Should I Buy a House? Five Top Concerns for First Time Homebuyers...and some solutions.

From time to time, we all have to ask ourselves what advantages there are to buying over renting. With home prices continuing to go down and rents rivaling those of mortgage payments (including taxes and insurance) its time to visit some of the concerns a first time home buyer would have when buying their first home.

Concern #1 - What if the price of the home goes down?

This concern is probably on the top of most people's list. Everyone wants to be an expert on everything and you'll hear it from friends, family members and random people like my CPA the other day. The truth is, even the most seasoned Real Estate Professionals cannot predict what will happen in these uneasy economic times. However, one Real Estate agent put it best the other day when she said it doesn't matter what happens in the next couple of years with home prices. Fact remains, you keep renting you'll keep throwing that money away anyway. Throw $1000 away on rent for two years and that's $24000 you'll never see again. Isn't that the same as losing that kind of equity on a house? This money also goes with no tax benefits.

Concern #2 - I can't pay for a down payment or for closing costs.

This one is more gray than black and white. Last year, the Nehemiah program which allowed the seller to fund your down payment was taken away and Real Estate Professionals were left scrambling for a way to get 100% financing. Today, the government gives an $8000 credit to first time home buyers that they DO NOT have to pay back. But that doesn't really put money in our pockets today does it? There are several ways to get a down payment. FHA loans only require 3.5% and the money can be a gift from a relative. Down payment assistance is also slowly making a comeback and most cities even offer the Neighborhood Stabilization Program now which allows money for down payment and for repairs in homes that need it. Here in Los Angeles, it's only for certain pockets and doesn't cover most of of the territories. The area is gray because while its not as bad as it seems (i.e. tax credit will refund your down payment if you already have the money) there isn't really a great solution for the down payment. Its likely you'll need to bring in something even if just upfront. Closing costs, on the other hand, are being paid by sellers on most transactions now days. At least, that's how it is here in the Los Angeles area. FHA loans allow sellers to contribute up to 6% of the sales price towards the closing costs.

Concern #3 What if I lose my job?

This economy has hit many people hard. If you've lost your job, my heart goes out to you and I wish you a speedy recovery. Those of us still getting paid need to ignore the fear and keep the economy moving. Yes its different. Today we have to live within our means and avoid big credit debt or buying over our heads. That doesn't mean you don't buy anything at all. You can't control what happens in the future but if today you can make your dream of home ownership come true, then what are you waiting for? Food for thought - if you rent and you lose your job then you're out of luck because your landlord will have you out FAST. Your mortgage lender, on the other hand, has a process before they foreclose that lasts many months.

Concern #4 The media says banks aren't lending money. They won't approve me with my fico scores in the 600s.

The myth here, that I hear over and over again, is that you need a fico score in the high 700s to buy a house and that you need at least 10% down payment. What irks me about the media is that they report for entertainment purposes rather than to inform us. Are they wrong? Not exactly. The old way of lending meant conventional loans which now days do have those requirements. However, the whole story should read that FHA loans are different and more affordable. They only require 3.5% down payment, sellers can contribute up to 6% of the sales price for closing costs and the minimum fico requirement for most banks is just 620.

Concern #5 - The homes I can afford are not even in living condition and I don't have the extra money to fix it up.

This one is my favorite because I have a solid solution for it. 203K loans! These loans allow the buyer to finance to costs to fix up the home providing the end result (appraised value after improvements) increases enough to cover our higher loan amount. You have to involve a contractor unless your line of work is in construction. I've had a few Realtors say the only reason they took our offer was because it was a 203K loan for an otherwise substandard property we wouldn't be able to finance. The loan is still 3.5% down payment except its not 3.5% of the sales price, but rather 3.5% of the sales price plus the costs of improvements. So if the house costs $90,000 and you finance $10,000 for upgrades then you add those up ($100,000) and use 3.5% of that or $3,500.

This post is not meant to trivialize your concerns on buying your first home. These and any other concerns are as legit as you believe them to be. My intentions are to keep the concerns in perspective and hopefully provide some useful information that'll assist you in achieving the dream of home ownership.