With the current financial situation, many people are asking themselves whether now is a good time to buy a home. This is actually a very personal question and there is no stock answer that will be right for everyone. Instead, it is important to evaluate your individual financial situation and personal needs, before making what is for many the biggest single investment of their life.
With that said, there are a few silver linings to the current economic situation, making buying a home a very attractive decision, especially for first time home buyers.
The number of foreclosures is still on the rise and while this is quite sad for those who are facing foreclosures, it means that there is an increased number of homes available on the market, which are priced significantly below what would have been considered fair market value even just a few years ago.
With many banks wanting to get the bad debt off their books, there are numerous opportunities for someone to buy a foreclosed home at significant savings. This is not reserved to only homes in poor neighborhoods or in bad condition either, as millions of homes all over the country are currently empty.
An increase in foreclosures also has an impact on the price of other homes, as with so many options available, home values across the country are dropping.
With that said, it is important to consider what this means about the generally accepted value of a home. Many of the root causes of the current financial situation can be traced back to the commonly held belief that “home values will always rise,” leading many to become involved in homes they can not afford. It is commonly held thought that home values are not actually at an all time low, but are instead reverting back to their actual value.
Interest rates are at an all time low, in part because the FED, which regulates interest rates on borrowed money, have set the interest rate at basically zero. While the FED interest rate is not the same one that lenders offer, mortgage banks base their interest rate off of the FED rate, which is why we are seeing historically low interest rates.
Where even just a few years ago, getting a fixed rate below 6% was all but unheard of, many lenders are now offering rates that are closer to 4% or even lower. This low interest rate can save thousands and thousands of dollars in interest.
Last year, President Obama initiated the First Time Home Buyers Tax Credit, which offered up to $8,000 in the form of a tax credit that did not need to be paid back. The first time home buyers tax credit was intended only for those who had not owned a home in the last three years and was considerably different than the previous credit, which was a no-interest loan.
This tax credit was set to expire in December of 2009, but congress voted to not only extend it, but also offer a slightly reduced tax credit to people who have owned a home in the last three years.
These new tax credits for homeowners can significantly reduce costs and since it does not need to be paid back, it is a very attractive offer making buying a home in 2010 much more affordable. Those that can afford it can significantly reduce their interest payments by applying it towards the principal of the home or simply using it to help cover their bills.
In Western Cultures, almost everyone would like to be rich. This is the nature of a capitalistic society and the line between greed and wealth is often intertwined. One of the most popular ways of making money is investing and Real Estate Investment can be very profitable.
When investing in real estate, there are several different approaches, but the age old adage of “Buy Low and Sell High” is something that has historically worked very well in the real estate industry.
Some people prefer to buy a home, perhaps fixing it up, and then sell it. This is often referred to as Flipping a Home, as the idea is that you buy it and sell it as quickly as possible for a profit.
While many have had tremendous success buying and flipping homes, there is a very high risk associated with it. This is because you are to a large degree at the whim of the current housing market. If house prices begin to fall or there are too many under priced homes in the area, this can mean taking a loss.
The current market of an excellent example of how this can backfire. Starting in the Nineties and continuing until a few short years ago, home prices were almost always increasing. It was common for a home to increase 25%, 50% or even 100% in the course of only a year or two. As a result, real estate investors were making incredible profits. Then, beginning in 2007, the bottom fell out of the credit market, home values began dropping, and people began loosing their homes. Many investors were left holding homes that were no longer increasing in value and were actually depreciating.
The other disadvantage is that most of the time, the investor is fighting the clock. Seldom will they actually purchase the home outright and instead a mortgage is usually used. This means that each month that the house remains unsold, they are loosing money.
Today, home prices are actually much lower than they were, but in the past when flipping a home, it was often necessary to find a home that was in disrepair and fix it up. This works extremely well for those who can preform the work themselves, which is called sweat equity, but for those that must hire contractors this can be very expensive.
Also, as a result of the fluctuating home prices, many investors have lost money after paying to fix up a home that was in disrepair.
Choosing the right mortgage lender is one of the most important steps a home owner will make when purchasing a home. Buying a home is a very big long term investment and you do not want to end up in a bad places, such as by using a subprime lender to finance your mortgage.
One of the most important steps in selecting a lender is to explore all of your options. It is generally not a good idea to jump on the first offer that you receive, but instead you should take this offer and compare it to other lenders. This way, you will have a much better idea of how competitive the mortgage offer is.
Usually, the best place to start looking for a mortgage at your local bank. In most cases, your own bank will be more inclined to work with you if there are discrepancies on your credit report and will be able to give you a fairly quick response. There are several reasons for this, but much of it comes down to the fact that you are their customer and as long as you have a good relationship with your bank, they will want to keep you happy.
Another reason it is a good idea to speak with your bank, or at the very least an actual local brick and mortar bank, is that these types of banks typically have a fairly competitive interest rate, which is indicative of the current market. So, by starting with your own bank, you will have an incredibly solid basis for comparison, when evaluating your options.
Next, it is a good idea to speak with a few mortgage brokers. Your real estate agent may have one they recommend, but remember they do get a commission if you use them, so their suggestion may be biased. However, since you are not obligated to use their broker, there is seldom any harm in investigating what type of deal they can offer. In some cases, they will be able to give you a rate that is considerably lower.
However, mortgage brokers are basically commission based salesmen. They usually have relationships with multiple lenders and will be able to check each of these lenders to find the best deal. Since they are commission based, mortgage brokers will only get paid if you go through them though, so it is very important to understand that not all mortgage brokers will be working in your best interest.
The Internet is a powerful ally when purchasing a home. It can be an excellent tool for finding home values in the area or even using Goolge Street View to take a virtual tour of the neighborhood. It can also be an excellent way to vet prospective lenders.
You can start by checking Google News and searching for the name of the company. By default, Google News will only show you the most recent stories, so make sure you expand your search to at least include the last few years.
By searching for the name of the company, you will be able to find out any important events that have occurred, as well as any legal troubles they may have had.
Next, do some regular searches to see what people are saying about the lender. However, remember that the company may be setting these sites up themselves, so they should be taken with a grain of salt. Also, NEVER give out your personal information when preforming this type of research.
Once you have several offers, both from your bank, a mortgage broker, and perhaps a mortgage bank, which is a bank that is primarily in the business of issuing mortgages, compare the different offers to find out what is the best for your situation.
This stage of the process is fairly straightforward, but it is important to not only take into account the interest rate and monthly payments, but also the companies policies. For example, the mortgage broker might offer you the best deal, but require that you pay a certain percentage of the sales as their commission. This percentage is called the brokers “points” and it could very well be that after you pay the points, you end up worse off than if you paid a slightly higher interest rate. Many of these fees, which are often called “junk fees” can actually be negotiated though.
In addition to looking out for the additional costs of the mortgage offer, it is also important to take into account their policy on late payments and how it affects your interest rate.
Often, the argument of Renting vs Buying comes up and both sides of the debate bring up some very important points. However, in the end, no argument should be taken at face value and instead each person should take the time to evaluate whether renting or buying is best for them.
One of the main reasons that many like renting is that if something breaks, you can just call up your land lord and let them worry about it. For example, if the Air Conditioning needs to be replaced, it will come out of the land lords pocket and not yours. This means that you are not reliant upon your own funds or time to fix a problem and instead can simply pick up the phone.
Not only, do you not need to worry about things breaking, but basic home care is seldom the concern of a renter. This means you don’t have to worry about replacing the roof or a tree falling on the home. Instead, usually the biggest upkeep a renter might have to worry about is mowing the lawn.
Another reason many people prefer renting is that it offers more freedom than owning a home does. This is to say, if you want to pick up and move to a different city or even country, you can do so, with little or no consequence. In the worst case scenario, you might be breaking your lease, in which case you would loose your deposit, but aside from this, there are very few ramifications for leaving. This can be especially important when you are young and have not settled down yet.
When you purchase a home, you are also in some regards at the whims of the market. For example, home prices have been dropping for the past year or so and many people now owe more than their home is “worth.” This isn’t necessarily a problem, but if you do decide to sell your home when the value is low, you will loose money. Home values and property values is not something a renter has to worry about.
Buying a home is also a big commitment financially and since most people don’t have the money to buy the home upfront, they must use a mortgage. This means that you not only owe your lender a great deal of money over the course of a long time, but you also end up paying a great deal of interest on the home.
Renting offers some advantages, but it also has some downsides. One of the biggest downsides is that at the end of your lease, you don’t have anything to show for all the money you spent. In some regards, it is really money down the drain, as you see no return on the money you spend renting. This differs from owning a home, where each of your payments is going towards the principal of your loan.
Of course, being that most mortgages are for 30 years, much of the money you spend on your home is going towards interest, so this point is arguable. However, in most cases, when you decide you are done with your home, you can sell it and at least get some, if not more, of your money back. This can not be said of renting, in that when you walk away from your rented home, you will have nothing, except perhaps your deposit.
Another disadvantage to renting is that you are at the whim of the landlord. There are of course a number of renter’s rights, so there is some protection, but in the end, if your landlord wants you out, you will end up out.
Also, by renting, you loose a great deal of your privacy. It is not uncommon for the landlord to send someone over every month to check your filters, fire alarms, and ensure the apartment is in good repair. If they decide something needs to be fixed or replaced, there is little you can do to avoid them coming into your home. This is not the case when you own your own home and are, in effect, your own landlord.
Ultimately, whether renting or buying is best for someone, greatly varies from person to person. What is an advantage to some, might be a disadvantage to others, so it is very important to analyze your current financial and personal situation, to determine what is best for you.
A big part of this decision also comes down to analyzing the current housing market and knowing when to act. For example, house prices are currently at an all time low, as are interest rates. Compared to a few years ago, you can get much more bang for your buck, so it could be a very good time to buy a home. It could be that house prices and interest rates will continue to go down, but they are currently lower than they have been for many years and eventually, the prices will go back up. Knowing when to get your money in, is a big part of deciding between renting vs buying.
The First Time Home Buyers tax credit provides an excellent incentive for new homeowners to take advantage of the extremely low home prices and interest rates being offered. However, there are less than two months left for new homeowners to take advantage of this tax credit, with the incentive program expiring on December 01, 2009.
The first time home buyers tax credit is part of a number of incentive programs designed to stimulate the US economy. Often dubbed the Obama Tax Credit or Obamas First Time Homebuyers Credit, what makes this tax credit unique is that it does not need to be paid back. Instead, the homeowner is given a check for up to $8,000 that can be used for whatever they want, providing the homeowner remains in the home for at least 3 years.
This amount of this tax credit is based off of 10% of the homes value, with a limit of $8,000. This means that any home priced below $80,000 will qualify for 10% of the homes value, while any home priced at or above $80,000 will qualify for $8,000.
One of the great things about this tax incentive is not just that it does not need to be repaid, but that it can be applied for on the 2008 tax return or the 2009 tax return. By claiming it on the 2008 tax return, it is possible to get the money early, by filing for an amended tax return. This is rather simple and involves submitting another IRS form 1040, as well as the required information for the First Time Home Buyers tax credit, tax form 5405.
Another option to receive the money early is to simply adjust the number of deductions claimed on your paycheck. So, for instance, if you normally claim 0, you could claim 2, so less money is taken out of your paycheck each week. However, when going this route, it is very important to keep track of how much money is being taken out, because if you exceed the first time home buyers tax credit, you will end up owing money to the IRS. After you have taken enough money out, it is also essential to switch your deductions back to normal.
It is very important to note, however, that if you owe any money to the IRS, this money will be deducted from the tax credit, with the balance returned to the customer.
Requirements for the First Time Home Buyers Tax Credit
In today’s housing market, homes prices are at a historic low, as are mortgage rates. For those who have been saving money and waiting to buy a home, there are a number of really great deals available. This includes, of course foreclosures, of which there are literally thousands and thousands across the United States, but even new home builders have been feeling the crunch, so getting a great deal on a home is possible.
In addition to these incentives, the government is also offering an incentive of its own to help make buying a home easier and less expensive for new home buyers. This incentive comes in the form of a tax credit for first time home buyers, which can cover up to 10% of the homes cost, with a limit set at $8,000.
When figuring the amount of the tax credit, the lesser of the two values is used, so for a $60,000 home, only $6,000 would be received as part of the first time home buyers tax credit. For a $150,000 home, only $8,000 would be provided.
This is not the first time the government has offered an incentive to those who have purchased a home, as they have previously offered a no-interest loan. However, the current tax credit for new home owners is different in that it does not need to be paid back. Instead, the tax credit, with its $8,000 limit, comes in the form of a check that can be used by the homeowner to help cover the cost repairs, bills, or anything else that the homeowner needs.
The first time home buyers tax credit, which is often referred to as Obamas Tax Credit or Obamas First Time Home Buyers Tax Credit, is available to those who have purchased a home during 2009, specifically between January 01, 2009 and December 01, 2009.
The home can be a traditional single family home, a modular home, a manufactured home, and even a house boat. Mobile homes and new construction are also covered by the Obama housing tax credit.
There are several other provisions to the First Time Buyers Tax Credit, most notably that the home owners must not have owned another primary residence over the last three years. For those that are married, this stipulation applies to both spouses.
An income cap is also set, with those who make more than $75,000, or $150,000 for married couples, not being able to receive the full $8,000, although a partial tax credit may be available.
The major difference between this and other stimulus plans, such as the 2008 First Time Hombuyer Credit, is that the tax credit will not need to be repaid by the home owner. Instead, it comes in the form of a check and can be applied for when you file your 2009 tax return in April. It is necessary to include a Form 5405, with your standard tax return.
However, it is not necessary to wait until April and it is also possible to file an amended tax return. Simply follow the instructions to amend your 2008 tax return, including the IRS Tax Form 5405, and it is possible to receive the Obama Housing Credit within 8 weeks.
It is also possible to change the number of dependents you claim at work, so that less money is taken from your paycheck every month. However, if you decide to go this route, make sure you are 100% certain you are eligible to receive the Obama Tax Credit, because otherwise you will end up owing the IRS money at the end of the year. It is also a good idea to calculate how much you have received, so you do not exceed the $8,000 first time home owners tax credit.
It is important to note, that the funds of Obamas Housing Credit will be applied to any money you owe the IRS first, with the balance returned to the homeowner. However, those who do not owe any taxes, even those who do not have any actual income, will receive the full $8,000 tax credit.