First Time Home Buyers Guide to Buying in a Recession

Right now is a great time to buy a home! Why is that, you ask? After all, we are in the middle of a recession and the job outlook is not looking very good. But, the housing property bubble has burst and prices combined with the interest rates are the lowest they have been in years. Making the investment now is the epitome of "Buy low and sell high." Here are a few tips for buying your first home during the middle of the recession.

Save up for at least a 20% down payment. This may sound impossible, but in order to qualify for the best interest rates and to easily qualify for a home loan you are going to need to put in 20% of the equity for the home you buy. Twenty percent is not terribly hard in most markets. As of February 4^th, 2009 the (a) median home price in the Midwest region of the United States was $140,000. Therefore, for optimal interest rates and qualification you will need to plan on having a down payment of $28,000. As an added benefit, having a 20% down payment usually will mean you will not need to buy mortgage insurance - saving around $100/month on the home's monthly payment.

Do not overextend. Whoever you get your loan from will qualify you for "up to" the maximum amount they think you can afford to spend. Do not believe them. Many of my personal friends are now "house poor" with much of their monthly income going to pay for the mortgage. Try to keep your payment as low as possible while still purchasing a qualify home. A good rule of thumb is to try to keep the mortgage, taxes, and PMI (if you did not listen to the first tip) to under 20% of your take home income. Note that I say "take home", nor pre-tax income.

Buy smaller. Since this is your first home, you may be able to focus on buying a smaller home in a better location rather than a larger home. This will allow you to build equity in the smaller home which you can then use to upgrade later. Buying smaller helps with the first two tips as well. A smaller home in a good location is going to appreciate in value more than a lesser quality home in a less desirable location (remember, "buy low, sell high").

Find a realtor you can trust. In many states, realtors subscribe to a strict code of ethics. They have also seen many, many houses and - while they cannot replace a home inspector -- they can help you evaluate whether or not a house is a good deal and in good condition. Try to find a realtor that your friends or family were really pleased with and who went our of their way to help you find a home.

Stick with reputable companies. With the recession looming, there are companies springing up that prey on first time home buyers by playing toward their inexperience and - generally - lesser income. They might be able to make your situation work, but you will be better off sticking with the large, well known realtors and lenders. In fact, the large lenders are now much less willing to take on risk and therefore are banking on your success.

Negotiate fees. Right now, every fee charged by any part of the buying processes is negotiable. Work the large lending firms against each other to get the best deal on fees and interest rates. For example, get three "Good Faith Estimates" and then walk them around and see who is most willing to reduce fees and throw in bonuses (this time also works for refinancing).

Take possession at a reasonable time. After you buy the home, try to get it so that your move out date of your apartment (or wherever you are currently living) is coordinated with your move in date to your new home. Short term housing is expensive and moving once is hard enough work. Remember, you can negotiate this with the current home owner and may even be able to have them pay your to live in the house for a time.

Be Educated: Since this is your first time home buying process, get educated about the process. Also, since we are in a recession, get educated about your job prospects, the economic stimulus benefits for first time home owners (there is a potential large tax credit for first time home owners in the stimulus package), and your own feelings about buying a home. For example, if the company you work for has just announced a 20 percent workforce reduction, you may want to put off the plans to buy a home until after that occurs.

(a) Real Estate Home Appreciation - Last 12 Months, http://www.realestateabc.com/outlook/overall.htm