Even though every nook and cranny of the housing market is draped in doom and gloom, it may be a good time for potential buyers to take a contrarian look.

I'm not minimizing the risks in the housing market, because they're very real in many locations. Nor am I predicting any sort of miraculous turnaround in the next six months, since I doubt we'll see that happen. But I'm still a believer in the long-term viability of housing as a solid investment if you buy at the right price. This has me thinking the current shakeout is in fact creating an interesting sweet spot for first-time home buyers to at least start checking out the market.

Take a New Look

Right now, some of the markets that were hot a few years ago are full of overextended builders looking to unload their unsold inventory. First-timers tend to focus on existing homes rather than more expensive new construction, but I advise them to take a look at new homes as well.
All those stressed-out developers are motivated to make deals. That can mean sharp price discounts or great offers to help with your mortgage financing. But be careful, too — you don't want to be the only owner on a block where half of the homes haven't even been finished.

Price Is Right

In today's market, it's crucial to load up on as much data before you bid on a home. Get at least three to five recent comparable sales, what are known as "comps," from your real estate agent.

You want to know the differential between the initial list price and the sale price for those homes. The size of the gap, and whether it's been trending lower or higher, is what will determine your aggressiveness in bidding. Keep updating your market analysis every few weeks to stay on top of your market's twists and turns.

Shore Up Your Score

Before you look at a single house, check your FICO credit scores. Home buying is the one time you want to pay up for all three scores, because many lenders base the interest rate you're offered on a calculation that takes all three scores into account.

If you're applying for a mortgage with someone else, make sure both of you have strong FICO credit scores. Some lenders will base the rate you're offered on the lowest score between the two of you. If your scores aren't in the top range of 760 to 850, chances are you'll be given a higher interest rate on a loan — and that can make all the difference in whether you can afford to buy or not.

Down payments

During the housing boom, lenders were all too happy to dole out mortgages that didn't require a down payment. That's coming back to sting many lenders — and crippling the entire credit system — as home owners who never had to put equity into their homes are now walking away from them when their outstanding mortgage is more than the current value of the home. The upshot is that to have any chance of getting a mortgage in today's tight lending market, you need to come to the loan table with a down payment.

Suze Orman is a best-selling author and award-winning broadcaster. She may be contacted at www.suzeorman.com.

Source: The New Jersey Star Ledger, July 20, 2008