I have a condo listing at 16th & Brown here in Philadelphia (click here for details) that is a prime example of the deals available to first time buyers with decent credit in this market. It's a fully renovated unit with an asking price of $199,900 and the seller is willing to give up to a 6% seller's assist. In addition, the property qualifies for a zero-PMI FHA loan for first time buyers and they will be able to claim the $8,000 tax credit on top of that.
Given this scenario a buyer would need less than $2,500 out of pocket to close this deal and their monthly mortgage payment would be only $1,100 thanks to today's great interest rates. On top of that, they get an $8,000 tax credit that goes straight into their savings account, more than replacing the $2,500 they used for this purchase.
The scary thing is that zero-down purchases like this are a big part of what got us into our recent housing crisis. However, I think these deals still make a lot of sense for many buyers if three conditions are met:
1. They plan to live in the home for a minimum of 5 years and are comfortable with the monthly mortgage payment and other monthly expenses (utilities, maintenance, etc.).
2. They are not overpaying - pricing has come down and all buyers should make sure that the price they pay reflects the current market in their area and not the market of 2 years ago (or six months ago for that matter). One quick and easy way for first time buyers to assess whether they are overpaying is to do a buy-v-rent analysis in order to make sure that they aren't paying too much more, on a monthly basis, to own than they would pay to rent a similar property in the same area.
3. Steer clear of adjustable rate mortgages - buying with 100% financing becomes infinitely more risky when your interest rate is not fixed. If buyers want to take advantage of the super-low rates offered by ARMs they should put down a sizable down payment to provide themselves with an equity cushion in case rates rise and they need to refinance or sell. With fixed rates owners can weather the short term ups and downs of the market because their monthly payments will remain the same.
Happy Home Hunting
James
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