By now everyone has heard of, whether you agree with it or not, the stimulus package signed into law by our new President. Included is the $8000 tax credit for first time homebuyer's that NO longer needs to be repaid as long as it is your principal residence for at least 3 years. I want to get more into what the steps first time homebuyers will go thru, but before doing so, here are the basic terms of the tax credit at a glance:
-Tax credit is for 1st time buyers only
-Credit does not have to be repaid as long as it is principal residence for at least 3 years
-The credit is equal to 10% of the purchase price of the home up to a maximum of $8000
-Available for homes purchased on or after Jan 1, 2009 and before Dec 1, 2009
-To qualify single taxpayers can have incomes up to $75,000 and married couples up to $150,000 to qualify for the full credit, those with incomes over these amounts can potentially still qualify for a percentage of the credit, which can be further discussed with your tax advisor.
As with any legislation, there are many terms and conditions involved with this credit. I wholeheartedly recommend that you speak with you mortgage advisor and/or tax professional for a full list of provisions.
So you have decided, like many others, that now is a great time to buy your first home. In this market where interest rates are low and there are numerous homes on the market to choose from, first time home buyers have a distinct advantage. The biggest advantage that you have is that you do not have another property to sell before you can purchase a home. Sellers in this market do not want to take their home off the market while you wait to sell your home. The other distinct advantage that you have is the low interest rates available on home loans. Some may say what if home prices drop 10%? I am going to furious with myself for not waiting! Yes you could pay less for the house in a year if prices were to drop 10%, but what happens if by that time interest rates go up even 1%? A $250,000 mortgage (not including taxes and insurance) at 5.5% would put your monthly mortgage investment at $1419 per month. Say that same house 1 year from now drops 10% and you can get a $225,000 mortgage for your new home, but the interest rate rises just 1%, you will now pay $1422/month for that house. So you actually lose $3/month by waiting for prices to drop. This is just for comparison, as many areas have not seen a 10% decline in values, but just something to keep in mind as many people are asking why is now a good time to buy?
So now that you have decided that you are going to jump feet first into the pool of homes available for sale what are the next steps that you should take? (Some buyers will complete #2 before #1, but both are important 1st steps)
1) Speak with a mortgage consultant you feel comfortable with about what you can afford.
- Be sure to get a good faith estimate from this lender that shows all the fees that you are going to be paying for the loan. Some lenders will charge points in order to make more money off the loan that they are selling you (1 point is equal to 1% of the total loan amount- a $200,000 mortgage with one point will cost $2000). Sometimes you may want to pay a point upfront to lower the interest rate for the life of the loan. Just make sure that if you have a question about a charge that you get an answer that you are comfortable with. If a lender doesn't give you a satisfactory answer, go to someone who will. Make sure you are comfortable!
2) Do some research about homes that are available for sale in areas that you are interested in living in. With the amount of home search sites now on the internet you can find a site easily, but www.AndrewHimes.com will show you every home available for sale in the Delaware Valley region. Once you have found an area that you are interested in you will need to find an agent that you are comfortable working with. It may not be the first agent that you come in contact with, but with the same as the lender that you are working with you need to make sure that you and the agent you choose are able to work well together. Don't be afraid to find someone else if you feel that you aren't compatible, but once you do find someone you can trust and work with, stick with them, they are working for you and in your best interest.
3) Once you have had a chance to sit down with both a lender and your agent, now comes the fun of going out and actually viewing homes that are of interest. You will have your mortgage pre-approval ready should you find your dream house. You may find that perfect home on your first day out looking at homes, it may take longer, but once you find it be ready to pull the trigger. Homes that are priced right are the ones that are selling and if you wait too long it may be gone before you ever have the chance to make an offer. Just this month I have had 2 buyers put offers in on homes that have had multiple bids on them, while the home next door has been on the market for months, it is overpriced and buyers have no interest in overpriced homes in this market.
4) When you are putting an offer together you will need an earnest deposit to put down with your offer and this amount will vary by area and the type of mortgage that you will be using. Your agent will be able to help you determine what amount is typical for your area. This deposit will then come off of the total amount of money that you will need to bring to the settlement table for closing.
5) Determining an offer price. Your agent again will give you info on previously sold properties in the area to help you base your offer price on. This will give you an idea of what a reasonable price for the home is. Your agent will then help negotiate the best possible price for the home.
6) Inspection Time! In PA there are numerous different inspections that are to be performed by the buyer, should you elect to do so. I would never tell anyone to not get an inspection done on the property that they are purchasing, but again the ultimate decision comes down to your comfort level. The main inspections done during a home purchase are a: Full Home inspection, Wood Destroying Insect Inspection, Radon Testing, Water Test for Private Wells & Sewer Inspection for On-Site Sewage. There are others that are more area specific and will be discussed with you by your agent when explaining the agreement of sale. After these inspections you will have the ability to negotiate with the sellers any items that were brought to your attention by the inspector(s).
7) Other contingencies to the purchase- Some properties will be in a Home Owners Association or Condo Association and you are entitled to receive the Rules and Regulation from the Association to review before you finalize the purchase of the property. In most cases the seller is responsible for getting these documents to you for review and you have a specific time frame to review these documents and bring up any questions before hand
8) Finalize the mortgage with the lender. At this point you have submitted a full application to the lender and you are just waiting to get the final mortgage commitment. Once this is completed you are just waiting to show up to settlement and purchase your new home.
Of course, each home purchase is different and some other items will need to be completed by you and/or your agent, but this is a means to help get you prepared for one of the biggest purchases in your life. I wish you the best of luck in your endeavor and if I can be of any assistance please feel free to ask.
Andrew Himes, Realtor®, e-PRO®, ABR®
Prudential Fox & Roach Realtors, Collegeville, PA