Sinking home prices across most of the country are spelling opportunity for some prepared first-time home buyers out there, but for many other other young homeowners, the current housing slump means trouble.
For Young Homeowners
If you bought a home within the last five to ten years with less than 20% down or with an interest-only mortgage, you don’t need a therapist to tell you why you’re not sleeping at night. Declining market prices mean you may owe (much) more than your home is worth.
There’s a simple answer, of course, though it’s easier said than done. Sit tight.
Rather than panicking and selling your house at a loss (if you can), find ways to stay in your home and paying down your mortgage for as long as possible. Eventually the market will stabilize, and even in the worst case scenario when you have to sell before prices have rebounded, you’ll have some more equity in your home and hopefully won’t be upside down.
For First-Time Buyers
Lower real estate prices make it a tempting time for first time homebuyers to snatch up a house. But take a lesson from all the homeowners out there trying to sell. Don’t buy over your head, and don’t be tempted by exotic mortgages making it seem like you can buy a mansion for the price of a ranch.
Buying a home can be the most emotional purchase of your life, and if you know anything about buying a car, emotions cloud our judgment when we buy things. It’s why millions of Americans live in homes they can’t afford, why foreclosures are at record levels, and why mortgage bankers are sitting pretty.
The emotional tug to own a home is also why you should make sure your financial house is in order before you buy a real house.
How do you know you’re ready to buy? Personally, I don’t plan on even thinking about buying a home until:
- I have saved for a 20% down payment (yes, 20%)
- My credit score is at least 750 (check your score here)
- I have no other fixed monthly debt payments (car loans, etc)
I’ve set some strict rules for myself, and I probably won’t get there for another five years, but that’s okay with me. I will be sure that my first home will be a sound investment, not just a nice place to live.
If you’re ready to start the process of buying your first home, begin the process and get mortgage pre-approval online in minutes.