(Source: Scripps Howard News Service By MICHELE LERNER) ? Are you ready to buy your first home? Buying a home requires a life plan and a financial plan. ?Getting ready to buy a home should mean that the prospective buyers understand that there is more to homeownership than a housing payment,? says Jim Walton, vice president of consumer credit with MetLife Bank in Irving, Texas. ?Homeownership requires a commitment to a property and to a community.?
In a hot real estate market, buying and flipping appeals to some buyers, but in a more stable or declining market, owning a home requires a longer time to build equity.
?Even in the Washington, D.C., area, where our market is relatively stable, I counsel buyers to look at a minimum of a three- to five-year investment,? says Leslie Wilder, a Realtor with McEnearney Associates in Arlington, Va. ?In other markets, I think you need to own for a minimum of five years or longer ? to recoup the costs of buying and selling. If you are not able to make that commitment, you are better off renting.?
She also says: ?Buyers need to think not only about what they want now, but also what they will want in five years.? Couples starting a family might consider the school district ?or to live close to work to shorten their commute.?
A lender can tell you the maximum mortgage you qualify for, but financial experts recommend that you determine your own upper limit for a housing payment.
?A lender will look at your debt-to-income ratio, but ? you need to be comfortable with your mortgage payment and also prepared to save for other financial needs even after you become a homeowner,? Walton says. ?Buyers should take a disciplined approach to saving for a down payment, and then they need to be able to continue to save after they buy, for home maintenance and emergencies.?
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Marc Schindler, a certified financial planner in Bellaire, Texas, says he looks at real estate as an illiquid investment.
?If you needed the cash from the sale of a home, it would take time to sell and cost about 7 percent of the home value for transaction costs,? Schindler says. ?I would recommend that no more than 25 percent of your asset allocation should be in real estate. For someone young with few assets, that may mean postponing buying a home until you can save more money.?
Wilder says a good lender can talk to buyers about a variety of mortgage scenarios based on loan qualifications and size of down payment.
?A lender should also talk to you about the impact of rising interest rates,? Wilder says. Buyers ?may need to compromise on the home they buy. If they decide to wait to save more, they need to realize that if interest rates go up they may not be able to qualify for the same mortgage amount as they can right now.?
A credit score of 720 to 740 is generally required to qualify for the lowest mortgage rates. FHA loan requirements are more lenient , and sometimes lenders qualify borrowers with a score as low as 620 for these government-insured loans.
?We generally look for a stable two-year job history, but we know people have lost jobs in the past few years so we are looking for a re-established job history if someone has been unemployed,? Walton says.
Schindler says potential buyers should research their housing market to determine whether owning or renting is more affordable. In some markets, demand drives up rents, while a glut of homes for sale drives down prices.
?A rent-versus-own calculator can be a good resource, but generally these will show you the maximum mortgage you qualify for at the best rates,? says Walton.
Buyers need to factor in maintenance costs, ?which can run from 1 (percent) to 4 percent of the home value per year,? Schindler says. ?They need to realize that housing costs also include homeowners insurance, perhaps flood insurance and homeowner association dues, not just the principal and interest on the mortgage payment.?
?If you are a good, solid buyer financially, with savings, a steady income and job stability, and you can commit to staying in a home for the long-term ? then it makes sense to buy now,? Wilder says.
The 30-year fixed-rate mortgage fell 1 basis point to 4.45 percent from 4.46 percent last week. A basis point is one-hundredth of 1 percentage point.
The 15-year fixed-rate fell 3 basis points from 3.61 percent to 3.58 percent. The average rate for 30-year jumbo mortgages, or generally for those of more than $417,000, was 4.89 percent, down 13 basis points from last week?s rate.
The 5/1 ARM fell 9 basis points to 3.15 percent. With a 5/1 ARM, the rate is fixed for five years and adjusted annually thereafter.
(Distributed by Scripps Howard News Service. Reach Michele Lerner at editors(at)bankrate.com.)
A service of YellowBrix, Inc. Publication date: 2011-08-18
(Source: Scripps Howard News Service By MICHELE LERNER
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