credit scores. She explained something we have already talked about. Home buyers today need better / higher credit scores to qualify for mortgage loans. She then backed this up with numbers that were derived from polls of the lending industry.
* In May of 2006, a borrower needed a credit score of 620 or above to qualify for the best interest rates on a mortgage.
* Two years later, after the housing crisis and all of its fallout, borrowers would need a score of 760 or above to qualify for the best rates.
That's a significant change, and it shows you how this issue affects buyers who need mortgage loans. The bottom line is that banks are not taking any risks with subprime loans or borrowers with bad credit these days. As a result of the housing crisis, the bar for mortgage qualification has been raised.
What Can You Do?
I frequently get emails from people who say something like this: "I have bad credit but I want to buy a home. How should I go about it?" In other words, these people are asking how to get a subprime loan. Evidently, they do not watch or read the news.
My response to such questions is always the same -- don't do it! Buying a home with bad credit is virtually impossible right now. And even if it were possible, it would be the worst financial move you could make in this economy.
People with bad credit should "hunker down" and focus on improving their credit scores before they do anything else. Wait until the housing market shows signs of recovery. Wait until you have the kind of credit score that will allow you to qualify for a loan, and to get a decent interest rate on that loan.
Brandon Cornett publishes the Credit Help Blog that offers free advice through an online question-and-answer format. If you have questions about this topic and would like a straight answer, visit the author's blog at http://www.homebuyinginstitute.com/help to learn more.
2008 has been quite a year for the real estate industry and housing market. Unfortunately, most of the news was bad. We saw record numbers of home foreclosures, financial institutions failing, and credit drying up to the point that only the "chosen few" can qualify for a home loan.
So in 2009, many Americans will focus on rebuilding. And what better to start with than your credit score?
Make no mistake about it. In 2009, and into the foreseeable future, consumers will need higher credit scores to do just anything that requires a loan. Lenders are nervous these days (the ones who are still around, anyway). They will scrutinize your financial background, your credit, your debt-to-income ratio and other factors to see what level of risk you bring. If you fail to measure up, you can kiss that mortgage or car loan goodbye. Like it or not, this is the reality we will face for the coming months and years.
So if you are one of the thousands of Americans who will need to rebuild your credit in 2009, here are five steps to success:
1. Identify the Source of the Problem
Credit problems are a symptom of a financial "disease." So to get rid of the symptoms, you must first determine what is causing them. You may not have to look very hard to find the source of your financial woes. Perhaps you've gotten behind on paying your bills, or maybe you have a bankruptcy in your past. These are scenarios where the core problem is fairly obvious. And in that case, you can move on to the next step in the path to better credit.
2. Review Your Credit Report for Errors
In a perfect world, the three companies who maintain credit reports in this country (Experian, Equifax and TransUnion) would never make mistakes. But this is not the case. While I wouldn't say that mistakes are common, they do happen quite a lot. So the next step in the process is to order copies of your credit reports from each of the companies mentioned above. You can do this for free by visiting AnnualCreditReport.com, a website that is jointly owned by Equifax, TransUnion and Experian.
It's important to do this as soon as possible, because it can take a long time to get corrections made to your reports. If you find errors, you can submit a request to have it corrected through the website of the company that produced the report. Visit their website and look for a link that says "disputes." There are laws that require these companies to process disputes in a timely fashion. But unfortunately, these laws are toothless and rarely enforced. So you will have to be persistent and stay on top of the company until your report is fixed. The last thing you want is for erroneous information to drag your credit score down lower than it should be.
3. Pay Down Your Credit Card Balances
Financial "experts" love to disagree on things. I guess it makes them feel smart to dispute what their colleagues say. But this is a topic that many of them agree on. Paying down your credit card balances is one of the best things you can do to boost your credit score -- and your financial health in general. When you combine this with item #4 below, you will be on the road to recovery in no time.
There are good kinds of debt and bad kinds. A mortgage loan with a reasonable interest is a good kind of debt. It actually helps you build strong credit to make mortgage payments over time. But those high-interest credit card balances don't do you any good. So work out a budget that allows you to start paying them down. You'll have to pay more than the minimum amount due each month, and you may have to scale back on certain luxuries ... but nobody ever said this process would be easy.
4. Pay All Bills on Time
This is one of the most common reasons for bad credit situations -- falling behind on the bills and missing payments. Think about it from a lender's perspective. Why would they want to loan money to somebody with a clear history of not paying things back? When you look at it from this angle, it's easy to see why this can hurt you so much when applying for a loan.
If you are missing payments because you can't afford to pay them, then you have a budgeting and debt problem. In this case, you should try to reduce your spending as much as possible, or perhaps consolidate your debt into a lower rate.
If, like a lot of people, you simply forget to pay your bills, then you need to create a system that makes it easier for you. Instead of putting bills aside when you get them from the mail, handle them right away. Better yet, get set up with auto-pay so you don't even have to think about making the payments on time.
5. Get Your Spending Under Control
When you spend more than you earn, you acquire debt. It also makes the other steps listed above much harder to manage. You can't get caught up with your finances until you get your spending under control. And in this context, "control" means having a clear picture of your monthly spending, your monthly income (after taxes), and how the two of them relate. Develop a budget so you can see where your money is going each month. Then look for items that can be eliminated.
Improving a credit score is all about discipline and awareness. You must have the discipline to make payments on time, reduce unnecessary spending, and pay down your credit card debt as much as possible. It's hard work. I'll admit that. But it can seriously improve your financial picture ... and your life in general.
Brandon Cornett publishes the Credit Help Blog that offers free advice through an online question-and-answer format. If you have questions about this topic and would like a straight answer, visit the author's blog at http://www.homebuyinginstitute.com/help to learn more.
For many people, it's hard to keep up with the rapid changes that are taking place in our economy right now. I keep the news on while I'm working, because it's my job to stay informed -- and I still have trouble following all of the developments.
But there's one thing I do know about this economic crisis, and it will affect all of us in the coming months and years...
In the post-crisis economy, you will need a better credit score to get financing.
This includes any kind of financing you can think of, from student loans to car loans. And it goes double for home mortgage. This trend was starting even before the financial stuff hit the fan. Back in May, for example, I was watching Jean Chatzky talking about credit scores on TV (she's the financial editor for NBC's The Today Show). According to her data, home buyers in May of 2006 needed a credit score of 620 or higher to qualify for the best rates on a mortgage loan. Just two years later, in May of 2008, you would have needed a 750 or higher to qualify for those same rates.
And as we all know, things have gotten even tougher since that program aired.
Here's another example to reinforce my point. A couple of weeks ago, I received an email from a staff member with NBC Nightly News. She contacted me through the Home Buying Institute website I publish, because she wanted my help finding people to interview for an upcoming show. The show was going to be about people who were having trouble qualifying for mortgage loans, even though they had good credit scores.
Do you see the pattern here?
Sure, some of this will "blow over" when our economy starts to recover. But I can practically guarantee we will see some new legislation about giving loans to people with bad credit (subprime loans). Some new laws have already been passed to this effect. On top of that, financial institutions are going to be in "survival mode" for a long time to come. So the last thing they want to do is give out loans to risky borrowers.
Now consider the fact that millions of Americans have bad credit, and you can see where I'm going with this. From a real estate standpoint, a lot of folks are going to be left out in the cold in 2009. But you can avoid being one of them by following this advice:
Start Improving Your Credit Score Now
If you are one of those people with a low credit score, and you would like to buy a home in the near future, you should focus on improving your score. It's not as hard as you think, and you don't have to pay some "credit repair" company to do it for you. Here's a three-pronged plan of attack to get you started:
1. Start by requesting copies of all three credit reports from Experian, TransUnion and Equifax. Review your reports for errors, such as accounts that aren't yours. These errors can drag your score down.
2. Start reducing some of your debt, starting with those high-interest credit cards. It's a good idea to keep you oldest credit accounts open though. If you close your oldest account, you will actually shorten your credit history, which could lower your overall score.
3. Pay all of your bills on time! A history of missed payments can seriously damage your credit. Pay at least the minimum balance due on all of your bills. Of course, if you want to reduce your debt you'll have to pay more than the minimum due each month, which will require some budgeting on your part.
Brandon Cornett publishes the Credit Help Blog that offers free advice through an online question-and-answer format. If you have questions about this topic and would like a straight answer, visit the author's blog at http://www.homebuyinginstitute.com/help to learn more.
A lot has happened over the last two months, with regard to the continuing mortgage crisis. Notably, the federal government passed a new act that will offer FHA loans to homeowners at risk of losing their homes.
Traditionally, the FHA has focused on helping home buyers (as opposed to homeowners) by insuring the loans made by private lenders. This encouraged the lenders to offer loans to people they normally wouldn't qualify -- if the borrower defaulted on the loan later on, the lender would be covered by the FHA's backing.
But with the passing of the Housing and Economic Recovery Act of 2008, the FHA program is being offered to select homeowners who may be at risk of foreclosure. In a nutshell, people who fit a certain risk profile (i.e., ARM loans with high interest rates) will be allowed to refinance into an FHA-insured loan with a lower fixed rate.
As always, there are people weighing in for and against the new move. But few can argue that (A) something must be done and (B) our economy cannot handle a continuance of record-high foreclosures.
Do you qualify for the program? How does it work? Where can you go to learn more? Here are some helpful resources I've gathered for your convenience.
Here are the three of the most important choices when buying a home:
Choosing the home
Choosing the area / neighborhood
Choosing a type of mortgage loan
Today, I'll be talking about item #3, choosing a type of mortgage loan for your home purchase.
Chooing a Type of Mortgage Loan
The key to this process is to do as much research as possible into the various types of home loans. Only by understanding the different mortgage options can you choose the one that's best for you. When reading up on this subject, pay particular attention to sentence or paragraph that talks about the pros and cons of a particular mortgage type, or any sentence that begins with "This type of mortgage might be good for you if..."
Let's start off with the differences between the fixed-rate mortgage and the adjustable-rate mortgage (ARM) loan. In most cases, your decision-making process will begin by choosing one of these primary types of home loans, and then narrowing it down further to a specific loan package, terms, etc.
Fixed-rate mortgage -- With this option, you will be given a fixed interest rate on your loan. As the name implies, that rate will stay the same over the life of the loan. Because the interest rate is the only component of a mortgage loan with the potential to fluctuate, a fixed-rate loan means that your mortgage payment will stay the same each month (regardless of what the economy does).
Adjustable-rate mortgage -- Now we come to a type of mortgage loan that has been in the news a lot lately. The ARM loan. In truth, the adjustable mortgage is not "evil" or harmful across the board. You just have to be smart about using it. This comes from understanding the basics off how an ARM loan works. An adjustable rate mortgage is a loan with an interest rate that changes at some point in the future. Most of the time, ARM loans start off with a lower monthly payment than a fixed rate mortgage. But when they adjust three or five years later, you cannot predict how much the rate will increase. This is where many people get into touble. If you'll only be in the home for a few years, however, the ARM loan could be a smart, money-saving option for you. Learn more about ARM loans.
Once you have chosen between a fixed- or adjustable-rate mortgage, you will have other options as well. But let's take it one step at a time. Your first homework assignment is to learn as much as you can about these two primary loan types. Once you are rooted in the pros and cons of these types, you'll have a much easier time understanding all of the variations and "hybrid" loans that are available.
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.
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