Wednesday, October 1, 2008

Back To Basic Home Buying Skills

The fundamentals still apply. It's time to get back to the basics of buying a home and not just because lenders are forcing your hand. It's the financially savvy thing to do.

by Broderick Perkins
© 2008 DeadlineNews.Com
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Deadline Newsroom - Lenders tightening their purse strings have sent a signal to potential home buyers to do the same.

There's really little choice.

Just as lenders more and more often make certain mortgage applicants are gainfully employed; are sure borrowers can actually afford to pay the mortgage during it's full term; and more carefully document that buyers have the cash to cover additional costs that come with home ownership, potential home buyers need to get their financial house in order.

"If people were really responsible for their own financial behavior that would have taken the power away from people who put them in these (risky) loans," says Shawneequa Badger, a real estate agent with Century 21-Alpha in San Jose, CA.

"The reason for all the creative financing was because people didn't want to do the work. Well, now it's time to do the work or cut your losses," says Badger and other agents who are stepping up to provide an approach to home buying that doesn't require classes in the school of hard knocks.

Their sage advice does, however, involve hard financial work and sacrifices many households have long avoided.

"There's still a market out there for people to keep things moving. Just stop the irrational financial behavior," Badger advises.

As a carrot, keep in mind, the benefits of owning your own home, likely to be your most valuable asset, far outweigh any passing pain you may endure to achieve that goal.

Here's how to prepare for what's become a more difficult home buying ordeal.

Set A Tight Budget

You need to know all sources of every penny and you need to know where every penny goes. You can't know where you can cut costs until you know in detail what those costs are.

Offering a budget template online (search "budget"), the Better Business Bureau says "A budget will provide you with a roadmap to financial security. If you drive carefully, perform the right repairs and maintenance along the way, and steadily steer toward your long-term goal, you'll wind up where you want to be."

Save Pinch Pennies Save Some More

Being miserly is a prerequisite to homeownership.

If your budget reveals you are spending money on eating out when you can eat healthier for less at home; if it shows you gulp way too many cups of Joe at the local cafe when you can invest in a commuter mug and brew your own at home; if it shows movie rentals by mail cost less than screening every major motion picture live, you've already found hundreds of dollars to save.

Stop traveling, stop partying and stop unhealthy habits that could leave you too weak to take on that second job. Bulk up your habit of spending only for what you need, not what you want.

If you don't have a savings account worth three to six months of your net income, you are already a financial disaster waiting to happen should there be an emergency.

In addition to money for the down payment, lenders today will expect you to have some cash left over for insurance, taxes, maintenance and other costs that come with homeownership.

Certainly, it could take years to build the kind of down payment pot that will get you the lowest possible rate in an expensive housing market, but think about the time it will take you to recover from a loan you can't afford should that loan lead to foreclosure and a financial meltdown.

You really can't afford not to save. You really can't afford not to find more ways to save.

Read Your Credit Report

Don't just get it. Read the darn thing. is the only federally-approved Web site you should visit if you want a truly free credit report. Other web sites will give you your report to you for "free" but typically only after you sign up for other cost-based services. You are trying to save money, not come up with more things to buy.

Your credit report is a report card on your credit use, the good, the bad, the ugly and, too often, the incorrect. Which is why you want to see it. If there are errors follow the instructions to correct them.

Also visit to learn how to improve your report and your credit score -- a numerical rendition of your creditworthiness.

Get Some Direction

Can't figure what you credit report is trying to say? Not sure how to calculate what you'll need to save? Don't know how to set up a budget?

It's okay to ask for help. It's smart to ask for help. You don't know everything about buying a home. If you are a first-timer you likely know very little.

Learn how to find answers. As agent Badger says, knowledge is power.

Whether it's a financial planner, financial counselor, real estate agent, mortgage broker, loan officer, or real estate market nerd, ask family, friends, co-workers and others you trust for references to find those who can help you.

Get help in setting goals, sifting through mortgage programs, understanding the title and escrow process, finding a home and keeping a home -- all well before you are actually in the market for a home.

Again -- well before you actually begin to shop for a home.

Learn about market and economic conditions that could impact your decision. Learn about home prices, mortgage rates, home buying costs and other issues surrounding what's likely to be your most complicated purchase ever.

Attend workshops, seminars and classes.

Browse for housing information from online content providers, including, Better Business Bureau (search "Tips for Troubled Homeowners") and Deadline Newsroom's home buyers search results.

Pick up a few books, or save some bucks in the library reading "Buying Your First Home" (Nolo, $24.99), "The National Association of Realtors Guide To Home Buying" (Wiley, $19.95) and "Let's Get Real About Money" (Financial Times, $19.99), among others.

"The best thing is to sit down with a good professional," said Warren Winsness, broker/owner of Winsness Realty in Los Gatos, CA and 2007 president of the Santa Clara County Association of Realtors.

© 2008 DeadlineNews.Com

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Broderick Perkins, an award-winning consumer journalist of 30 years, is publisher and executive editor of San Jose, CA-based DeadlineNews Group -- DeadlineNews.Com, a real estate news and consulting service and Web site and the new Deadline Newsroom, DeadlineNews.Com's news back shop. In both cases, it's news that really hits home!

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