It is 2010. You’re a first time, or maybe even a second-time, homebuyer and you still aren’t sure if buying a home is the right thing to do now. Maybe you won’t qualify for a mortgage. What if home prices haven’t quite bottomed out yet? Perhaps, you don’t know where to start. After all, buying a house is such a daunting task; perhaps you’re just not ready. Malarkey!
I am confident the first four months of 2010 will prove to be a watershed event for homebuyers. Never in our history has a confluence of events occurred that creates a stronger “BUY” signal than today. Here are some reasons why you will be kicking yourself a year from now, wishing you had listened to everyone who advised you to purchase your new home.
First, the $8,000 first-time homebuyer tax credit will expire at the end of April. If you haven’t owned a house in the last three years, you are literally throwing money away by not buying. The tax credit is a dollar-for dollar offset of your Federal Income Tax liability, and as a refundable credit, you get it even if you don’t owe that much in taxes! Even if you’ve owned a home, the expanded credit still gives you $6,500 as long as you’ve been in your current home for five years. Low to moderate income buyers even have the opportunity for additional assistance through various state and municipal down payment assistance programs that can further reduce their out of pocket expenses.
Contributing to home affordability are mortgage rates, which are at or near low historical levels. The Federal government has been keeping rates artificially low to help the housing market recover, but this won’t continue much longer. More than likely, the Fed “subsidies” will end sometime in the first half of this year, meaning rates will rise and you won’t be able to buy as much house as you can today. Recently, qualifying for a mortgage has become more difficult; you actually have to pay your bills and have enough income to repay the loan. Nevertheless, if you have just a few nicks on your credit report, they can often be overcome in the matter of a couple of months with some assistance.
Another reason to act now is potential changes on the horizon for FHA mortgages. FHA loans currently allow buyers to get into a home with as little at 3.5% down, and also offer much more flexible qualifying criteria than conventional loans. However, FHA is considering changes to their program that could increase down payment requirements, increase mortgage insurance premiums, reduce the funds sellers could contribute to cover closing costs, and tighten up qualification guidelines. Those borrowers who act before any of these potential changes take place may have a far easier time getting into a home.
Finally, home prices have fallen significantly from their highs during the real estate boom. Home prices nationally are down more than 25% from their 2006 peaks. Some markets, like Las Vegas and Phoenix, haven’t seen home prices this low since the early part of the decade. What this means to you is a great deal. Imagine if you had an opportunity to buy IBM in July of 2002 at $69/share, would you have done it? Incidentally, IBM is trading around $130/share today.
Overall, housing affordability is at its highest point since the mid 1970’s (I think Barry Manilow’s “Mandy” was #1 at the time). Courtesy of the real estate meltdown, buyers today are getting a steal in historical terms. Waiting even a couple of months could cost you thousands of dollars in combined tax credits, interest, closing costs, and home equity, so stop making excuses and contact your mortgage lender to get pre-qualified. It could be the best financial decision you will ever make.
If purchasing a home in a rural area using the USDA Guaranteed Rural Housing mortgage program is in your future, you might want to shift your plans into high gear. The Rural Development national office in Washington, D.C., recently issued a letter to participating lenders stating that funding for the Guaranteed Rural Housing program would most likely be used up by the end of April 2010.
