Time to Buy a Home

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Is 2012 the time to buy a home?  There have been a number of recent housing reports that suggest this may be a great time to buy a home for a variety of reasons.

The January existing-homes sales report released by the National Association of Realtors, NAR revealed that the median sales price declined to $154,700.  According to the NAR this is the lowest level since 2001.

In addition, Freddie Mac, reported that the national average mortgage rate for 30 year fixed rate conventional mortgage dropped to 3.92% in January.  This set a new record low for mortgage rates.  Mortgage rates have been tracked since 1971.

The combination of record low mortgage rates and a substantial decline in home prices have dramatically improved home affordability for potential homebuyers.

In addition, rental rates for homes and apartments have increased substantially as demand for rental property has increased over the last few years. As a result, mortgage payments for a comparable home may be lower than monthly rental rates.

Therefore, it may be time to buy a home.   If you are considering purchasing a home there are a number of factors that should be considered to ensure you are making an informed decision.   Here is a list of considerations for anyone who is considering purchasing a home including first time homebuyers.

Personal Budget  – It is absolutely critical to review your income and expenses to see if you are living within your net income or using credit to supplement your living expenses and lifestyle.   You can easily create a budget by tracking all of your income and expenses for a minimum of 30 days.   You can use this information to look for ways to save money for a down payment and closing costs or offset a portion of the mortgage payment.  In addition, you may also want to consider establishing a separate home savings account to cover unforeseen expenses, normal maintenance and home repairs that are a part of homeownership.  Here is a link an article on Personal Budgets.

Cash to Close – Down payment requirements for many loan programs have increased since the housing crisis.  However, there are still a number of loan programs like FHA that only require a 3.5% down payment.  In addition, there are closing costs that are part of a home purchase.   Closing costs are negotiable.  Therefore, you can ask the seller to pay your normal closing costs as part of any purchase offer subject to certain lending guidelines.  Here is a link to an article on FiscalLiteracy.com entitled Money Saving Tips for Homebuyers.   It provides information how to save thousands in closing costs on your home purchase.

Pre-Qualification – It is essential for anyone considering purchasing a home to meet with a mortgage professional to get pre-qualified for the mortgage prior to actually shopping for a home.  Homeownership is typically the largest purchase and a mortgage is also the largest expense most people make in their lives.   Therefore, it is absolutely essential to understand the impact that homeownership and a mortgage has on every area of your personal finances.   In addition, you want to ensure you select a sales price, loan amount, mortgage loan program, monthly payment, etc. that meets your personal financial goals, objectives and your budget.   A pre-qualification will also show a home seller that you are qualified to present an offer on their home.   More importantly, a prequalification letter from a mortgage lender will provide you the peace of mind that you are selecting a home you can afford and have been prequalified prior to shopping for a home.

Credit Score – All mortgage lenders use credit scores as part of the underwriting and loan approval process.  In addition, the lender will use your credit score to determine your interest rate for your mortgage loan.  Therefore, it is absolutely essential you have the highest credit score possible to ensure you get the lowest rate possible and the best loan terms available.   A review of your credit report is typically part of a mortgage pre-qualification.  Use this opportunity to review your credit scores and ask for input on how your credit score may impact your loan approval,  loan program choices, interest rate and monthly payment.

Estimated Length of Homeownership – This is an important consideration that is often overlooked by homebuyers.   However, it can have a significant impact on your finances.   You should determine or estimate how many years you may own a home.  Use this information to evaluate mortgage lending costs like origination fees.  It typically takes approximately 5 years to recoup the costs of paying a 1.00% origination with lower monthly payments.   More importantly, if you are making a small down payment and are planning on moving in less than five years you may not have enough equity to cover the expenses involved in selling your home.  You can ask a Realtor to provide you an estimate of the total costs to sell the home you are considering purchasing if you plan on selling in a few years.

Tax Benefits & Considerations – You should speak with a CPA or income tax professional to understand the possible tax benefits and considerations of homeownership.  Depending on your specific circumstances you may be able to lower your income taxes.  If so, speak with the CPA or income tax professional about the changing your W-4 withholding deductions with your employer.  If you can decrease your income taxes from the mortgage interest expense, property taxes, etc. you may want to consider adjusting your W-4 withholding amounts to have less withheld from your monthly paychecks.  This would increase your net take home pay without changing your estimated year-end income taxes.

In closing, 2012 may provide the best opportunity in years to purchase a home due to the record low mortgage rates and substantial reduction in home prices.  However, the ultimate decision to purchase a home should be made based on your individual financial goals and objectives.  Take the time to become educated and empowered to make an informed decision. Seek out trusted professionals to help you make an informed decision.

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