Before You Buy

Posted July 21st, 2010
by Staff (no comments)

For most Americans, owning your own home is part of the American Dream. Underneath all of the arguments about whether or not buying a house is a good investment, and all of the bickering about Fannie May, Freddie Mac and all of the other housing lenders and programs, most Americans really do want a corner of this globe to call their own. And most of us are willing to pay the homeowners insurance, utilities, property taxes, and other related expenses that go with having a house of our own and a mortgage.

But before you buy that first home, take a moment to consider the fact that you could be putting yourself in a really bad situation if you go into the process with poor credit. We know that you can get a mortgage. But should you? The sector of the mortgage industry that caters to those with credit problems is quickly gaining a bad reputation for putting people into bad situations with little regard to what’s actually good for them.

Consider this: if your credit is poor, you’re going to pay a higher interest rate. While that may not seem like a big deal, a few points on your interest rate adds up to a whole lot of dollars over the course of a thirty year mortgage. In most cases, whether you want to hear it or not, you’d be better off spending a year or two really focusing on paying off your other debts and building some positive credit history than jumping into a mortgage knowing that your credit is poor.

Also, start saving before you buy a house. Ideally, you should have at least 20% of the total price of the house as a down payment. We know, this has gone the way of the dinosaur. We know most people, even with bad credit, can get a house with nothing down. And we also know that most realtors will encourage you to buy more home if you have that much to put as a down payment.

When it comes to buying a house, though, you need to realize that the only person who’s going to really look out for your best interests is you. The realtor is looking out for a commission, and 3% of more is more. The same holds true of lenders. Show some discipline when it comes to this, and save up for the down payment, then buy a home that you can afford to put 20% down on.

Waiting until your credit is good and you actually can afford to buy a home will not only save you a lot of money, but will also make it much less likely that you will lose your home to foreclosure. So, slow down. Buy a house, but wait for the right time and opportunity.

Photo via juhansonin

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