There are many risks involved with any kind of investing and the purchase of big ticket items; The purchase of a home falls into both these categories. If you're currently considering the purchase of a home you may be asking: What are some of the current risks in waiting to invest in real estate or buy a home?
Now, I'm not a financial planner, lawyer, or accountant; but here are some things I am aware of as a REALTOR® that you may miss out on if you put off the purchase of a home much longer.
1. Market Risk (Price Appreciation/Increasing Prices)
- As a buyer, you want to obtain the lowest price on the home you are purchasing.
- If you don't begin the process now, prices may increase to the point that you are no longer able to afford to purchase a home.
- Market timing is an incredibly hard thing to do -- you may want to start looking and find a price that is acceptable to you, rather than trying to wait for the absolute bottom of the market (which may or may not have already occurred).
2. Interest Rates
- Interest rates, like prices, also will probably not go much lower, if at all.
- To finance you purchase you will most likely get a loan, and if interest rate on loans go up 1% percent then the principal amount which you will be able to borrow (making the same amount in monthly payments) will be decreased by about 10%.
- Example -- If you get a 30 yr loan, at 5% interest, with a principal of $300,000; then your payment will be $1610.46 per month. If you increase the interest rate to 6% and keep the monthly payment the same, you will only be able to get a principal in the amount of $268,611.22.
- $31,388.78 ($300,000 - $268,611.22) is about 10% (10.46%) of $300,000
- If you would like to check the numbers yourself or use different numbers, try this website of different calculators (I used the one this link leads to): http://www.mycalculators.com/ca/loancalcm.html
3. Tax Credit
(Be sure to check with your tax advisor for details and applicability to your situation.)
- Yes, there currently is a tax credit available, and it is a great opportunity to help get you into a home. Here are the basics:
- Expires on 30 November 2009
- Only Available to First-Time Buyers
- defined as those who have not had an ownership interest in real property in the last 3 years
- Must occupy (not rent or sell) purchased property for next 3 years
- Limited to 10% of purchase price or $8,000, which ever is less
- Starts to phase-out (be reduced in amount) at $75,000 annual income if filed as single, and $150,000 if as married
- IRS page about the credit, with links to required forms: http://www.irs.gov/newsroom/article/0,,id=204671,00.html
- You may have heard that a potential increase to this credit (up to $15,000) is currently being lobbied for in the nation's capital, but I would encourage you to not wait too long. The clock is ticking on the $8,000 credit, and as is said A bird in the hand is worth two in the bush. In other words waiting to see may result in your getting no tax credit at all.
4. Free Mortgage Protection Program offered by California Association of REALTORS® (CAR)
- This program is offered through the CAR Housing Affordability Fund. Here are the details:
- Requirements:
- Only Available to First-Time Buyers
- Cannot have owned a home in the last 3 years
- Escrow for transaction -- Open after 2 April 2009, and Close before 31 December 2009.
- Use a California REALTOR® in the transaction
- The property must be in California
- You must be a W-2 Employee
- What it covers:
- up to $1,500 per month, for 6 months, to help make mortgage payments if you're single and lose your job due to layoff
- up to $750 per month, for 6 months, to help make mortgage payments if you or your spouse lose job due to layoff
- up to $10,000 in death benefit
- There are other details that you may want to review so here is a link to the page where you can find out more: http://www.car.org/newsstand/newsreleases/mppstory/
As you can see there many advantages that you may miss out on if you wait too long in deciding to purchase a home, especially if you are a first-time buyer and purchase too late to take advantage of the two programs mentioned above.
If you have any questions, or would like to begin your search for a home in Sonoma County please don't hesitate to give me a call or drop me a line by email.
