First Time Home Buyers Fuel Market
Monday September 1, 2014
A recent report put out by the National Association of Realtors showed that first-time home buyers accounted for 50% of all home sales in the first quarter of 2009. Interestingly, half of all home sales in that same period were also distressed, meaning they were foreclosures or short sales. But in any case, the first-time home buyer is emerging as a big factor in what most hope is the recovery of the housing market.
If you are one of those first-time home buyers, then you probably already know about the two most widely advertised and compelling reasons to purchase a condo or home right now. he first is the $8,000 Homebuyer Tax Credit that became available this year as part of President Obama's stimulus plan. And if you claimed the previous $7,500 tax credit on a home purchase and qualify for the new credit, you can file an amended tax form and get the $500 difference.
Basically, to qualify for the tax credit you must be a first-time buyer. This means that you haven't purchased a home in the past three years. If you are married, this applies to your spouse as well. The credit is either 10% of the purchase price of the home or $8,000 maximum. You must have made the purchase no earlier than January 1, 2009 and no later than December 1, 2009. You also must actually live in the home for the next three years, and if you decide to sell before that time frame is up, then the tax credit must be paid back, otherwise you don't have to repay it.
The income limits for the $8,000 tax credit are $75,000 for a single person and for couples it is $150,000. The credit is decreased as your salary increases, and single buyers earning more than $95,000 or couples who have a combined income of over $170,000 fall out of the scale and don't qualify for the credit.
The second driving factor spurring many first-time home buyers into action is the FHA loan. Many buyers who don't have stellar credit or can't afford a big down payment can realize their dream of owning a home if they qualify for an FHA loan. More real estate developers are applying for FHA approval for their projects in an effort to boost sales, and for some it seems to be working. Also, to be an approved FHA building, the majority of the units must be owner-occupied, which means that the building won’t have a problem with empty investor units. This may be very appealing to buyers who want to have actual neighbors and not empty condos around them.
With an FHA backed loan, a first-time buyer can qualify for only a 3.5% down payment. This is significantly lower than what most lenders require, which can be as much as 20% of the purchase price. The interesting thing about the 3.5% down payment is that you don't have to have it in savings. It can come from a friend, relative, charity or state organization as long as it is deemed a gift and you have documentation stating that no repayment is expected.
The maximum FHA loan amount varies from state to state and county to county, but in Cook county Illinois it is $410,000 for a single-family home. This can be a condo, town home or frame house.
The condo or unit you purchase must be your primary residence, meaning you have to live there and aren't buying with the intention of selling. You also must have two different forms of credit history, and FHA is more accepting of different types of credit sources than most banks are. There is also an income to debt ratio that must be met. For example, FHA takes your monthly income and divides it by you estimated new monthly loan payment and from that, your debt to income ratio can't be more than 29%. This is to insure that you'll be able to make your monthly payments.
FHA loans are generally 15 or 30 year fixed-rate loans. Rates on FHA insured loans right now are being offered anywhere from as low as 3.75% to 5.75% with an average in the 4% to 5% range.
With these two financial aids behind them, this may be one of the best times for first-time buyers to make a purchase. Remember though that the tax credit is only good for purchases made before December 1st, so it’s time to get moving in more ways than one.
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