Guidelines For First-Time Home Buyers

Just about a year ago, our financial system as we knew it was collapsing — Wall Street was in shambles. Things kept getting worse in pretty much every corner of the economy, and we're still trying to figure out whether or not the country has reached a state of recovery. The housing market has been particularly tumultuous, but many new buyers are taking advantage of lower home prices and finding themselves in escrow for the first time.

Home-buying is a different game than it used to be, so The New York Times' Ron Lieber gathered a list of seven suggestions for navigating the new housing economy.

1. Start with the basics. Lieber lays the foundation for conservatively getting into the market and says, "Put 20 percent down, so you have less of a chance of owing more than your home is worth if prices fall again. Get a fixed-rate mortgage, so the biggest part of your monthly housing bill remains stable." On top of that, he recommends spending no more than about 35 percent of your pretax income on mortgage, property tax and home insurance payments.
2. Consider your income. Income overconfidence may have had something to do with the mortgage mess, but Princeton economics professor Harvey S. Rosen thinks “People can, on average, make reasonably good predictions of their future incomes and act on them in sensible ways by buying bigger houses."
3. Bow to unknowns. Financial planner Bobbie D. Munroe encourages her clients, especially the younger ones, to model their budget in three ways: with both spouses working full time, one working part time, and one staying at home for a few years (and maybe even practicing living on one income).

See the four more guidelines when you read more.

4. Map out expenses. Financial planner Dennis G. Stearns "estimates that owners of a newer home that do some work for themselves but contract major work out to others will pay 3.6 percent of the original purchase price annually for maintenance and 4.5 percent if it’s an older home."
5. Buy best (or cheapest). Financial planner Michael Kalscheur "suggests buying the dream house you covet (if you can afford it) or an inexpensive starter house but not anything in the middle." He reasons that buying the entry-level home instead of the second place home will allow you to save enough money to buy what you really want down the road.
6. Stretch the house. Stretching out your tenure in a home by making periodic upgrades might be more sensible than ever moving from that first home.
7. The eight-hour rule. Lieber advises, "If an impending loan has you stretching for the Ambien, it’s a pretty good sign that the loan is a bit of a stretch as well." In other words, sleep on it before making any decisions.