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"I've been scared crazy by all the news in the pressa bout how bad our real estate market and economy are, and being someone who didn't buy a house during the boom I'm wondering if now is the right time.
I'm noticing that the houses around our apartment are starting to become more affordable but I'm not too sure that I want to move into a house only to have it lose value over the next couple years. But there's also a lot of discussion about how this is one of the best times to get your foot in the door for homes in California. What do you think?"
- Jerry, Burbank
Dear Jerry,
Your anticipation and fear are both understandable in a situation such as this. It has been a long while since the last time we had such a real estate crisis and it has been even longer since we've had a mortgage crisis on our hands in the proportion we have it today. The one thing to remember is that real estate is almost always one of the best investments you can make because ultimately the value in a home or property will appreciate.
However that doesn't mean to jump the gun and buy a house immediately. You are wise in that you want to know the benefits and the possible challenges that you may face if you were to buy a house now.
If you can say yes to the following points then you should absolutely consider buying a home now:
- If you have plenty of cash reserves for a down payment, closing costs, and many many months of mortgage payments
- If you have a good credit history
- Have a secure job and income
- Plan on staying in or keeping the property for at least two or three years
To go into more detail, it is important to have cash reserves because lenders are becoming increasingly strict when it comes to the amount of funds borrowers have for emergency situations. With so many homeowners today facing foreclosure even with previous cash reserve requirements, lenders have made it more extensive and larger in order to protect both the future homeowner and them. It is best to have 20% or more for a down payment, though 10% is still doable assuming you are buying a home and not an investment property, you are great credit, and stable employment.
An individual's credit history says a lot about their financial savvy. Those with great credit history have proven over years and years that they are financially stable and responsible. You can also read other credit-related topics in Simpluxe's Library including why credit scores are so important and what affects credit scores. Good credit is one of the most important factors an underwriter seeks when approving a loan, mainly because without a strong borrowing and repayment history, there is no way to tell whether or not you will make timely mortgage payments.
To say the least having the income to pay your mortgage payments is extremely important. Also very important is the fact that your job is stable and that your employment is secure. Without a job, none of us could make our mortgage payments and lenders place a great deal of emphasis on this, as they rightly should.
Right now the real estate market is not the "boom" market that we saw in the early 2000s. It is in a state of depreciation and at best steadiness. Take into consideration that your home or property is going to be an investment, one of the largest investments of your life. If I were to tell you that a particular stock is going to lose value over the next two weeks but then have a great 10-20% return after six months, would you buy the stock tomorrow and sell it the next week? Buying a house in today's market you have to be prepared to live in the home for at least a couple years to ride out the instability we are currently facing. In the end you will be happy with the results because real estate is one of the few assets and investments that is almost always guaranteed to eventually appreciate with time.
Remember that buying a home or any property is still ultimately considered an investment. The key to a successful investment portfolio is to diversify. So something else to consider is if your entire retirement funds are invested in real estate investment trusts or mortgage-related stocks then you should be wary about buying a home. By having all your eggs in one basket your financial situation is infinitely more at risk than for someone with the same funds but in different financal markets.
I hope this help Jerry - I wish you the best of luck in finding the right home for you!
Sincerely,
Mortgage Lady
