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5 Tips for Buying a Home in a Down Market

HOME VALUES The subprime mortgage bust has scared a lot of people away from the housing market. The nightly news is filled with images and stories of everyday Americans who are losing their homes because they made greedy and uninformed decisions, they were taken advantage of by predatory brokers, or a combination of these situations. However, the news isn’t all bad. This decline in the market has dropped prices and made housing affordable to many fiscally responsible renters who never considered home ownership to be an option.

If you find yourself house-hunting, make sure that you follow these five simple steps to take advantage of this downturn in the market; if you don’t, you could be the next sad story on your local news.

1. Accounting for Extraneous Expenses
As with almost any major purchase, there can be a number of fees associated with buying a home. Costs associated with property taxes, homeowner’s insurance, standard maintenance, and utilities should not be overlooked. In addition, if you buy a home that is part of a complex or attached to a homeowner’s association, you will have to pay annual fees as well. Make sure that you take these additional expenses into account when you are determining how much home you can afford.

2. Acknowledging Special Assessments
Many homes require a number of regularly scheduled special assessments to be performed in order to satisfy local regulations and ordinances. These are fees that are required in addition to standard property taxes. In order to make sure that these costs don’t take you by surprise, obtain copies of prior bills for these services and inquire about any pending and future assessments that need to be done on the property.

3. Finding a Manageable Mortgage
A good question to ask yourself before contacting your local banker to discuss a loan is, ‘how much is too much?’ While you might be tempted to try and get as much money as possible if you can find a good rate, you do not want to make the mistake of taking on a loan so big that your finances will be stretched to the point that you cannot make your payments. Traditional income multipliers are a good place to start. If you have a single income, 3.5 times your annual salary is the maximum that you should consider requesting and if you have dual incomes, the maximum should be about 2.75 times your joint salary. If these amounts will stretch your budget too far, then it is a good idea to consider borrowing less.

4. Determining How Much Home to Buy
Now that you have a handle on all of the costs involved and have determined how much money you can borrow, it is time to figure out just what you can afford to spend on a new home. Whatever you do, don’t bite off more than you can chew; doing so could quickly lead down the road to foreclosure. Take into account your credit history, the closing costs on the loan, the amount of the down payment, and any preexisting debts. Weigh these against your income and savings before making a move.

5. Welcoming Your New Home into Your Basic Budget
Once you have everything in order, set a budget and stick to it. While your new home purchase will undoubtedly become both your biggest asset and your biggest expense, you still have to eat. It is also important to make sure that you start building a rainy day fund in case of emergencies; one of the things that accompany a new home is the potential for substantial unforeseen expenses. Set a reasonable budget that includes an allowance for unexpected costs and you can live happily ever after in your new home.

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Comments (18)
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18 Existing Comments
  1. gb said:
    on April 11th at 07:47 am

    A very interesting article, i shall maybe shove this on my blog. Very good. The UK is now about to suffer a housing market crash (As i predicted 2 years ago), so us “limeys” are in the same boat as you now!

  2. Annette Ashley Smith said:
    on April 11th at 10:53 am

    Excellent article. I’ll add a reference on my blog this week.

  3. Rich Rosa said:
    on April 11th at 11:55 am

    Sound advice. I linked to this article from my Massachusetts Home Buyer Guide blog.

  4. Sapin said:
    on April 11th at 01:46 pm

    Thought provoking article on how to buy a home in a down market. We too posted it on our Real Estate Rebate blog.

  5. Roanoke VA Real Estate said:
    on April 11th at 01:50 pm

    I also linked to the article from my Roanoke Real Estate blog. Thanks!

  6. Ashley D said:
    on April 11th at 01:58 pm

    We posted it on our site as well in Atlanta!

  7. Sam Pabon, CMPS said:
    on April 11th at 02:30 pm

    These are all very good points, especially what to account for when considering how much home someone can afford.

    I commented and provided a link on my All Things Mortgage BLog …â„¢.

  8. Helen Anderson said:
    on April 11th at 02:57 pm

    Thanks you all for showing great interest in our article. I appreciate it.

  9. Maggie Osborne said:
    on April 11th at 08:46 pm

    These are great guidelines to follow when buying a home in any market. See
    more valuable tips on my Maryland
    Real Estate Blog
    or my Mid-Maryland
    Real Estate Site

  10. SailorSue said:
    on April 12th at 07:44 pm

    The best advice about buying a home in a down market is, DON”T BUY!!!! Good grief how much sense does it make to buy in a decling market, we’re a long, long way from the bottom. Prices are surely to decline another 20%, and 50% in some markets. Patience my friends. Save your money, sit on the sidelines and wait. Good things come to those that wait.

  11. JHS said:
    on April 13th at 11:27 pm

    Thanks for participating in this week’s Carnival of Family Life, hosted at On the Horizon tomorrow, April 14, 2008! Be sure to drop by and check out all of the other excellent entries this week!

  12. Fixemup Terry said:
    on April 14th at 09:18 pm

    Good article. I like the way that you take a cautious and conservative approach to your home investing advise in this uncertain market.

    I just refinanced my principal residence to take out some equity for a down payment on my next investment property. Interest rates are low and prices are low and negociable. Its a good time for investors.

    I will post a link to this article on my blog.

  13. sikantis said:
    on April 14th at 09:35 pm

    Hi, great post! I have a blog about new eco-friendly technologies for home owners. I’m happy having found this blog, will come back!

  14. Suzanne Morris said:
    on April 24th at 08:00 pm

    This is the time to take advantage of the downturn. But not all areas are best to jump in. Do your due diligence and have plenty of reserves on hand and you can make a lot of money right now!

  15. Matthew Pollock said:
    on June 8th at 12:23 pm

    It’s too early to take advantage of the downturn. Housing crashes tend to be slow, gradual curves, because people are initially reluctant to sell and take a while to adjust to the new realities. See our discussions in ‘School of Profit’ on

  16. Kathy said:
    on August 10th at 05:00 am

    Just wanted to say hello

  17. Mackenzie said:
    on May 7th at 07:52 pm

    Thanks for taking the time to discuss this, I feel strongly about this and I benefit from learning about this subject. If possible, as you gain facts, please add to this blog with more information. I have found it enormously useful.

  18. IPINLive said:
    on May 5th at 06:44 am

    Great advice – all too often buyers look at interest rates or jump on the bandwagon thinking they might miss out – the reality is if you can’t afford the property if things like interest rates change – consider alternative property investments