Approach home market with caution

Prospective buyers should take a cautious approach, recommends financial analyst Jordan E. Goodman, author of “Everyone’s Money Book on Real Estate” (Dearborn Trade Publishing, 2002).

It is important, he said, not to look at the market but at your own place in it. How has the economy affected you? What happens if two incomes become one? What happens if you have children? Or have to move?

There are plenty of benefits to owning a house: A house can build up equity over time. Buy in the right place -- and do your homework -- and you have a huge chance of appreciation. It can give you a deeper commitment to your community, can be a tax advantage or a source of cash somewhere down the line.

But do it wrong or too emotionally and you could put everything into your down payment on the most beautiful house you’ve ever seen and then not be able to afford to sit inside it.

A good place to start, Goodman said, is to take a good look at your credit report. Ideally, one should have a score of more than 700. A Web site such as mycredit.com can help you track down your credit history. In general, young families should be prepared to put down 20% of a home’s value.

Calculate the full cost of the home, including utilities, maintenance (expect about 5% of the amount you pay on your mortgage -- an older house will cost more), sewer, water and property taxes.

And don’t overestimate the benefit of your tax deductions. You’ll still need adequate funds each month to pay your bills.

-- Matt Surman