Financial Tips

When is the Perfact Time to Buy First Home?

The state of the economy offers mixed news for first-time homebuyers. We are currently experiencing a looming recession and tighter credit standards. However, on the bright side, real estate prices appear to be stabilizing and there are lots of houses on the market.

So, does that mean it's the right time to buy your first home? Experienced credit counselors advise you to look "inward" for the answer. In other words, consider the current state of your financial affairs.

Are you ready to take on the added burdens of home-ownership? If your paycheck barely covers rent, utilities, car notes, credit card payments and gas, how will you to handle the expenses of home ownership? You're in a much better position to start house-hunting if you have a healthy savings account and a positive monthly cash flow.

If you're thinking about buying your first home, we offer the following factors to consider:

• Pay down credit card debt.
  
  Before shopping for a home, you should make headway paying off your credit card loans. Unmanaged credit card debt can negatively affect your credit score, which will hinder your ability to get a mortgage. Moreover, trying to juggle a mortgage payment along with numerous credit card bills is asking for trouble.

• Consider your savings status.
  
  In today's market, you will need a reasonable down payment to purchase a home. Most lenders require at least five percent in FHA loans of the home's purchase price and 20% down payment in conventional loans. If you don't have that amount of money, it's time to start a savings plan. Set aside a specific dollar amount each paycheck. You may need to cut non-essential expenses to achieve your goal of home-ownership.

• Check your credit report.
  
  Your credit report and credit score are among the criteria lenders will review when deciding whether to approve your mortgage application. The higher your credit score, the more flexibility you will have when selecting a loan product and the lower your interest rate. Credit scores of 750 or higher will get you the best loan terms.  

• Address problems promptly.
  
  If your credit report isn't very strong, or if it contains information that is inaccurate, you should address the situation. Contact Shalom Center housing counselors for a credit repair. A certified housing counselor will review and analyze your credit report. We can provide strategies to build the integrity of your credit report and to help increase your score.

• A mortgage won't be your only expense.
  
  Once you have a clear picture of your current financial status, consider your ability to take on extra expenses. Owning a home entails a monthly mortgage payment, plus property taxes, insurance, utilities and other expenses. After meeting these obligations, will you have enough income left to cover your credit card debt, car loan and other monthly obligations, like student loans or child support?
  
  Many lenders advise homebuyers to follow the 28/36 rule.
  No more than 28 percent of your monthly gross income should go towards your mortgage payment, taxes and insurance. Your total debt (which includes credit cards, auto loans, etc.) should not exceed 36 percent of your total gross income.

• Consider additional large purchases.
  
  Owning a home is a huge financial commitment. Don't forget to tally the financial resources you will need for furnishings, appliances, lawn equipment, home repairs and other house-related expenses.

• Learn more about the home-buying process.
  
  Buying a home can be a confusing process. Luckily, there are resources to assist you in making wise decisions. Shalom Center offers 8 and 12 hour home buyer education classes that are partnering with Los Angeles Housing Department and many other housing development agencies. Shalom Center is  a HUD approved housing counseling agency. This signifies that our counselors provide expert advice for consumers by upholding HUD's high standards for ethics, management and accountability.   

• Call a professional.
  
  Potential homebuyers can seek additional assistance by contacting a reputable, non-profit organization trained to help with money management. With the Pre-purchase Housing Counseling service, Post-purchase counseling, Foreclosure intervention counseling and Credit Counseling, can assess your financial situations and develop budgeting strategies to help you save for a home. For more information, call Shalom Center at 213-380-3700.