ROBYN: I’m Robyn Moreno for howdini.com. If you’re looking to buy a home, your first question is likely to be, what can I afford? And given the horror stories we’ve all heard about sub-prime mortgages and predatory lenders, we all want to be extra careful when it comes to borrowing. Joining me to answer key questions for home buyers is Gerri Willis, who is CNN’s personal Finance Editor, and author of Home Rich: Increasing the Value of the Biggest Investment of Your Life. Welcome, Gerri.
GERRI: Hi Robyn, great to see you.
ROBYN: First off, how can I figure out how much house I can afford?
GERRI: You know, it’s not that hard. You really only want to spend a third of your income, your gross income – that’s before taxes – on housing. But it’s not just the mortgage you have to worry about. It’s also insurance, it’s the cost of maintenance, and it’s the cost of taxes. So that’s a very big bill at the end of the day. You really need to sit down, do the calculations, make sure the numbers right.
ROBYN: Okay, so now I’m looking over my numbers and you know what, I’m in good shape. I actually have more than the ten to twenty percent that I need to put down. Should I go ahead and put that down?
GERRI: Well congratulations, first of all, on having the dough, because that’s no small thing. But yeah, you should probably put down twenty percent because this is really going to give you skin in the game.
GERRI: This means you’re going to be able to afford this house, lenders will take you seriously; they will give you the best terms provided you have good credit score. So I think it makes sense to put down twenty percent, but not more.
ROBYN: Why would I not put down more than twenty percent if I have it?
GERRI: Well okay, think about it. If you’re buying a new house, and maybe you’re doing it for the first time, you’re going to find that you have other costs that you didn’t expect. I can’t tell you how many first time homebuyers have come to me and said oh, my goodness the furnace went in the first month, I had to repair the roof, you know it’s happened to me. So you want to be sure that you have a lot of money on hand, or some money on hand when you get that new house, and in case, in case the worst happens and you really have to put some money out for a fix, some kind of improvement.
ROBYN: Now I know what I can put down, what I can afford, what are some tips for accessing the housing market in my area?
GERRI: Well, it’s pretty easy. You can really go online. That’s the best way to get started, to figure out what is in your price range online because all the major brokerage houses will have online websites because most folks, particularly women, search on the web first. And now you’ll get an idea of, you know, how far will my money go? What can I spend? What’s affordable in the neighborhood I want to buy?
ROBYN: We’ve all heard the mantra, location, location, location. So how do I figure out the best area that fits my price and my needs?
GERRI: Well, a lot of people already have one neighborhood in mind, but if you don’t and you’re a little flexible on where you’re going to look, you want to check out the basic services in an area. Are there malls nearby, are there drycleaners nearby, is there a place to go grocery shopping? You want those things really close to your house, just so that it’s an easy place to live. I, I know this sounds, like, really obvious, but some people get stuck in an area where there are no services and it’s really painful. Remember: at some point, you’re going to sell this house, and the people who are buying it will want to be close to those services as well.
ROBYN: What if I wanted to get in an area that’s sort of up-and-coming? Do you recommend that, or again, it’s all about the services?
GERRI: You know, in this market, you don’t have to worry about that because guess what? Houses are on sale and houses are even on sale in very good neighborhoods. At this point, you don’t have to go to an emerging neighborhood and take the risk that it’s not going to become popular, that it’s not going to catch on.
ROBYN: Okay, so this bad market is actually good for many people.
GERRI: This bad market is great for buyers right now. Look, if you have been off to the sidelines because you couldn’t afford housing, now is the time to really start thinking about looking, and looking hard because prices are coming down, and it’s really a good time to get your money together and get to the marketplace and start asking questions. So many people have been kept out of this marketplace by high prices, but now is the time to get involved.
ROBYN: Thank you so much, Gerri Willis, for good information and opportunities for potential homebuyers.
GERRI: Thank you.
ROBYN: And this is Robyn Moreno for howdini.com.