Buying a Home in the New Economy

Mortgage rates are low and home prices are dropping making it the perfect time to buy, but the financial meltdown of 2008 has changed the landscape. It's a brave new world if you're looking to buy a home in the new economy. Here is some information as well as tips and ideas to help prospective homeowners find the home of their dreams.

1.Assess your employment situation. With unemployment pushing 10% (and this during an 'economic recovery') take a hard look at whether or not your job is secure. What would happen if you lost your job? Do you live in an area with a robust economy where jobs are plentiful or are jobs scarce?

Is this really the place you want to set down roots if you would have to leave town to find work after losing a job?

2.Focus on local trends. Forget what is happening at the national level and look at what is going on in your area. Are home prices falling, rising, or holding steady? Will you be able to sell at a profit? The answer changes depending on where you live. Experts say that areas with a diverse economy show the best potential for increasing housing prices. Also, according to US News and World Report the following areas are set to see increasing home prices, regardless of what the headlines say:

Silverdale Washington
Glens Falls NY
Corvallis Oregon
Santa Fe NM
Decature Ill
Duluth Minn
Charleston SC
Pittsburgh PA
Fort Collins Colorado
Charlotte NC

These cities rose to the top of the list due to data on employment, population, geography and industry trends compiled by Moody's Economy. Over ten years, data projects homes in these markets will appreciate between 3% to 9% in value.

The housing market set to appreciate the most is Silverdale Washington at an estimated 9% per year followed by Glens Falls NY at 7%. The city with the least projected growth is Charlotte North Carolina estimated at 3%. The remainder of cities on the list are between 4% and 5% projected annual appreciation.

3.Don't overbuy. In the current economy, many homeowners found themselves underwater due to inflated home values and easy credit. Per financial experts, a mortgage should take no more than 30% of your take home pay. Also consider mortgage amounts that can be comfortably covered if only one person in the household has a job as a hedge against future unemployment. It's also important that the mortgage leave enough money in the budget for repairs and home maintenance.

4.Don't underbuy. The corollary to #3 is don't buy a house strictly based on your budget. Consider your needs too. The reality is, when you want or need to sell, it could be difficult to find a buyer. SKip the starter home and look for a place that will fit your needs for years to come.

5.Improve your credit score. Banks and lenders have raised the bar on mortagage applications. To obtain the best interest rates, Consumers need at least a 720 credit score and also larger down payments of 10 to 20% than previous years.

If your finances don't meet the gold star criteria here, look at the Federal Housing Administration (FHA) program for assistance. FHA home buyers will see higher interest rates on their mortgage, but in exchange, they don't have to have as big a down payment or perfect credit.

To make the process easier, it's always good to be preapproved for a mortgage when home shopping. This ensures all credit questions are cleared up and dealt with before you find your dream home.

Note:Some analysts are predicting that the home mortgage as we know it is on its death bed. Keep an eye on financial news to anticipate any changes in the lending industry.

6.Think long term. You know what your housing needs are today, but what about 5, 10, 15 years from now? One thing the crash of 2008 taught consumer is you can't count on selling your house when you want to or at the price you would like.

If you don't have a family yet, is there room for kids? How is the school system? What are the city's long term growth goals? How much debt does the city carry? What about the state? A high municipal or state debt load can result in higher local taxes as well as extra fees or fines in an effort to generate revenue. With so many cities struggling (Detroit comes to mind) it's critical to assess the long term potential of any city in which you buy a home.

Another factor to consider is the weak economy has driven multiple generations under one roof. Kids moving in with parents, parents moving is with kids etc... Is there room for extra generations? Most people don't want to live with relatives, but it does happen and having the space for it reduces friction.

7.Consider the environment. How clean is the water? Is the area near major power lines which may be associated with an increased risk of cancer? Is there a cancer cluster in the area? A history of industrial contamination? What about floods? Do sex offenders live in the area? These are all things that should be considered when buying a home.

8.Look at the cost of commuting. By 2012, experts predict gas will cost $5 a gallon, more if Saudi Arabia destabilizes in an Egyptian style meltdown. This may not be the time to buy a house 50 miles away from where you work. Be sure to factor in the rapidly accelerating price of gas to the cost of living in your house.

Don't forget when the cost at the pump goes up so does the price of electricity and gas used to heat your home. Not only do you not want to have a million mile commute to pay for, but you don't want a house that will cost a fortune to light and heat.

9.Don't buy a home if it will wipe out your savings. You need a cash cushion to cover any new appliances or updates or unexpected furnace failures and home repairs. Buy a home only when you have an additional financial cushion for unforeseen contingencies.

The more conservative and careful you are financially, the more likely you are to be financially stable in the long run as a homeowner.

10. Talk to the neighbors. Scope them out before it's too late to back out of a mortgage. If you're too shy for that, find the neighborhood city council rep and see what they have to say.