I am asked questions like these quite often from potential home buyers, regarding the right time to buy. So here are some general questions about timing the market, and the absolute best time to buy...
Q: How do I know when it's the absolute right time to buy a home?
A: The absolute truth is: the right time to buy a home is when you are financially and emotionally prepared and find the property and location that meets your needs, within your budget.
Wise Buy Tip: Buying a home should never be treated like gambling or the lottery. This represents the most significant investment most people will ever make. In our opinion, that decision should be based on sound investment strategies, rather than speculation. We always encourage our clients to evaluate the current real estate market as it is, and consider their needs and goals. There are always great buys available, and motivated sellers in every market.
Q: I wasn't ready to buy during the $8000 tax credit, did I miss out on the best time to buy?
A: Right now, Buyers are seeing a double benefit to buying a home. With lower interest rates (4.4 FHA, 30 yr fixed), the savings on loans more than makes up for the tax incentive benefits! While the tax incentive was a nice bonus for first time buyers, pricing for homes included that extra value. Right now many sellers have lowered list pricing on their homes about $8000 or even more, in many areas, so you can potentially buy a home for less than you could during the tax credit period.
Wise Buy Tip: During the tax credit, if a home was priced $8000 higher, at the average interest rate during the tax incentive period of 5%, over 30 years, that $8000 would cost you $7300 in interest payments! So the truth is, your $8000 tax credit turns out to be closer to about $700. The incentive was good for people who used it to pay down debt or purchase a needed item. It's good to keep in mind that interest rates are lower right now. This means that a $100K home purchase would save you more than $23 a month, or $12K in interest over the course of the loan. Of course, that increases by the loan amount, for example, a $175K loan is more than $23K in saved interest payments over 30 years, with $56 in monthly savings. Monthly amounts may seem small, but when you add them up? What could you do with an extra $12-23K saved?
Q: I want a great deal at a good price. I'm thinking about foreclosures or short sales. Are they a good idea?
A: For smart buyers, great deals can always be had, by knowing where to look and how to negotiate. This makes teaming up with an experienced Realtor significantly important. If you have a willingness to put in some extra effort on the front end, buying an AS IS property (foreclosure, short-sale, or home that needs improvement) is worth considering. There are great loans available to pay for the purchase and fix up. These loans for owner-occupants, are through FHA, and are called 203K loans. They are at similar interest rates and available as permanent fixed rates for 30 years. This type of loan takes more leg work, on the part of the buyer, lender, Realtor, appraiser and contractor. If you want to consider this type of purchase, make sure your team has a great track record of successfully working with 203K buyers. Do not let inexperienced people practice on your purchase! The good news: if you buy right and make the important repairs, your home could be worth 10% or more above what you paid for it, right after the work is done! At $100K, that's an increased value of $10K! And savvy 203K buyers can increase their equity much more than that. Consider how long it takes you to earn $10K, and the time investment to improve the property may be well worth it. (Note: most repairs must be approved by the lender and assigned to a licensed general contractor, this is not a do-it-yourself type project, but a professional renovation. You will have design input, and may be able to do some items, such as interior painting, yourself. Discuss this in detail with your Realtor and lender before committing to this type of purchase or project.)
Q: When is the government going to offer another $8000 tax credit?
A: It's unknown, if and when, the government will offer another tax credit incentive for home buyers. However, if you are in the military on active duty, you may qualify for an extension through April 30, 2011 for the $8000 tax credit.
I hope this post has encouraged you to see the real estate market in a new light, and to consider your current opportunities to benefit by owning a home today. There are so many more benefits to owning a home, that will be addressed in a future blog. If you have a question you'd like me to address in this column, or want to have a personal conversation about buying a home, please Contact Me
and let me know what's on your mind.