MSN Money had a good article about what home buyers should be doing, given the craziness that is going on in real estate and the rest of the economy.
The 5 most important tips they had for buyers were…
1. Amass a decent down payment, but not at the cost of your emergency fund
After the excesses of the past few years, brokers say, you will need a substantial down payment to get good financing. The no-money-down era of lending is gone, and most buyers should expect to put anywhere from 5% to 20% down, unless they qualify for an FHA loan, which requires 3% down (3.5% as of Oct. 1.)2. Choose a loan originator wisely
Selecting a good mortgage broker or lender is one of the most critical and difficult tasks for buyers, since there are currently no national licensing standards in place. Porter recommends that buyers start out the old-fashioned way, by taking referrals from friends and colleagues.
Buyers should ask how long a broker has been in business, do Internet searches to see if his or her name is mentioned in unflattering or criminal ways and check his or her record with state regulatory agencies. Porter recommends looking for originators that are FHA certified because they have more hoops to jump through to get that status and because it gives buyers the option of an FHA loan. These have had favorable rates compared to other loans lately and they require smaller down payments.3. Get pre-qualified as early as possible
There are a couple of reasons for this, brokers and agents say. First, buyers need to know how much house they can afford and what kind of money they will need for down payment and closing costs, says Miami real-estate agent Sandra Fernandez of Realty World International Gateway. “I tell my clients, ‘Let’s do this right from the beginning. Let’s make sure you qualify, and make sure you know what amount you qualify for,’” she says.4. Reduce your exposure to risk
Once you have selected a mortgage broker or lender, it’s time to start checking out houses. Make sure your agent has done all his homework about the areas you’re interested in before you take your first tour.In addition to analyzing trends in value, agents should be scanning foreclosure data (from notice of default to bank repossessions) to make sure they know where the deals are, and whether or not there are so many foreclosures in the neighborhood that they’ll pose a threat to home values in the years ahead.
Once you’ve found a property you want to make an offer on, ask for a contingency in the contract that lasts longer — through closing if you can manage it — that will allow you to get out of the deal without penalties if your financing falls through, says Jon Eisen, a San Diego mortgage broker and certified financial planner.
5. Get a rate lock — with a key
The turmoil in the financial markets has had rates really fluctuating, making it difficult to know when to lock in a rate. Your best strategy is to work with a lender who offers a float down. This is a chance to renegotiate your rate if it drops substantially — by a quarter-point or more, Porter says. So, before you settle on a lender, ask if it provides this kind of flexibility to borrowers. That said, Porter adds, you still need to lock in a rate within 30 days of closing.
My thoughts about the article…
From what I hear, it is becoming much harder to get a loan and a hefty down payment is often necessary. That is fine and dandy, but just like they mention, I wouldn’t drain my emergency fund for that down payment. With the mortgage crisis that we are living through, it is better to be prepared than not.
My wife and I have been renting an apartment the past few years that we have been married. We have done it mostly because we wanted to pay off our debts first. We also wanted the freedom and mobility that comes with renting. But, over the next year or so, it looks like it might become a great time to buy a house (pros and cons of renting vs buying). Right now is good because home prices are a lot lower than they were a couple of years ago, but with the mess with the economy I am starting to wonder if the Fed isn’t going to be making a bunch of rate cuts as well. If that were to happen over the next year or so, it would provide a great buying opportunity with home prices probably still relatively low and low mortgage rates. That’s my guess on where things may go, and your guess is as good as mine 
{ 5 comments… read them below or add one }
Can the fed make many more rate cuts? Will you be able to get a mortgage where the banks pay you interest for having it?
Matt,
that is what I am hoping for! That would be a nice change of pace!
Let me know if you get a deal like that, I’ll refinance!
Yes Matt, the Fed can cut rates all the way to zero – but they won’t. As long as oil is dropping in price, most of the inflationary pressure is off – for the time being.
As to the mortgage rates, the recent 6.5% is and will be considered low from this point forward. Unless of course you want to buy down the points!
And finally, there is your credit: http://bluecollardollar.com/FICO-creditscores-debthistory-101208.html
Thanks for the great, practical advice! With lending standards tightening, it is important to realize that you will have to do a little bit more now. And I like the advice on limiting exposure to risk.
Another thing to keep in mind that right now homes should be bought for living in, and thought of more as a purchase — with the possibility of a long-term investment benefit. Note, though, that mortgage rates are more tied to T-bonds than to the Fed funds rate, so further rate cuts, like BlueCollarDollar points out, are not likely to really bring mortgage rates down too much.