Some Home Buyers Should Buy Immediately

You're probably thinking: "Of course, she would say that. She's a Realtor, and agents always say 'Now is the best time to buy'." Well, here is why:

• If you are a seller who wants to move up to a more expensive home in a down market, now could be the best time. The longer you wait to sell, the lower the price of your home could fall.
• If you can arrange for alternate housing, a smart strategy is sell now, wait a few months, then buy your new home.
• If you sell and buy simultaneously, you'll still be ahead of the game because the price reduction on the purchase is greater than the loss on the sale. 

Consider the "Loss" on Selling Your Present Home

For example, say your present house is worth $300,000, but because of high inventory and few buyers, you must reduce your price by 10%. So, instead of receiving $300,000, you would get $270,000 and "lose" $30,000. 

Consider Your Real Profit

Now, consider this. Say you bought this home 10 years ago and paid $100,000. You're still ahead $170,000, less costs of sale, aren't you? (This ignores monthly payments, but you would make those if you were renting, too.) 

Consider the "Savings" on Buying Your New Home

If you are planning to move up to a $500,000 house, which is located in the same distressed market, you could probably buy that house at that same 10% discount or $450,000. This would mean you had saved $50,000. 

Review of Selling and Buying Numbers 

1. So you "lost" $30,000 on the sale of your home
2. But you "made" $50,000 on the purchase of your new home
3. Doesn't that put you $20,000 ahead? 

Don't Forget the Impact of Interest Rates

Which way are interest rates moving? Are they moving up or moving down? If interest rates are near an all-time low and beginning to inch upwards, waiting could cost you more than you would think. You might not be able to afford to buy a home at any price.

• FACT: Each 1/2 point increase in your interest rate gives you $25,000 less in purchasing power.
• FACT: Each 1 point increase in your interest rate gives you $50,000 less in purchasing power.
• FACT: Each 2 point increase in your interest rate gives you $100,000 less in purchasing power. 

  Look at the Differences Among Purchase Prices versus Interest Rates

  If you put down 20% and qualify for an 80% loan, here are your principal and interest payments on the following purchase prices: 

  • $425,000 sales price, at 8.25% interest, your payment is $2,554.
     
  • $450,000 sales price, at 7.75% interest, your payment is $2,579.
     
  • $475,000 sales price, at 7.25% interest, your payment is $2,592.
     
  • $500,000 sales price, at 6.75% interest, your payment is $2,594.
     
  • $525,000 sales price, at 6.25% interest, your payment is $2,586.

  The payments are almost identical. However, the home you can afford to buy a 8.25% is $100,000 less than the home you can afford to buy at 6.25%. If you wait for prices to further decline, the perceived value could be lost due to higher rates.

  A good strategy is to weigh all the pros and cons of real estate ownership before making the decision to buy or sell. Don't panic over newspaper headlines. Make an informed decision. Run your own numbers.

FAQs Regarding U.S. Homebuyer Tax Credit Extension, Expansion

From the National Association of REALTORS, here are some of the most frequently asked questions on the changes to the Homebuyer Tax Credit signed into law on November 6 by President Obama.

QUESTION: Existing homeowner credit: Must the new house cost more than the old house?
ANSWER: No. Thus, for example, individuals who move from a high cost area to a lower cost area who meet all eligibility requirements will qualify for the $6,500 credit.

QUESTION: I am an existing homeowner. On October 25, 2009, I signed a contract to purchase a new home. I have lived in my current home for more than 5 consecutive years and am within the new income limits. I will go to settlement on November 20. Do I qualify for the new $6,500 tax credit?
ANSWER: Yes. The existing homeowner credit went into effect for purchases after the date of enactment (Nov. 6, 2009). There is no reference to the date of contract for the new credit. The provision looks solely to the date of purchase, which is generally the date of settlement.

QUESTION: I am a first-time homebuyer but was not within the prior income limits at the time I entered into my contract to purchase on October 30, 2009. I will be covered, however, by the new income limits when I go to settlement, will I be eligible for a credit?
ANSWER: Yes. The new income limitations went into effect as soon as the President signed the bill. The income limit and other eligibility rules look to your status as of the date of purchase, which is the settlement date. So when you go to settlement, you should be eligible for the credit (or a portion of the credit if you're within the phase-out range).

QUESTION: I am an eligible existing homeowner. I have a fair amount of equity in my home. I have found a home with a non-negotiable price of $825,000. Will I be able to use any of the $6,500 tax credit?
ANSWER: No. The $800,000 cap on the cost of the purchased home is firm. Any amount above $800,000 makes the home ineligible for any portion of the credit. The $800,000 is an absolute ceiling.

QUESTION: I owned my home for 10 years, but sold it two years ago and have been renting since. If I purchase a home, will I be eligible for the $6,500 tax credit if I meet all the other eligibility tests?
ANSWER: Yes. Because you lived in the home for more than five consecutive years of the previous eight you will qualify for the $6,500 credit. For example, say John and his wife bought a home in 2000 and lived there until 2008, when he got a divorce. Whether John has been renting or bought in the interim, he WOULD INDEED be eligible for the credit because he owned a home and occupied it as his principal residence for five consecutive years out of the last eight years. The key word here is “consecutive." As long as he lived in that house for five years straight, what he did since then doesn't affect eligibility.

QUESTION: I am an eligible first-time homebuyer. I entered into a contract to purchase on November 1, 2009. Do I have to go to closing before December 1? How does the extension date affect me?
ANSWER: You do not have to close before December 1. Now that the legislation has been signed, it will be as if the November 30 date had never existed. Therefore, so long as the binding contract is in place by April 30 (and you close before July 1), you will be eligible for the credit.

 More Information

Buying a home for the 1^st Time

By Elizabeth Weintraub, About.com Guide

It's not uncommon for a first-time home buyer to say to me, "Gosh, just last week I called you about buying a home and now I'm in escrow! How did this happen so fast?"

The answer is it didn't. First-time home buyers start the search long before most even realize it. Here's what you can expect from your home shopping experience.

Benefits for a First-Time Home Buyer

You should buy a home. That's what you've been hearing from friends and family, right? So, by now you have likely already weighed the benefits and decided that home ownership was the best decision for you. That's a major hurdle now passed. You are focused and certain. Good.

Defining Search Parameters for a First-Time Home Buyer

Almost 80% of all home searches today begin on the Internet. With just a few clicks of the mouse, home buyers can search through hundreds of online listings, view virtual tours, and sort through dozens of photographs and aerial shots of neighborhoods and homes. You've probably defined your goals and have a pretty good idea of the type of home and neighborhood you want. By the time you reach your real estate agent's office, you are halfway to home ownership.

How Long Should It Take to Buy Your First Home?

In seller's markets, often I show only one home. After all, how many homes does one family need? A few buyers will look for years, but buyers who do that aren't motivated. A motivated buyer will find a home within two weeks. Most of my buyers find a home within two days.

Good real estate agents will listen to your wants and needs and arrange to show only those homes that fit your particular parameters. Your agent should preview homes before showing them to you as well.

How Many Homes Will a Home Buyer See?

Studies show that your memory dramatically improves after consumption of carbs and slows upon consuming sugar. So, lay off the soft drinks and have a hearty meal of carbs before venturing out to tour homes. The average number of homes that I show to a buyer in one day is seven. Any more than that, and the brain is on overload. Therefore, don't expect to see 20 or 30 homes; although it's physically possible to do so, you probably will not remember specific details about any of them.

The "Red Shoes" Experience for a Home Buyer

Women will relate to this. Say, you need a new pair of red shoes. You go to the mall. At the first shoe store, you find a fabulous pair of red shoes. You try them on. They fit perfectly. They are glamorous. Priced right, too. Do you buy them? Of course not! You go to every other store in the mall trying on red shoes until you are ready to drop from exhaustion. Then you return to the first store and buy those red shoes. Do not shop for a home this way. When you find the perfect home, buy it.

How a First-Time Home Buyer Can Rate Inventory

·                        Bring a digital camera and begin each series of photos with a close-up of the house number to identify where each group of home photos start and end.

·                        Take copious notes of unusual features, colors and design elements.

·                        Pay attention to the home's surroundings. What is next door? Do 2-story homes tower over your single story?

·                        Do you like the location? Is it near a park or a power plant?

·                        Immediately after leaving, rate each home on a scale of 1 to 10, with 10 being the highest.

View Top Choices a Second Time Before Buying That First Home

After touring homes for a few days, you will probably instinctively know which one or two homes you would like to buy. Ask to see them again. You will see them with different eyes and notice elements that were overlooked the first go-around.

At this point, your agent should call the listing agents to find out more about the sellers' motivation and to double-check that an offer hasn't come in, making sure these homes are still available to purchase.

Making the Selection To Buy a Home

I'll let you in on a little secret. I generally know which home a buyer is going to choose, and I suspect most other agents operate the same way. It's an intuition. But I make it a practice not to steer buyers, and I insist that buyers choose the home without interference from me. It's not my choice to make.

Real estate agents are required, however, to point out defects and should help buyers feel confident that the home selected meets the buyer's search parameters.