Pay Off Your Debt

Often, first time buyers concentrate on saving enough money to make a down payment on their new home. A better approach is to eliminate credit card debt and other high interest consumer debt even if it means your down payment may be less. The reason for this is first, credit card debt is expensive. The average interest rate on a credit card is 14% or more than double the national average for a 30 year fixed rate mortgage at 5.875%. Second, credit debt will limit how much you borrow. Lenders will not allow your total monthly debt to exceed about 40% of your gross income. Your total monthly debt lenders consider includes credit card payments, student loans, car loans, homeowner's insurance, property taxes and your new mortgage.

How Much Can you Afford?

Many first time buyers wonder how much they can afford to pay for a home. This depends on two things: how much you can borrow and how much down payment you can make. Generally speaking, your mortgage payment, homeowners insurance and property taxes added together should not exceed 28% of your gross income. So if your income equals $8000 a month, your mortgage, property taxes and homeowners insurance should not exceed $2240. Then, you have to determine how much you can afford to put down with some extra left over for closing costs, which can add up to 3% to 5% of your home total value.

Types of Loans

Now that you have figured out how much house you can afford, it is time to start shopping for the right loan. A first-time buyer with a steady job and good credit can buy a home with little or no down payment. Still, the more money you can gather for a down payment, the more options you have.

Questionable Credit

What if your credit is less than perfect? You may want to check into a Fannie Mae loan or an FHA loan. An FHA loan will allow you to put down as little as 3%. Sometimes the seller may pay the closing costs or the lender may charge a premium interest rate, also known as rebate pricing, to fund the closing costs. FHA loans have no income limit, but they are geared toward first-time home buyers with low to moderate income, so they limit how much you can borrow.

Find the Right Agent

Once the decision is made to buy a house, hire an agent you can trust. Interview at least three people until you find someone who will serve your needs the best. Never hire an agent based solely on a newspaper or yellow pages ad. Ask the hard questions and listen to the answers you get.

I have personally just been let down by my buyer who put in an offer on one of my properties over 2 months ago. It was a sale that should have been all tied up within 6 weeks due to the buyer being a first timer and the house being empty. I accepted the offer at the beginning of February and here we are 2 months on and the buyer has struggled to get a mortgage and has been let down by more than 1 lender. The position this now puts me in is a bad one because now my property is worth less and than it was at the end of January 08 and it has cost me solicitors fees plus 2 monthly mortgage payments. Where is the security for Sellers? There is none!

In Scotland they have a Bidding system and the buyer is locked in early and deposits change hands at an early stage but here in England the sale has to go weeks down the line with nothing firm or contractually binding until Exchange of Contracts when the deposit monies transfer across. I think it's about time out whole house purchasing system in England is reviewed to protect the seller more and also the buyer.

The buyer's in this country are also put in the position where the seller could leave the house on the market and decide to take a higher offer after they might have already accepted one from another buyer. This gets buyers into bidding wars and in some cases people end up paying more than a house is worth.

Isn't it about time we fought to get our property market back on track? To allow Sellers to feel more security when they receive and accept an offer? And, to give buyers the opportunity to buy a house at its true value? In today's market we are desperate for some change for the better and a review of the buying and selling process is well overdue.