Make Home Buying Lemonade Out of Sub-Prime Lemons

Over the last two years many consumers became home owners by agreeing to interest-only or zero down payment mortgage loan terms. This was a great way for many people to purchase a house while keeping their monthly payments at an affordable level for the short term.

Unfortunately, many of these home owners today are unable to keep up with the costs of homeownership. As a result, foreclosures are high in some parts of the country, while many other homeowners with these loans are concerned this fate may await them in the future.

Being a little conservative when making a home purchase might be a good thing for you. Here are a few tips on what you can do to avoid being in the same situation as those who thought sub-prime loans were their ticket to homeownership, and who now may find themselves in a difficult financial situation.

• Buy only as much home as you can afford now.
  
  • You may be willing to be cash-strapped for a couple of years because of a high mortgage payment until your monthly income increases, but if your salary doesn't grow as you expect, you may find yourself cash-strapped for longer than you want.
    
  • Consider your lifestyle when determining how much home to buy. If you like to spend money eating out every night or traveling around the world, be sure to buy a home that leaves you with enough monthly cash to do these things.
    
• Expect the unexpected. Even if you're not buying a fixer-upper, you'll still have expenses arise at inconvenient times that are unavoidable, like the cost of a new water heater. If you don't plan for these costs you may find yourself going further into debt to pay for the repairs, or you just might have to learn to live with cold showers.
  
• Get a loan that is built for the amount of time you expect to live in the home. If you're going to move within 5-7 years, an ARM loan might save you money. If you're going to be there longer, a fixed loan might be more cost-effective. Compare both the short-term and long-term costs of each type of loan to determine which is best for you.
  
• Find out which lenders your friends used. Research lenders on the internet. Meet with those with whom you're comfortable and who you trust.
  
• Find a real estate agent who is intimately familiar with the area in which you'd like to buy. Interview several agents and ask them for customer references before selecting the one who most wants to help find the right home for you.

You may not be able to completely avoid the financial risks of buying and owning a home, but with thorough research, planning, and by living within your means, you can be more assured that buying a home that won't result in your selling it out of necessity instead of out of choice.

By Barry James Copyright © 2007 HomeGain.com, Inc.