Should I Buy a House Because the Rates Are So Low?
Guest post by John Ulzheimer
Home values have plummeted across the
country. Mortgage interest rates continue to hover between 4
and 5%, a historical low. Both seem to suggest it's a good
time to buy a house. So, is now the time to pull the trigger
on a new mortgage?
There are a few things you should
consider before you start looking for a house. First, how
comfortable would you be if you were to become "upside-down?"
That means you would owe more on the home than it's actually
Property values continue to fall and
there's really nothing to indicate they will stabilize anytime
soon. Point being, you might be buying on the way down rather
that at the bottom or even on the way up. Today some 28% of
homeowners are in that same position and trust me, most of them
wish they weren't.
Second, don't buy a house simply because
the rates are low. Too many people are focusing just on the
interest rates and that's a bad idea. Remember, when you
borrow $250,000 to finance a home, you still owe someone
$250,000. Just because the loan has a very low interest rate
doesn't make you any less in debt than someone who has a horribly
high interest rate.
If you're going to buy a house then do so
because you want the home, you love the neighborhood, the school
district is good, or you're tired of renting. Don't do it just
because the rates are low. Think of the low rate as being the
cherry on top, not the ice cream on the bottom.
Just because you're hearing
advertisements for incredibly low interest rates it certainly
doesn't mean that you'll actually qualify for those rates.
You better have killer FICO credit scores and you better have them
at all three of the credit reporting agencies. Remember,
mortgage lenders pull all three of your credit reports and all
three of your FICO scores and then use the middle of your three
scores on which to base their decision.
And finally, you may have to pony up a
20% down payment to get those really low rates. The world of
mortgage lending has changed dramatically since the end of
2007. There are no more "liar loans" (when you would tell
someone how much you made and nobody verified the accuracy).
There are no more "110 LTVs" (loan that were 110% of the appraised
value of the home). Sanity has worked it's way back into the
mortgage lending environment, which means better credit is required
and income has to be, well, real income.
John Ulzheimer is
the President of Consumer Education at SmartCredit.com, the credit
blogger for Mint.com, and a
Contributor for the National
Foundation for Credit Counseling. He is an expert on credit
reporting, credit scoring and identity theft. Formerly of FICO,
Equifax and Credit.com, John is the only recognized credit expert
who actually comes from the credit industry. Follow him on Twitter