Considerations before buying a house.

Do you want to buy a house? There are several things that you need to consider before buying a house.

First, I wouldn't recommend anyone to buy a new house until they are debt free and have a fully funded emergency fund (you can view the baby steps at the right side of my blog). I would also highly recommend that you save up at least 20% of the cost of the house before you buy. If you do not have 20% to put down on the cost of the house, then the mortgage company will consider you, the buyer, to be at risk. You will have to purchase either a second mortgage or pay PMI to cover this risk. PMI, or Private Mortgage Insurance, is nothing more than insurance to the mortgage company to insure them money in case you were to be foreclosed on, and, depending on the type of loan, may or may not be able to be cancled (most loans allow you to cancel PMI after you have paid 20% of the house's value). PMI, in the past, has not had a lot of benefits, therefore most people in this boat tend to get a second mortgage payment. Although the interest of the second mortgage payment right now is around 7.5%-8%, the added cost of the loan is usually less than that of PMI. In the year 2007, PMI will gain the advantage that the interest will be tax deductable, however, this law will need to be passed again for 2008. Although you will now get a tax benefit from the PMI, most people will still find it better to get a second home mortgage if they pay less than 20%.

Second, stay within your means. This means only buy a house that has a mortgage payment that is no more than 25% of your take home pay. If you do this, you should have plenty left over for everything else and also enough to invest and build wealth each month!

Third, location, location, location. Yeah, I know, you've probably heard this thousands of times. But it's the truth! Pick a location that doesn't have a lot of crime and a location that has great schools. Ask your real estate agent the average days on market that the houses have in that particular area. This will help tell you how long a house in that area usually stays on the market before selling. If you are moving to a new state and don't know the areas in the city, call the local police departments and ask them about their schools and crime rate. You can also visit http://money.cnn.com/magazines/moneymag/bplive/2006/index.html which has a list of the best places to live for the year 2006. Where your home is will decide how much your home will go up in value and affect the average days on market before the house is sold.

Fourth, if you have to get a mortgage, get pre-approved. This is a big one. Whenever you offer the contract to the seller, they will know that you are serious because you have shown them that you are good for your word.

Fifth, don't buy a home on impulse. Go home and sleep it over. I've heard of too many times where people see a house and get 'house fever.' They believe that this is the perfect house for them, but 2 months later, they realize that they paid too much for the house when they see the bills coming in each month. Remember, try to keep your mortgage payments to 25% or less of your income each month.

Finally, negotiate wisely. Right now, the housing market is a lot slower than it was last year. This gives the buyer a huge advantage in that they can get a house lower than the asking price. However, know your market as well. There are still places where houses are selling in 3-5 days on average. In these types of situations, you probably won't be able to buy the house way underprice.

To sum it all up, it's a very good idea to save at least 20% plus have a fully funded emergency fund before buying a new home. If you don't you could be inviting Murphy to live in your spare bedroom (What can go wrong, will go wrong). If this happens, you could find yourself in a position that you never wanted to be in. Know when and how much you can afford and stick too it!