Most of what you've heard about the cooling housing market has been geared toward homeowners and the companies that cater to them. Falling home prices and upcoming rate adjustments on creative mortgages have current homeowners up against the ropes. Many are concerned that subprime lending troubles will spread throughout the economy, and they've already had profound effects both on lenders like Novastar (NYSE: NFI) and on homebuilders. Just today, Beazer Homes (NYSE: BZH) is responding to comments about a possible federal investigation into its mortgage lending practices. Even Lennar (NYSE: LEN) CEO Stuart Miller is concerned that the "typically stronger spring buying season hasn't yet materialized" in 2007.
But there are two sides to every story. If you're bucking the trend and looking to buy a home this spring, you'll find yourself in the friendliest market for buyers in years. There are lots of homes to choose from, and many areas have already seen big price drops. Here are a few tips on how you can take advantage of your bargaining power to make a great deal.
1. Line up your financing first. The one problem you may run into as a prospective buyer is that mortgage lenders are starting to tighten up their lending standards. If you've got good credit and stable income, you're exactly the person lenders are looking for from a borrower. On the other hand, if your credit is less than stellar, you might find it a bit harder to get financing than it was a year or two ago (a quick trip to our Credit Center may provide great information). That doesn't necessarily mean you won't find a mortgage at all, but the freewheeling lending practices of the past few years are probably gone for good.
2. Know what you can afford. Many homebuyers got themselves in trouble by assuming that if they could get a lender to give them a mortgage, they could afford the home. Now, as monthly payments start increasing and the ability to use cash-out refinancing dries up, some homeowners realize that they bit off more than they could chew. If you're living paycheck to paycheck, you should be careful about stretching your borrowing to the limit. If you lose your job, you could find yourself unable to make your payments and facing foreclosure in a hurry. Build in a safety cushion when you buy, and start working on an emergency fund.
3. Make patience pay off for you. In recent years, homebuyers got used to having to make an offer above listing price on the first day a house was on the market in order to have any chance of getting it. Now, though, it's time to reverse that thinking. So far, sellers have been relatively patient; inventories have risen, but price declines have been relatively modest so far. The debate among economists is whether buyers will emerge for these homes before sellers lose patience and start cutting prices more dramatically. The answer is likely to vary from city to city. From your perspective, however, it's a great time to make below-market offers on promising properties. The worst that can happen is the seller will turn you down, but on the other hand, you might end up getting a bargain.
For more helpful ideas on how to find a house, negotiate a good deal, and find a mortgage that will work for you, the Fool's Home Center is a resource you won't want to miss. In addition, the Foolish folks at our Motley Fool Green Light personal finance newsletter have been looking forward to spring and have plenty of advice to get you into your dream home. You can see everything Motley Fool Green Light has to offer with a free 30-day trial.
Fool contributor Dan Caplinger was early to the home-buying game this year. He doesn't own shares of the companies mentioned in this article. The Fool's disclosure policy is like a roof over your head.
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