Are you ready to buy?

Market conditions are favorable for first-time buyers, but that doesn't necessarily mean you're ready to make the leap. Here are some tips to help you decide if you're ready for home ownership.

1. Take a first-time home buyer class. It will give you an overview of the steps you need to take to be ready to buy a new home and cover items such as the Pro's and Con's of buying, the hidden costs of home ownership, and Do’s & Don'ts for the home buying process. Here are some upcoming classes offered through Minneapolis Community Education.

2. Get pre-approved. Talk to a lender at the beginning of the homebuying process. They can advise you if there are some things you should do to improve your credit score first, then pre-approve your financing. By arranging for financing before you start looking for a home, you'll know exactly how much you qualify for. It may save you the heartache of falling in love with a home you can't afford or losing the right home for you because your financing isn't ready. Here's a mortgage checklist to help you prepare for your loan application.

3. Be conservative. The longer you plan to stay in the home you're buying the more you may want to stretch, but be careful not to stretch too much. Borrowing too much can mean stretching and sacrificing to the point that it's hard to enjoy life in your new home.

4. Consider all the costs. Remember that it's not just a mortgage payment you have to worry about. Be sure to also budget for utility costs, maintenance and repairs.

5. Play house. Try banking the additional amount you'd have to pay if you owned a home each month for a few months to get a better sense of what the payments will feel like. It can help you determine if you're ready for the real thing...as well as build a cache of funds you can use for your move.

To Buy Now or to Wait...that is the Question

There's no doubt the market has been putting buyers to the test trying to decide whether it's the right time to make a move or whether they should wait a bit longer.

I was talking with a trusted lender who said he had been thinking about this very question and felt it was rarely beneficial to wait if you're ready to buy. The two primary factors to consider are rising interest rates and falling housing prices. He calculated that if interest rates rise .5%, housing prices would have to fall another 5% to make up the difference. Overall housing prices are currently relatively stable, neither rising nor falling significantly, indicating waiting isn't likely to be of benefit.

The past decade has been one of low interest rates coupled with unsustainably high home price appreciation as the supply of homes available for sale struggled to keep up with demand. As a result, home prices increased a dramatic 50.6% from 2000 to 2005. Unfortunately, consumer income didn't keep pace with housing prices, rising only 12.9% during the same period. This resulted in decreased housing affordability, which planted the seeds for our current market conditions.

In 2006 we saw a needed pause in the market...not only natural and expected after unsustainable price growth, but much needed to put our market back in balance. Home price growth stabilized in 2006, with prices relatively unchanged over 2005. Jeff Allen, Minneapolis Area Association of Realtors Research Manager, predicts that 2007 should be pretty stable with 2006 overall, with a bounce back beginning in the later part of 2007.

Flat housing prices and continued historically-low interest rates have improved affordability, creating a good environment for first-time homebuyers...a necessity for a continued healthy and growing housing market. If you're ready to buy, it's a good time to make a move.

Click to see the full Twin Cities Metro 2006-2007 Market Analysis by Jeff Allen, MAAR Research Manager.