People can say that I'm biased because I'm a REALTOR, but the truth is, if your a qualified 1st time homebuyer with decent credit and have a little money saved up, STOP THINKING AND START ACTING! The window of opportunity has presented itself and it won't be open forever.
When I was 23 (2003), I bought my first house because I had a decent job, mortgage rates were very low, and mortgage guidelines made it fairly easy to qualify. I had a 4.125% 3 year adjustable rate mortgage on a fixer upper that I was excited to fix. I lucked out as it was right before the big boom in our area and I ended up with some decent equity.
FAST FORWARD
Now, I wish I was a first time homebuyer all over again.
Here's the situation:
- There's an incredible inventory of properties at the lowest prices the market has seen in years
- Interest Rates that are averaging the lowest they've been in over 50 years
- An $8,000 tax credit for qualified buyers (or 10% of the home value) can be applied to next years taxes.
Let me put this into perspective. You buy a $200,000 house using an FHA Loan. If you have a decent job, or combined income if your married, and decent credit, you should qualify for an FHA loan which requires only 3.5% down to purchase (3.5% into the deal). Beyond that 3.5% you can have up to a 6% seller's assist. This means you can finance your closing costs into the mortgage if you are in a position where you need to keep your cash in your pocket.
If this doesn't seem to make sense here's some Mathmatics:
3.5% down on a 200,000 purchase price = 7,000.00 + closing costs (around 5% of purchase price) = 17,000.00 - 5% seller's assist = $7,000.00 total
Keep in mind if you are doing a seller's assist you are raising your loan amount and do need to make sure that the home appraises for the appropriate value. I recommend speaking to a qualified REALTOR to help you determine the market value of a property before making an offer.
THERE's MORE
Taking the above scenario one step further, now you qualify for the 8,000 tax credit because you make less then $75,000 (or $150,000 as a married couple). This will be added to your 2009 tax return. This credit will be on top of the incredible buying advantage of tax deductions including real estate taxes and interest that will come off of you gross annual income. Because you pay mostly interest on a 30 year loan in the first few years, you write off a lot of interest.
WHAT's It All Mean
With a loan amount of $203,000 (3.5% down + 5% assist), interest rate of 5%, and annual taxes of $3,500.00, you have a total monthly payment of about $1600.00 (includes insurance and PMI) and paid about $8,000 in closing costs. If you purchased the home by July you would pay 5 months or $8,000.00 by the end of 2009. Given the $8,000 tax credit you will receive, you would practically break even on your payments and need less then 10,000 to purchase.
THE BOTTOM LINE
The advantages of being a qualified 1st home buyer in this kind of market are ones that we may never be seen again. While housing appreciation may not be great over the next year, the outlook beyond, although unknown, should be more favorable. And do yourself a favor, find a home that's a great price because it needs a little paint and sprucing up. Use your imagination, enjoy creating your own home and build equity quickly. While the economy would like to make you think its all dollars and cents, a home is a wonderful thing to have.
PLEASE TAKE ADVANTAGE
**Please note that the numbers provided are for example only. I recommend you speak with qualified professionals to make sure the situation works for you.
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