The housing market tumble has created an enormous opportunity for first-time home buyers, those that have not owned a home in three years or those wishing to move up. Home prices have declined 14% in the last year. Mortgage rates are low.
1. According to the National Association of Realtors the “housing affordability index” is higher now than at any point since the index was started in 1970. The affordability index measures the relationship between home prices, mortgage interest rates and family income. While home prices may fall further, there is no guarantee that they will, or that mortgage rates will stay at current low rates.
2. Now, the Federal Government, through the stimulus package, has sweetened the deal. First-time homebuyers, and those who have not owned a home in the last three years, may be entitled to a tax credit for purchasing a home. This credit is up to 10% of the home’s value, not to exceed $8,000. This is a real tax credit that can be used for tax year 2008 or 2009. For example, if you purchased your first home for $150,000 in March of 2009, you would be entitled to the maximum tax credit of $8,000. Let’s say you owed $1,000 in additional income tax for 2008. Now, because of this tax credit ($8,000)… instead of paying $1,000 to the IRS, they would send you a refund for $7,000. To qualify, your adjusted gross income must be below $75,000 for individuals or $150,000 for couples.
3. There is a large inventory to choose from. Currently, there is about a 12-month supply of homes on the market. This gives you, the buyer, extra bargaining power. But, as the inventory of homes decreases, so does your bargaining power.
4. Builders are offering extraordinary deals. Home builders may be even more aggressive with their negotiations than foreclosed property or individual homeowners. Another advantage of purchasing from a builder is you get a warranty on the home and its appliances. Why would builders be more aggressive? They want to save their credit, their brand name, and reputation.
5. Mortgage rates are low. These rates affect your monthly payments. The lower the interest charged on your mortgage, the lower your payments. Right now the Federal Government is taking extraordinary steps to keep mortgage rates low. The Federal Reserve is buying up to $500 billion in loans, and the Treasury Department has just announced a $200 billion purchase of Fannie Mae and Freddie Mac preferred shares. These low rates will not be with us for long.
Before deciding on a home purchase, meet with your financial advisor and go over your finances. He or she will be able to tell you how much house you can afford. Making sure that you do not get over your head is more important now than ever. Also, it is a good idea to get pre-approved for your mortgage before you go shopping. With a pre-approved mortgage, you will be in “the catbird seat” when it comes to negotiations.
What questions potential homebuyers should know:
* What percent of income should my mortgage payment be?
* Can I afford to take the jump into homeownership?
Get with your Money Concepts advisor and get the real answers to your real questions. While we are not real estate brokers, we can review your current financial condition and provide you with real life guidelines. Afterwards, you can work with real estate experts who can help you negotiate a deal that fits within your guidelines.