The entire home-buying process can take weeks or months
San Mateo, Calif. (Vocus) October 21, 2009
With the 2009 first-time homebuyer tax credit of $8,000 expiring Dec. 1, would-be buyers must act now to claim the credit and possibly lower their mortgage debt. Free online consumer portal Bills.com has eight tips to help home buyers make their purchase a reality.
Some are speculating that the first-time home buyer tax credit will be extended, perhaps by another year, but Congress has not yet taken action. However, the U.S. House of Representatives last week did pass a bill that would extend the credit for another year for U.S. service members who served at least three months of qualified overseas duty during 2009.
"The entire home-buying process can take weeks or months," said Ethan Ewing, president of Bills.com. "Buyers must take into consideration the mortgage approval process, the home appraisal, the home inspection, all required paperwork and seller requirements. Therefore, home buyers who hope to take advantage of this credit need to find a home to purchase now."
The 2009 American Recovery and Reinvestment Act provides tax credits of up to $8,000 for Americans who buy their first home this year. The definition of "first-time" buyers includes people who have never owned a home and those who have not owned a home for several years.
Ewing offered eight tips to help buyers open the door to a home of their own:
1. Double-check credit. The mortgage industry meltdown means the best deals go to buyers with spotless credit. People with damaged credit might not be able to get a home loan at all, or may face high interest rates. "Before starting house-hunting in earnest, check your credit report to be sure it does not show any incorrect information. If it has an error, dispute it immediately and make copies of evidence regarding the error to discuss with your mortgage lender," Ewing said.
2. Talk to lenders. Ask friends and relatives for references to reliable mortgage lenders. Be sure the lender you choose has all appropriate state licenses. Check rates and offers from several mortgage professionals. Credit scores do not decline if multiple similar credit report requests are submitted within a close time period (usually a few weeks), so it pays to shop around.
3. Home prices are still low. Home prices have increased slightly since the beginning of 2009, but they are still about 13 percent lower than they were a year ago. That means now is an excellent time for a home investment for those who are financially prepared.
4. Interest rates are still great. Mortgage interest rates have dropped again this fall, to about 5 percent annually for a 30-year fixed-rate mortgage.
5. Savings are required. A down payment is essential today. Ideally, buyers will put down 20 percent of the purchase price. If not, ask the mortgage lender about options before getting too far into the process.
6. Know all costs of ownership. The principal and interest on a mortgage payment are only the beginning. Escrow payments – money set aside by the mortgage holder to pay insurance and taxes – and private mortgage insurance, if it is required, can add a few hundred dollars or more per month to a mortgage payment. In addition, home owners must pay for repairs and maintenance. A rule of thumb is to budget 1 percent of the home's purchase price per year for upkeep.
7. Buyer beware. Some seeming bargains on homes today are "fixer-uppers" or homes sold "as is" because of foreclosure. Invest in a home inspection (typically costing about $400) before agreeing to purchase any home. The inspection will highlight any faults in the home and help estimate the cost to remedy those problems.
8. Be wary of "short sales." A short sale is a home sale where the owner must sell the home for less than is owed on the current mortgage. Because the bank must approve any such sale, a "short-sale" home may have a sales and negotiation process that is too lengthy to be completed before the tax-credit deadline. Additionally, short sales are usually "as is," which may carry more risk than makes sense for many first-time buyers. Instead, look for a good value in a conventional home sale.
"Home ownership remains a good investment and a big part of the American dream. If you are able, you may be able to save thousands on your piece of that dream by buying this year -- but you must act quickly," said Ewing.
Based in San Mateo, Calif., Bills.com is a free one-stop portal where consumers can educate themselves about complex personal finance issues and comparison shop for products and services including credit cards, debt consolidation, insurance, mortgages and other loans. Bills.com holds the No. 273 spot on the Inc. 500 list for 2009.
Bills.com and its sister companies, Freedom Debt Relief and Freedom Tax Relief, are wholly owned subsidiaries of Freedom Financial Network, LLC. The company has served more than 50,000 customers nationwide since 2002 while managing more than $1 billion in consumer debt. Its RSS feed is available here.