Buying a house is a complicated process with many parties involved. You need to arm yourself with information about the steps along the way and make sure you are financially prepared for the costs you will encounter along the way. In this podcast, we will help prepare you for this important investment.
Welcome to another edition of our CredAbility [now Clearpoint Credit Counseling Solutions] Podcast. Along with your host, Mechel Glass, here’s Steve Moore to open today’s discussion on whether now is the right time to buy a house.
Steve: Mechel, I’ve heard it said and I’ve seen it in print that this is a buyer’s market. There’s lots of homes for sale, not that many buyers. So, let’s say, we’re talking about a young couple here. They’ve been married three years, their finances seem to be fairly well in balance. For them, is this a good time to buy that first house?
Mechel: It is a great time to buy a house, but it depends on that couple. If they don’t have money to put down on a down payment, then it’s not a good time because a lot of lenders today are expecting some type of down payment if you’re going to get a loan for a home.
Steve: Okay, so what are your two or three guidelines for determining whether this is the best time for us to buy our first house?
Mechel: Well, the first thing this couple should do is check their credit score and their credit report; and fix any things that may not be correct on their credit report; and check their credit score to see if it’s where they want it to be. The next thing they should do is make sure that they have money set aside for the down payment and closing costs for that home. If they don’t have the money, then they should spend this time saving up for it.
In addition to that, they should make sure that they have some type of maintenance account for that house, so that anything unexpected, like the water heater going out or the plumbing or the air conditioning, you’ve gotta have a maintenance account because there is no landlord to come fix it.
Steve: Oh, boy. You know, that is something that you just don’t think about if you’ve always lived at home or lived in an apartment. Even reseeding the lawn, or something like that.
Mechel: That’s absolutely right. Many people don’t even have a lawnmower to cut their grass. So that’s something that you have to make sure that you’re prepared to do when you buy a new home.
Steve: All right. What else?
Mechel: Do their research. Look at crime statistics. They need to look at any zoning issues related to things that they want in the future, like a pool or an extended garage. Many men want to have, like a three-car garage, and maybe this house only has a two-car garage. So they want to extend that. Maybe there are some zoning issues that would not allow them to do that. They need to do their research on the areas that they’re trying to live in. If they have kids, they need to look at the schools in the area to make sure the schools are to their specifications. And then, they also want to see if there’s any down payment assistance programs that are being offered in the area where they want to live.
Now, traditionally people have looked at down payment assistance, meaning I don’t have to put any money down, but down payment assistance is changing. Where there are programs like neighborhood stabilization programs, where they will pay for a certain amount of the home so that you’re buying the home less than what it’s worth on the market. And you’re able to get into the home with a tremendous amount of equity in the home. So looking at those types of programs and seeing if you can layer those types of programs.
Steve: Okay, finally, let’s talk about affordability. Obviously in the past banks have over qualified people, told them they could afford the homes they really couldn’t. So do you have a rule of thumb there?
Mechel: Yes, out of their monthly income that only 35% of that money is going towards the maintenance of the home, the mortgage of the home, the insurance, the taxes, all of that. Everything that takes care of that home, 35% of their income.
Steve: All right, great rule of thumb and great information from Mechel Glass. Mechel, thanks.
Mechel: Thank you.