Banks are failing! Our financial system in ruins! Should I still buy a house?

No matter what happens, you’ll always need a place to live — the real question is can you buy a house you can afford? If so, then maybe it IS time to buy a house. After all, mortgage rates and house prices are both lower than they have been in years, plus there’s more inventory. This all translates to an optimal buyer’s market. You as the buyer have the control and plenty of homes to choose from.

But what about the much-hyped threat of bank failures? Bank failures, which are very rare, wouldn’t affect your mortgage much. (If the bank that held your mortgage failed, never fear; some other bank would take over the loan and happily accept your payments. Banks love to take your payments!) And the FDIC guarantees the money in your checking and savings accounts in the event that your regular bank should run into trouble. Chances are, it won’t.

It’s a Great Time to Buy — Really

The Economic Stimulus Act passed by congress this spring is best known for the “stimulus checks” which are now being sent out to taxpayers across the country. But the act also did a big favor for local homeowners by allowing government lenders Fannie Mae and Freddie Mac to gaurantee or purchase larger loans than ever before.

Up until April, any loan above $417,000 was considered a “jumbo” loan, and the larger loans usually meant a higher interest rate, among other things.

But thanks to the Economic Stimulus Act, buyers in the Seattle-Bellevue-Everett metro area can now get a regular, conforming loan of up to $567,500 without having to invest in a “jumbo” loan. And that’s great news, because the lower interest rates of non-jumbo loans mean lower payments, and lower payments mean you can get more house for your money.

Thanks to the Economic Stimulus Act, our local market has a good number of homes available, relatively stable prices, and reasonable loan limits. Many sellers are willing to negotiate with buyers, and yet buyers in our area don’t face the enormous worry of falling house prices that are present in other areas of the country. And with houses staying on the market a bit longer than just a couple years ago, buyers have time to look around and really consider their options. All in all, it’s a great time to be a home buyer.

The new loan limits are available through the end of December, 2008, and it’s possible they may revert to the old, lower limits at the start of 2009. Many economic experts have suggested housing prices may start rising again in 2009, so if you’re thinking of buying, now might be the best time in years.

Home buying starts with your credit score (and so does this blog)

Most home-buying guides agree: the first thing you should do when you’re thinking about buying a house is check your credit. For a few years during the housing boom, you could get around bad credit by taking out a subprime mortgage loan – but you only need to look at the foreclosure rate to see why it’s a bad idea to try to buy a house without getting your financial situation together first.

Your credit score rates how trustworthy you are, based on your financial history. Bad credit scores are strongly correlated to late payments and loan defaults, while good scores tell a lender that you’re probably the type of person who can be trusted to handle money, so your score is an easy way for banks to answer the pressing question of how likely you are to pay back any money they loan to you.

Several services create credit scores, but the most popular credit score system is the FICO. The FICO score ranges from 300 (very, very bad credit) to 850 (very, very good credit). The 3-digit number attached to your name can shape your future by determining how much money you’ll pay in interest. The lower your score, the more it’ll cost you to borrow money – if you can find anyone to lend it to you in the first place.

If your credit score is under 600, you’ll have a hard time borrowing money, especially for a mortgage in the current economy. You’re a subprime sort of customer and skittish banks may not want to deal with you – or if they do deal with you, you’ll only be able to borrow at the highest rates of interest. Over the life of a 30-year mortgage, that means someone with poor credit will up paying tens of thousands of dollars more than someone with good credit. The best interest rates are usually reserved for customers with a score of 720 or better, while customers who fall between 600 and 720 are middle-of-the-road.

A couple years ago congress passed legislation that requires the three big credit bureaus, Experian, Trans-Union and Equifax, to give each consumer one free credit report every 12 months. You can opt to purchase your credit score along with the free copy of your report – after all, what’s a free service if it doesn’t have an upgrade option? You can visit http://www.annualcreditreport.com to get one free report form each of the three big credit bureaus every 12 months. Be sure to check all three versions of your credit report – they could be different.