Friday, January 8, 2010, 12:19AM ET - U.S. Markets open in 9 hours and 11 minutes.

Suze Orman Money Matters

Suze Orman, Money Matters

Housing Woes Are an Opportunity for First-Timer Buyers

by Suze Orman

Email this Page IM this StoryBookmark this StoryAdd to your Del.icio.us accountDigg this StoryPrint this Story
Good (260 Ratings)
2.665392/5
Posted on Thursday, March 20, 2008, 12:00AM

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 that 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 that the current shakeout is in fact creating an interesting sweet spot for first-time homebuyers to at least start checking out the market.

That said, potential first-timers need to be extra-strategic and cautious when considering a purchase; there's no room for making any mistakes these days. But simply sitting on the sidelines to wait for signs that the worst is over, or that your local market has turned the corner, means you may miss out on the best deal-making opportunities.

Here are some tips:

• 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.

• Know what price is right

In today's markets, 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.

In today's market, being patient and bidding correctly is crucial. I know someone who had a $2 million bid for a new home in Florida turned down a year ago. A year later, the house was still on the market and the developer was desperate to deal. This time, the same buyer offered $1 million and the bid was accepted.

So don't be afraid to go for it. If you see a house you want and it's been on the market for some time, you have nothing to lose by going in and bidding 50 percent lower than the asking price. Don't be afraid to insult someone. Remember, 50 percent of something is better than 100 percent of nothing. If they counter at a higher price, be careful -- you can't afford to overbid to meet an unrealistic seller's price. Besides, there are plenty of other homes to choose from.

• Buy only if you have a five-year time frame

If you anticipate relocating anytime soon, it's probably smart to keep renting instead of buying.

Remember that once you're an owner, it's going to cost you a 5 to 6 percent sales commission when you decide to sell. To have a decent chance of selling with some equity left in your pocket -- even after paying the commission -- you probably need to stay put for at least five years.

• 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.

For example, if you need a $200,000 mortgage and have a score of 760, you might qualify for a 30-year fixed rate loan at 5.8 percent with a monthly payment of $1,775. With a 619 score, you're looking at a 9.2 percent rate for the same loan, and a monthly payment of $2,458. That $683-per-month difference is enough to cover property tax, insurance, and probably annual maintenance costs.

If one or both of you has low FICO scores, focus on getting them into the 760-or-higher range. Not only will it save you a lot in mortgage costs, it's also an important step in making sure you have the financial discipline to take on such a huge commitment.

• Get the lowdown on 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 homeowners who never had to put equity into their home 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.

A 20 percent down payment will speed up your loan approval, but not many people have that right now. One possible remedy is the recent change in FHA limits; FHA-insured loans require just a 3 percent down payment, but up until a month ago these loans maxed out at $362,790 in high-cost metro areas. The economic stimulus package signed into law in February authorized the FHA to raise those limits for the remainder of 2008. The new top loan limit for high-cost metro areas is as much as $729,750. You can check the new FHA loan limits in your area here.

Ideally, you can scrape together your down payment from savings. But if that's not going to cover everything, you might consider raiding your IRA. Yes, you read that right: The typical 10 percent penalty for early withdrawals made before age 59-1/2 is waived when the money is used for a down payment on a first-time home purchase.

If your money is in a traditional IRA you'll still owe tax on the withdrawal. Roth IRAs are a better deal; you can pull out money you contributed with no penalty or tax. Any Roth earnings you withdraw for the down payment are also tax-free as long as you've had the account for at least five years.

Email this Page IM this StoryBookmark this StoryAdd to your Del.icio.us accountDigg this StoryPrint this Story

Rate This story

Good (260 Ratings)
2.5/5
Sign-in to rate!

111 Comments

Showing comments 6-35 of 111<< PreviousNext >>
Sort: first to last

  • Steven - Thursday, April 10, 2008, 1:15PM ET  Report Abuse

    • Overall: 3/5

    I disagree that a primary home is an investment. For some, it is beneficial because it forces the owner to save money by buying equity every month. If you are willing to put in money consistently, there are much better investments than a home. You don't have to pay property taxes on stocks. You don't need to replace the roof of your stock. You can sell your stock quickly and without a giant commission.

  • itisme - Tuesday, April 8, 2008, 3:10PM ET  Report Abuse

    • Overall: 2/5

    not good for the last time home sellers.

  • Yahoo! Finance User - Friday, April 4, 2008, 9:41AM ET  Report Abuse

    • Overall: 4/5

    Good article as usual, but I would have added the following caveat. If the builder is offering below market financing (a buy-down) that's the equivalent to selling the house for less. You could instead bargain with them to get a reduction in the sales price instead. This gives you the benefit of a bigger income tax break, and maybe also lower property taxes. (And if you move and pay it off early, you'll be _really_ glad you did the deal that way!) ... Do the math and figure out how much the reduction is costing the builder, just the same as "zero percent financing" is a discount on the sales price of a car.

  • Sir Stanks a-lot - Thursday, April 3, 2008, 11:53AM ET  Report Abuse

    • Overall: 4/5

    Good article for achange from this clown. She has been on tv a lot recently and is pretty reckless with her advice, She is just a saleswomen, take her with a grain of salt because she's wrong more than she's right.

  • Yahoo! Finance User - Wednesday, April 2, 2008, 2:32PM ET  Report Abuse

    • Overall: 2/5

    I think it is time for America to conduct alternative housing options: Manufactured homes, Mobile homes, etc. Condos/Townhomes are also much better for those with an active lifestyle. Some even come with an attached 2-car garage and a small backyard/patio.

  • Yahoo! Finance User - Monday, March 31, 2008, 12:03AM ET  Report Abuse

    • Overall: 3/5

    the bottom line is, is it time to buy , do you have what it takes financially to support the the house and is it a financially smart thing for you to buy. I own (no mortgage) my own home and just bought a triplex and 4-plex (closing tomorrow paying cash) in a town that the realestate is still going up (barely) thanks to aircraft industry. But I figure it is a win /win for me. there will always be people who need to rent and if the market really tanks people who lose there homes will need apartments. make sure you know and understand all you can before jumping in and If your not comfortable you may want to wait until the market has shown evidence of real improvement before jumping in (especially for you 1st time buyers)

  • Yahoo! Finance User - Sunday, March 30, 2008, 6:55PM ET  Report Abuse

    • Overall: 2/5

    There are pros for first time buyers. That is about the extent of how much I would take out of this article. She acts like first time home owners can be experts about this stuff. She is just filling her quota for yahoo this week with this article. Stay away from real estate until it clearly hits a low! I have several friends locked into mortgages because of this mess and it is not fun and games. Interest rates are down right now but the prices of these homes aren't going down like you'd expect. Shop around and you'll find that no one wants to sell for a loss. The banks are not just giving properties away, at least not yet. The only people getting something for nothing are people getting taken. Do not listen to the scam artists or the people that got scammed. Now is the time to rent unless you know what you are doing. That means for first time buyers to beware. I get a kick out of the professionals telling first time buyers to just go out there and educate themselves by talking to brokers and bankers looking to find a new sucker. No one makes more by selling for less. This lady needs to just tell people to hold onto their money and save to make a higher down payment when prices go much lower. In a few years prices will be at least 20% lower, especially when the falling dollar and inflation dictate that interest rates get raised. Use a higher down payment to offset the higher interest rate being charged. It will lower the amount you paying interest on and it will be good leverage for getting a lower rate at a time when prices are much much lower. Until then, remember that the most important thing to consider in buying a home is where the money is coming from, something she neglected to talk about. Jobs are tough to get these days unless you are Suze Orman. Think about how long you can afford to live somewhere without moving for your job or to get a new job. Don't tie yourself down geographically for the sake of home ownership in a time like this. Be safe, not sorry.

  • Jeff - Saturday, March 29, 2008, 4:31PM ET  Report Abuse

    • Overall: 3/5

    First time and all buyers need to be careful. Everyone is pitching get rich and make money on foreclosures. The long time line as an investment is prudent. Everyone needs to be aware that foreclosure prices are actually up, In 2005-2006 we bought foreclosures for .50 on the $1.00 owed and sold them for .75 on the $1.00. Now speculators and non informed new home owners are driving the price up to .75 on the $1.00 owed or even more. High appraisals and quick loans on inflated values are the demons in the search for real value.

  • Yahoo! Finance User - Saturday, March 29, 2008, 4:56AM ET  Report Abuse

    • Overall: 2/5

    Suze makes a few good points, such as advising low-ball bids. I don't agree with her that you need to know much about "comps." What you need to know is whether the total expenses of ownership (mortgage, property tax, insurance, maintenance) will vastly exceed the expenses of remaining a tenant. In coastal states, the answer will likely still be "yes," and you should not buy. Yet. Having read many of the comments below, it amuses me to try to identify the RE agents -- probably everyone who rated this piece a "5." -- az_lender

  • Brian k - Friday, March 28, 2008, 9:57AM ET  Report Abuse

    • Overall: 3/5

    Good overall article!

  • Yahoo! Finance User - Friday, March 28, 2008, 7:00AM ET  Report Abuse

    • Overall: 5/5

    This is an excellent article Suze. I just finished closing on my second home. I found a steal with 200K in equity because the buyer was facing foreclosure. If you are a first time home buyer take your time and look for houses that are short sales. When you find one the selling is looking to just avoid foreclosure so he will almost give you the house for nothing.

  • Yahoo! Finance User - Thursday, March 27, 2008, 8:05PM ET  Report Abuse

    • Overall: 1/5

    Sometimes I get a laugh from her TV show. Her typical idiot caller has 20K in credit card debt and asks if they can afford a 2,000 HD TV. This article is complete trash. Right now a lot of banks are offering prime borrowers horrible interest rates because they don't want ANY more mortgages on their books. Housing primes in my Northern Virginia area are still due to drop 25%. The longer the Gov tries to prop up rates, the longer it takes for the market to reach equilibrium. For every action, there is always a reaction.

  • carlos - Thursday, March 27, 2008, 11:15AM ET  Report Abuse

    • Overall: 4/5

    Well that information is very helpfull. Thank you for posting this type of information. The housing market is in term oil but before I cosider buying I need to read everything I can about this crisis. A down payment with a 20% is huge amount of money so just to let everyone know My only advice would be that you must have commitment when your dealing with that kind of money. Pay on time

  • curtis - Thursday, March 27, 2008, 10:50AM ET  Report Abuse

    • Overall: 1/5

    an expert for the uniformed. what a scam artist she is

  • Yahoo! Finance User - Wednesday, March 26, 2008, 11:00PM ET  Report Abuse

    • Overall: 2/5

    Although "Suze" usually has nothing good to say about anyone or anything, I do believe she is right here. If everyone waits for the 25% "correction", it surely won't happen. We are seeing unprecedented times when 30 year mortgages are under 6% and prices are down 10-15% from last year. It is the perfect storm and I'm not even a realtor. to paraphrase an earlier poster.".people are maxed out" might be the real culprit here.

  • Yahoo! Finance User - Wednesday, March 26, 2008, 5:32PM ET  Report Abuse

    • Overall: 2/5

    Even w 5-yr ownership, its hard to breakeven, if the home prices have further 10-20% to drop till 2009 and start growing at average rate of 2-3% pa from 2010..as of now, renting is economically wiser IMHO

  • Yahoo! Finance User - Wednesday, March 26, 2008, 4:36PM ET  Report Abuse

    • Overall: 1/5

    A 2 million dollar house selling for 1 million???? You must be making this stuff up!!!! I live in Florida and you can't get these new home builders to drop 15 to 20% off inventory that has been sitting there for 2 years. Checking statistics new home prices only dropped 2% year to year. Also, tell your readers that the Florida market is expected to drop 25% in value in the next 5 years. How about telling your readers that renting might be a better option for a few years while they save money for 20% down. The reason Real Estate is down is because EVERYONE IS BROKE!!! The credit cards are maxed. The home prices were driven up by loans that people could not afford and by loans that are no longer available. When are you so called experts going to get it?????? Members of the Toll Brothers family are walking out on million dollar condo contracts in Florida. When you can't sell to your own kids, no one should be recommending this investment.

  • Nessy - Wednesday, March 26, 2008, 4:25PM ET  Report Abuse

    • Overall: 1/5

    Many folks here correctly stated that there are some good advices in this article like be caucion, etc. Suzi is smart enough to not put some obviously stupid advices here like "buy it now until it's too late", etc. But.... Imagine: an average Yahoo visitor is looking through financial news, and what he/she sees? An article "Housing Woes Are an Opportunity for First-Timer Buyers" by well-know Suze Orman! So, this "message" that says suggests this is a good time to buy real estate got stuck in that person's brains. This is called non-direct advertisment, guys! And this kind of non-direct ad is often more efficient than a direct ad! Great job, Suze! So, you took part time job now for National Accosiation of Realtor's, didn't you? ;)

  • Yahoo! Finance User - Wednesday, March 26, 2008, 3:59PM ET  Report Abuse

    • Overall: 4/5

    I think it is reasonable in a falling and uncertain housing market to make a bid of 50% below the asking price. Buyers have to assume the full risk of 1) an inflated asking price and 2) possibly several more years of falling prices and even 3) the possibility of a seized up market if things get real bad. Plus, an most importantily, if someone entering the housing market had the foresight to sit this mess out, they should be rewarded for it. Likewise, the sellers who participated in the gluttony should be penalized. If say bid 40-50% off and let negotiations determine the final discount.

  • River - Wednesday, March 26, 2008, 12:08PM ET  Report Abuse

    • Overall: 5/5

    These comments seem a little harsh. Suzie is talking about offering 50 cents on the dollar for a home, not go out and purchase homes at full price. She also states that doing your research and being cautious is very important as well. There is an opportunity to find sellers in desperate situations. However, I do not agree with liquidating ones IRA for a down payment.

  • Yahoo! Finance User - Wednesday, March 26, 2008, 11:18AM ET  Report Abuse

    • Overall: 1/5

    Great advice.....if you want to end up face down in a gutter 5 years from now.

  • Yahoo! Finance User - Wednesday, March 26, 2008, 8:47AM ET  Report Abuse

    • Overall: 1/5

    Have we forgotten that the US economy is entering recession? Now is the time for households to pay down debt, not take out new mortgages (particularly with prices continuing to fall), a buyer may find they owe more than their house is worth in a year or two.

  • Yahoo! Finance User - Wednesday, March 26, 2008, 6:30AM ET  Report Abuse

    • Overall: 1/5

    You are a quake. Only a person with no mind would by a house now. The 1,775 payment is on a 300,000 loan if even that thanks but no thanks.

  • Tyler - Wednesday, March 26, 2008, 4:04AM ET  Report Abuse

    • Overall: 1/5

    Did anyone check her numbers? A $200,000 loan over 30 years at 5.8% is a payment of $1,173, NOT $1,775. And if you have the lower FICO score and get a rate of 9.2%, the monthly payment is $1,638, NOT $2,458. Could someone please tell me why people put so much faith in this woman when she can't even calculate a payment in order to amortize a loan properly?!?!? Please Suze, go do something better with your time than give out false information. You'll be doing us ALL a favor.

  • Jesscia - Tuesday, March 25, 2008, 11:19PM ET  Report Abuse

    • Overall: 3/5

    Please Suze, You have no grip on reality. Please take my advice and take your millions and invest 100% in Goldman Sachs. That would be the equivalent of taking my cash out of my IRA and putting it all on a home right now. Geeze Louise Suze... I saw some similar artcle about this topic at blackwhitekiss.com where many black or white people find love.

  • Yahoo! Finance User - Tuesday, March 25, 2008, 6:18PM ET  Report Abuse

    • Overall: 5/5

    The bottom is in 2011 according to the credit crisis data. Just sit still to watch the crazy California housing price drop.

  • Curtis - Tuesday, March 25, 2008, 6:02PM ET  Report Abuse

    • Overall: 5/5

    Another excellent article. As you said, most people jack up the asking price of their home so anyone paying above comps is foolish in this market. Just because you think your home should be worth 200,000, doesn't mean it is really worth 150,000. I have some prime oceanfront property in Arizona if anyone is interested.

  • Alan - Tuesday, March 25, 2008, 4:49PM ET  Report Abuse

    • Overall: 3/5

    I'm proud to be a homeowner. Not a good time to buy now? Sure, you young and broken folks can't even afford a 5% down, LOL!!!

  • Yahoo! Finance User - Tuesday, March 25, 2008, 4:47PM ET  Report Abuse

    • Overall: 1/5

    I live in Florida and am involved in the housing market. Things are certainly slower than they once were, but if you offer 50% below the asking price, you will be laughed at. If someone is willing to take $1 million, they won't put a $2 million price tag on it. Unless they are stupid. At the lower end, you can often get someone to knock off 10-15%, but the 50% thing is just typical of Suze's foolishness.

  • Yahoo! Finance User - Tuesday, March 25, 2008, 4:17PM ET  Report Abuse

    • Overall: 1/5

    Please Suze, You have no grip on reality. Please take my advice and take your millions and invest 100% in Goldman Sachs. That would be the equivalent of taking my cash out of my IRA and putting it all on a home right now. Geeze Louise Suze....

Showing comments 6-35 of 111<< PreviousNext >>
The columns, articles, message board posts and any other features provided on Yahoo! Finance are provided for personal finance and investment information and are not to be construed as investment advice. Under no circumstances does the information in this content represent a recommendation to buy, sell or hold any security. The views and opinions expressed in an article or column are the author's own and not necessarily those of Yahoo! and there is no implied endorsement by Yahoo! of any advice or trading strategy.

Own the Power to Control Your Destiny

Women & Money

With her signature mix of insight and compassion, Suze Orman equips women with the financial knowledge and emotional awareness to overcome the blocks that have kept them from making more out of the money they earn.

Buy "Women & Money" now.

More from Yahoo! Sources

  • CNN Money
  • Consumer Reports
  • Kiplinger
  • The Motley Fool
  • Business Week
  • Wall Street Journal

Sponsored Links

Free 2010 Credit Report and All 3 Scores
Free 3-bureau Credit Report – includes Transunion, Equifax, Experian.
FreeCreditReportsInstantly.com
Buy Stocks for $4
No account or investment minimums. No inactivity fees. Start Today.
www.sharebuilder.com
Obama Urges Homeowners to Refinance
APR as low as 3.616%! Calculate New Mortgage Payment Now.
www.SeeRefinanceRates.com
Obama Backs Insurance Regulation
Millions of Americans Are Over Paying For Auto Insurance.
www.Auto-Insurance-Experts.com
No Exam Life Insurance
Get Super Cheap Life Insurance Online – No Medical Exam Required.
No-Exam-Life-Insurance.org
Live Forex Practice Account
Practice Forex Trading in Real Market Conditions with a Free Trial.
www.GFTforex.com

Historical chart data and daily updates provided by Commodity Systems, Inc. (CSI). International historical chart data and daily updates provided by Morningstar, Inc. Fundamental company data provided by Capital IQ. Quotes and other information supplied by independent providers identified on the Yahoo! Finance partner page. Quotes are updated automatically, but will be turned off after 25 minutes of inactivity. Quotes are delayed at least 15 minutes. Real-Time continuous streaming quotes are available through our premium service. You may turn streaming quotes on or off. All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.

Yahoo! Answers is provided for informational purposes only, and no Q&A is intended for trading or investing purposes. Yahoo! shall not be responsible or liable for the accuracy, usefulness or availability of any Q&A information, and shall not be responsible or liable for any trading or investment decisions based on such information. View Complete Answers Disclaimer.