Is Now a Good Time to Buy a Home?
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.
Record Low Home Prices
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.
Record Low Interest Rates
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.
Tax Credits for Home Owners
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.