Shopping for Your Dream Home during a Recession

Ever since you were a kid playing with your doll house or Barbie Dream Home, you’ve known just what kind of house you would buy one day. Maybe you like the old Victorian style with a wraparound porch, a widow’s walk, and plenty of detailed embellishments. Or perhaps you like the clean, simple lines of modern architecture. On the other hand, a cute little cottage with a big yard, a flower garden, and a white picket fence might be more your speed. But whatever you envisioned, you may be having a hard time figuring out how you’re going to buy it during the ongoing recession. Although there are some drawbacks to financing during an economic downturn, there are ways to overcome all of them. Here are a few things to consider when shopping for the house of your dreams during a recession.

The first thing you need to do is work on your credit. While you probably could have secured a home loan a few years ago with something in the low 600s (or possibly even the high fives) it has gotten a lot harder to convince lenders to take a chance on a first-time buyer without the benefit of a stellar credit score. If you’re not sure what your credit rating is and you don’t want to wait to find out during the loan application process, then simply request a copy of your report from annualcreditreport.com (it’s free!). Once you know your score, you can begin to improve it by taking out loans and paying them off (automobile or student loans are particularly useful) and using and paying credit cards. It could take some time to get the score you need to qualify for a home loan (at a decent interest rate) but even a few months or a couple of years are worth it to get the home you want. During this time you can also squirrel away some money for a down payment (most lenders require a minimum of 4% down).

Next, you need to find the home you want. This might not be as easy as you think, even though many foreclosures have flooded the market. The reason is that you have to consider several aspects of the deal before you can even think about buying. The first is the house itself. What it it’s age and condition? If it’s a foreclosure, there will likely be no repairs done by the bank to get it up to code, so you’ll be on the hook for that expenditure. You also need to think about the area you’re entering. Is there a school nearby (this one is important if there are kids in your future)? Is it a good district? What are the crime stats like (check with local police to get this information)? Is there an HOA (with attendant fees and restrictions)? Finally, you need to consider the price. If it’s out of your range, it doesn’t matter how perfect the property is.

Now that you’ve found the house and secured the loan, it’s time to consider the last two major expenses: property tax and home insurance. The property tax is based on the state and county you live in. Moving across a county line could save you hundreds or even thousands of dollars each year, so it’s definitely something to consider if you’re straddling the county line. As for insurance, you could end up paying for homeowners, fire, and any other potential natural disasters that are common to your area (earthquake, flood, etc.). But if you ask about rebates and bundle your policies (home, car, etc.) you may be able to secure cheap home insurance that will protect your new asset and fit your budget.

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