Buying A Home

By Diane Schlindwein

November 19, 2010 5 min read

Owning a home has long been many Americans' dream. In fact, according to a recent report released by the National Association of Realtors, 67 percent of adult Americans own or are paying mortgages for their own homes.

However, knowing just how and when to pursue that dream can be a daunting experience for wannabe homeowners. So how do you decide when is a good time to buy -- and how do you go about taking the major step to buying your own home sweet home?

Admittedly, the recent tax credit for first-time homebuyers was a strong incentive to take the plunge to homeownership, but there are still plenty of great reasons to buy a house or condominium. Recently, buyers have responded to historically low interest rates, says Michelle Wardlaw, a spokeswoman for NAR.

"Right now is a favorable time to buy because prices are affordable and there are a lot of houses listed for sale," Wardlaw says. "It is definitely a buyer's market."

In 2010, the average homeowner(s) in the United States purchased a home with a price equal to about 2.4 times the household's annual gross income. That number has changed over time, Wardlaw says. "During the boom in 2005, the average was 3.3 times annual gross income. Now it has actually come down to a more reasonable trend."

Just how much you can afford depends on a number of factors, including your credit score, the housing payment-to-income ratio, your total debt-to-income ratio, the amount of money you have to use as a down payment and how much you'll pay in property taxes, homeowners insurance and private mortgage insurance. Of course, the monthly payment on a 30-year loan would be considerably lower than a payment on a 15-year loan.

The most traditional way to come up with a down payment is to save for a number of years. However, 22 percent of first-time buyers use a monetary gift from a relative or a friend to help fund the down payment. According to NAR, the median down payment for a first-time buyer is 4 percent of the home's price, whereas repeat buyers put down 15 percent. Overall, homebuyers put an average of 8 percent down on their mortgages, Wardlaw says.

Many financial factors come into play when buying a home, but homeowners also need a certain amount of maturity to take on a house and a mortgage. According to NAR statistics, the average first-time homeowner is 30 years old. Married couples are buying 49 percent of the homes sold in this country; single women buy 25 percent; single men buy 12 percent; and unmarried couples buy 12 percent.

Before you buy a home, you also need to factor in other financial needs. For example, you should be saving for retirement, and if you have children -- or plan to have them someday -- you'll need to start a college fund.

Home loans are available from several types of lenders, including commercial banks, mortgage companies and credit unions. You also can get a loan through a mortgage broker, who can find a lender for you. Or you may just want to ask a few friends for recommendations. If you have a good relationship and history with your bank or credit union, that may be the best place to start looking for a mortgage loan.

Wardlaw says a Realtor also can help you find a lender. "Many Realtors keep a list of reputable lenders they've worked with," she says. "Realtors are there to assist you. They are only going to recommend the service of lenders they have had success with in the past."

Finally, buying a home may be an all-around morale booster. According to a recent survey conducted by Bankrate, 90 percent of homeowners say they have no regrets about buying a home.

Wardlaw says NAR has discovered that homeowners enjoy more neighborhood stability and volunteer more. "We have found that children of homeowners do better at school and stay in school longer," she says. Homeowners are also more supportive of their communities and more apt to vote. In fact, every time a key is turned for the first time at a new home, the community benefits. When someone buys a home, that purchase helps the economy, Wardlaw says. "Our research shows that every home purchased pumps $60,000 into the economy."

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