With Home Prices Dropping,
Is Now a Good Time to Buy?
By Megan R. Weeden

A home is probably the largest purchase most of us will ever make, and with it come some great benefits.

Not only do you have a place to call your own, but building equity provides a great source of financial security and independence, in addition to possible tax benefits, for many who take this step.

And with dropping interest rates and home prices making headlines, consumers are wondering - is it a good time to buy?" There are some great deals out there on houses," says Deborah Imondi, Vice President of AAA Southern New England Bank. "The rates are good - some haven't been this low since 2004." However, there are steps you should take before looking at what's available.

First, check your credit. Lenders have become very strict with the FICO credit score, which is an indicator of the likelihood you will pay your bills and mortgage. The range for what is considered a good FICO score has gone up; anything above a 680 is considered good.

"Anything below that won't get you the best rate, unless it's a special program," Ms. Imondi said. "Checking your credit beforehand gives you time to fix any discrepancies." Everyone is entitled to one free credit report per year (visit www.annualcreditreport.com). Next, figure out how much you can afford. The cost of buying a house includes the down payment, closing, settling in, and ongoing costs. Certain programs offer 100 percent financing, although they're not as prevalent as in the past. If you have less than 20 percent for a down payment, you may have to pay Private Mortgage Insurance or obtain FHA financing.

An old rule of thumb was housing costs, including principal, interest, and tax­es shouldn't exceed 28 per­cent of your gross income. Debt payments, including mortgage, auto loans, student loans, child support, and credit-card bills shouldn't exceed 36 percent. It still makes good sense, but lenders do allow higher ratios for those with good credit and assets. "We urge people to look at their own budgets," Ms. Imondi says. "Banks look at gross income. It doesn't take into account their taxes, withholdings, dependents, utilities, or their lifestyle. People have gotten into trouble by not making those adjustments to their spending habits."

Before getting pre-approved for a mortgage, you will need to show pay stubs for the previous month, W-2s for the past two years, two months of consecutive bank statements, and a list of all debts.

Once you are pre-approved, ask your real estate agent to show you neighborhoods in your price range. Look at the type of home you want. Do you want a house or a condo? How many bedrooms do you want? Do you want a large yard? Consider proximity to schools, shopping, and other amenities.

"Our role at AAA is to wade through all the different programs available," Ms. Imondi said. "We work with quality lenders and watch out for the members in the process. Between educational seminars, our Web-based home buying tools, our experienced mortgage consultants, and competitive rates, we can meet our members' needs."