How to Buy a House in the Current Market
With housing prices at an all time low and mortgage loan interest rates equally low, buying a house is a strong temptation. However, before getting involved you should do some research to determine if this will be a profitable venture for you.
For instance, an important factor to consider is how long you can be sure of living in it. Your job or business should be stable enough that you can look forward to occupying a new home for at least ten years. And if you can't be sure of this, then your payments should be such that you can rent the house to cover the payment. And you would also need someone close by who is willing to manage the property.
Once you have this information in place, unless you can pay cash for your purchase, your next step and possibly the most difficult one, would be investigating mortgage loan opportunities. Although interest rates are at an all time low, credit is tight. While lending institutions are in business to lend money and are competitive, they do want to be sure they choose clients who can keep up the payments on the mortgage loan. This means they are looking for stellar credit, a significant down payment, and a low income/debt ratio (the amount you owe on credit card and loan payments in proportion to your income).
These prerequisites can be manipulated somewhat. For instance, if your credit score is lower than the lending institution would like but you have a sizeable down payment and low or no debt, you may still be able to obtain an acceptable mortgage loan. Then if your credit score is high, you might be able to obtain a loan with less money down, especially if your current debt is low.
But you also need to keep in mind that if you have to compromise on either point, you may also have to pay a higher interest rate on your mortgage loan. Lending institutions all vary in the packages they offer, so you really need to shop around and carefully consider the interest rates and cost of each mortgage loan offer you receive.
It is also to your advantage to arrange your mortgage loan before you become involved in serious house shopping. To do this, you first need to determine how much house you can afford. Lending institutions normally figure that you can buy a house priced at three times you annual gross income (income prior to deductions). For a small fee they will provide you with a Pre-Qual letter specifying the housing price range that you can afford and that they will consider a loan for.
With this information in hand, do a preliminary market survey to see what is available in the type of home and location you want at the price you can afford. Then, if you decide there are homes you like, start shopping seriously for a pre-approved mortgage loan. With a mortgage loan that is already approved, you are a very desirable client to any real estate agent and they will work hard to find a property you like.
