First Time Homebuyers - Buy Now or Pay Later!
February 1st, 2010
If there’s one thing that is certain, it’s that time waits for no homebuyer. And this definitely applies to the benefits a first time homebuyer can receive if they buy a home now versus waiting.
One of the main benefits of a first time homebuyer signing a contract before April 30, 2010 to buy their first home is that they can receive an up to $8000 tax credit when they file their 2010 taxes. There’s no gimmicks with this credit. It is added to the “bottom line” of your taxes and refunded to you when you file. For example, if you owe $2500 on your 2010 taxes and claim this first time home buyer tax credit of $8000, you’ll end up receiving back $5500 in cash from the federal government. See www.irs.gov and look for form 5054 for the details of how to qualify for this credit and/or talk to your tax advisor for more information.
Another benefit of buying a home right now is that interest rates are presently floating around historically low levels, with general consensus in the financial markets being they will more than likely go up in the near future. The financial impact of an increase of even one percentage point on a mortgage rate can be expensive for a borrower. Say for example you borrow $100,000 at 5% over 30 years. Your monthly principal and interest payment would be $536.82 and you’d end up paying $93,256 in interest over the life of the loan. If this same note, however, was done at an interest rate of 6% instead of 5%, not only would your monthly payment go up to $599.55, but you’d end up paying $115,838.44 in interest over the life of the loan – a difference of over $22,500!
Finally, another benefit of buying right now is that lending requirements are slated to become even tougher in the Spring and Summer of 2010. Right now, FHA has one of the lowest downpayment requirements for borrowers at 3.5% and some of the most lenient credit score requirements. Thus it’s been a key lending source for most first time homebuyers.
FHA, however, has recently announced that sometime between the Spring and early Summer of 2010 they will increase the downpayment requirements to 6% for those borrowers with credit scores below 580 AND that sellers will only be able to pay up to 3% of buyer’s prepaid and closing costs instead of the 6% currently allowed. This means that some home buyers will not only have to potentially come up with a larger downpayment to get a loan, but that they may also have to pay a larger portion of their closing costs and prepaid items which they traditionally could have gotten the seller to pay on their behalf.
Other costs associated with FHA loans – such as the mortgage insurance premiums buyers who put down less than 20% on a new home purchase must pay as part of the loan and FHA annual premiums – will also increase in this same timeframe as FHA strives to increase its dwindling reserves and stabilize its lending business.
Where does this leave first time homebuyers? With not much time to act. I’m counseling all my clients that if they want to take advantage of the current tax credits and be able to get a loan at reasonable terms, they need to move now. If they don’t they will pay for their tardiness in entering the market and/or perhaps even forgo their dream of buying their first home.
I’d love to hear your comments on this blog! Feel free to contact me also with questions call me at 985-707-5035 or email me a pbennett@latterblum.com. Let’s get you moving! Anywhere in the country, I can get you there.
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Patricia Bennett
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