- The Washington Times - Friday, January 8, 2010

Q. My husband and I have been renting an apartment since we finished school in 2007. I just had a baby, and we are considering buying our first home. We have enough money saved for a 20 percent down payment and have been preapproved for a loan of $400,000.

The fact is, we have been ready to buy a house for more than a year but are afraid home prices will continue to fall. Can you give us your opinion as to whether we should take the plunge and buy a house in 2010?

A. If I could accurately predict the movement of home prices in the short term, I would be famous. No one can do such a thing accurately and consistently. It’s pretty safe, however, to say home values, over time, go up. The Washington Metro area is also a bit insulated from huge economic swings.

Having said that, let me give you my thoughts, but remember, this advice is worth exactly what you paid for it: zero.

• While housing prices have dropped in some areas, remained steady in others, increased in others and collapsed in others over the past 48 months, buying residential real estate as your primary residence is usually a wise move as long as you have the intent and are able to hold the property for an extended period of time. Short-term speculation is risky.

• Interest rates bumped up over the past couple of weeks, but remain at exceedingly low levels. This eventually will change. When interest rates do finally rise, remember, they will fall again. The timing of this cycle is very hard to predict.

• When you look for a home to buy, be careful of neighborhoods in the outer suburbs where there is or could be a lot of competing construction. These areas tend to generate an oversupply that can negatively affect values on existing homes in the event of a downturn.

• While the credit crunch is still alive and well, mortgages with very low fixed rates are widely available as long as the borrowers have at least a 10 percent down payment, good credit and verifiable income.

• The tax deduction on mortgage interest paid is a huge benefit for those households earning $80,000 or more. A 5 percent interest rate is roughly equal to 3.5 percent after the tax benefits. That’s cheap money.

All in all, 2010 should be a good year to buy a home. Based on your situation, I would certainly recommend that you establish what you want, how much you can afford and where you want to live. As long as you don’t have to sell the home within a specific period of time, you are likely to make a good investment.

One more thing: While the mortgage underwriting guidelines have smartly tightened up, don’t rely on your mortgage banker to tell you how much you can afford. Make sure the preapproved amount of $400,000 is acceptable under your personal situation. Sit down with your husband, examine your household budget and come up with a comfortable range. A good loan officer can then help you fine-tune your objectives and offer advice that will help you find the most appropriate price range.

Henry Savage is president of PMC Mortgage in Alexandria, Va. Reach him at henrysavage@pmcmortgage.com.

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