Is Now the Time to Buy a Home?

Arguably, now is a great time to buy a home -- especially for first time homebuyers. There are a number of programs out there that can help you find the financing you need, not to mention the fact that mortgage interest rates are at historic lows and home prices in many real estate markets have basically taken a nosedive. It really does seem like an ideal time to buy.

Consider FHA financing

One of the things to consider is that FHA loans are rising in popularity for a reason. Even though you may have out of pocket expenses (as opposed to the popular 0 down mortgages of the real estate boom) with FHA financing, mortgage lenders are more likely to approve loans backed by the FHA. When you get an FHA loan, you also pay for special insurance. If you default, the government pays the mortgage lender. In these economic times, if you don't get FHA financing, you might have to do the following in order to get approved for a home:

• Have a higher credit score.
• Have a down payment of 10% to 20%.

Now, there are limits to the value of the home you can buy using FHA financing, and you do have to pay a 1.75% premium. However, in many cases mortgage lenders won't look at buyers unless they can get FHA financing. It makes things better for the lender. So it's definitely worth considering.

Are the costs still too high for you to buy a home?

Even though it is tempting to buy right now, it may not be the best time for everyone. Steve at My Wife Quit Her Job went through a math-intensive process to determine that even with low prices and low interest rates, it's not the best time for him to buy. Indeed, before making the determination as to whether buying a home is the right decision for you, it is a good idea to consider the following items:

1. In dollar terms, what is the new mortgage payment?
2. What are the costs in terms of property taxes and maintenance?
3. How would an increase over renting affect your monthly cash flow?
4. Would the equity and mortgage interest deduction overcome the increase in costs?
5. Can you use that money to invest and get a better return?
6. What are your long-term investment and personal finance goals?

While buying a home may be the right choice for some, it doesn't make sense for others. It all depends on your personal situation and what you hope to accomplish. Don't just buy a home right now because it's such a good deal; take the time to really consider the pros and cons for your situation.