The national news is filled with stories of people who are entering or nearing foreclosure as a result of turmoil in the subprime mortgage market. Homeowners around the country are having problems meeting their monthly obligations as their budgets have been stretched too thinly by the increased cost of energy and rising interest rates. While there was a real problem with lenders pushing products and purchases that individuals could not afford, the simple fact is that many people simply bought more house than they could afford. If you could afford an interest only payment you probably should not have bought the house. Too many people have simply bought into the idea that we deserve to have big houses and nice cars but the truth is that we deserve only what out paychecks can afford. The lives we see depicted on TV are not real and the for sale signs popping up in yards across the country should bring this reality home.
The most important step in buying a home is to determine how much you can afford to pay. While many experts offer different guidelines, the conservative two or three times your annual income is a good place to start. For many people in many markets this indicates that they cannot afford to buy as the home prices in many areas are simply beyond the means of average people. This is a sad truth but it is better to know it before you buy and not find it out after you buy. People will tell you that you can go four times your annual income or higher, but you will note that these people are usually trying to sell you something.
Another key early step is to find out your credit score. You need to get your real FICO score not one of the other scores being sold to you from a variety of sources. According to many sources a score of about 620 is about the minimum to get a good mortgage. If your score is below 620 take a year or so to fix problems lowering your score such as paying down debt, paying everything on time, and correcting any error on your report. You also need to save up for a down payment of about 10 to 20 percent of the price you arrived at earlier. While there are many options available to not make a down payment or lower the down payment, if you can’t come up with this money it is probably a sign that you can’t afford to buy a house. If you think this isn’t a big deal search Google for news on Countrywide Financial problems with subprime mortgages. These people thought it was no big deal when they bought their houses as well.
Next you need to hire a real estate agent that you can trust. This is not the agent that is selling you the house but one that works for you (often referred to as a seller’s agent). An agent can help you wade through the complicated process of getting a mortgage and can refer you to government agencies that may have better deals for your particular situation. The agent also, of course, can help you find a house in your price range.
Once you have made an offer and it has been accepted you will need to have the home inspected to uncover and problems. Once these steps have been completed, a closing date will be set. You are allowed a copy of the closing documents with-in 24 hours of the close. This may sound paranoid, but as the documents are very complicated and everyone at the closing table has their own interests that may not be the same as yours. I suggest you take the closing documents to an attorney to have them review it with you before closing. While the attorney will charge you for doing this, buying a home is a large expenditure and one line buried in that paperwork can really cost you.
Owning your own home has always been one of the key tenets of the American dream. Make certain that when buying a home your American dream doesn’t turn into a nightmare.