Gregg’s Real Estate Blog

Congress has extended the first time home buyer tax credit until April 30, 2010.  They have also added a $6500 credit for existing home owners that buy before April 30.  If you have a binding purchase contract by that date, you can take the credits as long as you are closed by July 1.  Here’s a chart that shows the basic changes in the revised tax credit.

Coming up with the downpayment can be the largest hurdle for many first time home buyers.  Nearly 20 states have already established a “Bridge Loan” program so first time home buyers can borrow against the pending tax credit payment, allowing the $8,000 to be applied towards the downpayment at closing.  The Montana Assn of Realtors, along with the Montana Building Industry Assn, Montana Board of Housing, Montana Bankers Assn, & NeighborWorks, are working with both political parties and the governor’s office to establish a similar program in Montana.  When/If this becomes available, I will post an update on this blog with details of the program.

Right NOW is the perfect storm for first time home buyers.

Yeah right, you Realtors are always saying  “It’s a great time to Buy!”

OK, consider this:

Interest rates are at historic lows, currently around 5% for a 30-year fixed rate mortgage.

Many sellers are motivated to sell and the market is slow,  so prices are soft.

If you buy a home by November 30th, you’ll get $8000 back from the Federal government when you file your income taxes.  (Providing you buy a home for at least $80,000.  Otherwise it’s limited to 10% of the purchase price.)  The other limiting factor is your adjusted gross income which cannot be over $75,000 ($150,000 on a joint return).  Over that amount the tax credit starts to phase out and is totally phased out when your income hits $95,000 ($170,000 jointly).  Lastly you need to live in the home for 3 years before selling or the tax credit will be recaptured at the time of sale.

Let’s look at that one for a minute.   If you buy a home for $250,000 with $50,000 down, your monthly principal & interest payment on a 30-year $200,000 mortgage at 5% is $1074.   Factor in the $8000 you’ll get handed back as a tax refund, and you’re really getting $208,000 for $1074/month.   That amortizes at 4.66%… and that’s only if you go the full 30-year term.  If you sell the house or pay the note off early, your effective interest rate will be even lower.  For instance, if you sold the home in three years, your effective rate on the $208,000 over the three years would be 3.56%!!!

This perfect storm isn’t going to last forever.   $700 billion to bail out the banks, the bailout of the auto makers, the recently passed $800 billion economic stimulus bill.   Economist are already saying this massive spending by our government has the potential to cause significant inflation which means these mortgage rates aren’t going to last.

If mortgage rates went to 8%, that same $1074 monthly payment would only get you a loan for $146,320.   So, even if that $250,000 house goes down to $200,000 next year, with an 8% loan you’re still paying more every month for that same house.   Oh… and don’t forget you won’t get the $8000 kickback next year!

BTW… First Time Home Buyer is defined as anyone that has not owned their principle residence in the three years prior to purchasing.   Find more details on the tax credit here.

Yes, it’s harder to qualify for a loan these days.  But…  if you can, and especially if you haven’t owned your principle residence in the last three years, this is too good to pass up.