This Could Be the Best Time Ever to Fulfill the American Dream

You know, I’ve been in this industry for nearly 40 years, and I don’t think that there has ever been a better time to buy a home. Homebuyers are in the enviable position of having their home buying stars aligned. At most points in my history, there was some good news for buyers—perhaps home values were stable or interest rates were low. Maybe mortgage money was plentiful or perhaps new mortgage programs provided interesting opportunities. But I cannot remember another time when home values were great, supply was abundant, mortgage money was very available and CHEAP! This is the situation we find today.

As a buyer begins the house hunting effort, they will probably first recognize that there is no shortage of property to consider. What they may be disappointed to learn is that prices in western Pennsylvania are not in free fall, so the fabulous bargains they’ve heard of across the country may not be available here. But isn’t that actually good news? Would you really want to buy a home with a potentially sliding value? I think I would prefer a stable market.

However, once they have selected a home, they will find that mortgage interest rates have fallen to historic lows and that mortgage money is plentiful. The significant difference comes in the area of program availability for buyers with sketchy qualifications. If your credit score is below 600, you may be in for a struggle. Lack of a significant down payment is still not an impediment, as the FHA will lend 96.5 percent of your purchase price, and you may obtain your entire down payment as a gift from a relative.

Most of the fringe programs are now gone as mortgage options; gone are the Option ARMs, where the borrower was able to select their payment monthly, and gone are the 100 percent loans for people with bad credit. (Who thought that was a good idea?) But the solid programs remain—we’ve just gone back to the place we were before the lunacy broke out.

So let’s consider an actual scenario—you’re a buyer looking for a home in the Franklin Park area. You will find that prices there haven’t changed much since this time last year, so let’s say you agree to purchase a home for $200,000. This property would be eligible for maximum FHA financing of $193,000, so you could acquire this property for just $7,000 plus closing costs.

In order to make this less mathematically challenging for me, let’s say you have decided to purchase this home with conventional financing, which would typically be 20 percent down, leaving us with a $160,000 mortgage. If you had purchased this property last year when rates were approaching seven percent, your mortgage payment (just principal and interest) would have been $1,065 for 30 years. At today’s rate, that same mortgage would be $908. That’s a savings of $56,520 over the life of the loan. WOW! You could stimulate the economy twice—buy your house and a car with the savings!

And there’s an added bonus. By the time you read this, Congress will have concluded work on their stimulus package. Somewhere in it will be a first-time home buyer benefit, which will be somewhere between $7,500 and $15,000. The only uncertainty about these funds is in what form the buyer will receive them.

At the very least it will be a tax credit, available to you once you have filed your 2009 taxes. There is some consideration of making this a voucher that would be available to the first-time buyer at the time they close on their real estate transaction. The voucher, of course, would be a more immediate benefit, more convenient and my preference, which are the very reasons the government will probably prefer the tax credit. If you want to get stimulus money into the economy in a hurry, the voucher is definitely the way to go.

Don’t forget, real estate is still the last great tax shelter. Along with all the foregoing benefits of buying a home, the tax code still permits homeowners to deduct every penny that they pay in mortgage interest, as well as deducting property taxes they have paid for the year. As a first-time buyer, it is important to note that you will also be permitted to deduct a certain portion of your settlement charges that relate to taxes and interest paid at the time of settlement.

You should also not forget that gains made on the sale of your current residence do not fall under the capital gains rules, unless that gain exceeds $250,000 for a single person or $500,000 for a married couple. In all cases, gains and taxes thereon are deferred as long as you are purchasing another home of equal or greater value.

This is actually a very interesting and exciting time to be in the real estate business and although at times it seems impossible, we will come out of this stronger and our profession will benefit. As for buyers, if you have the ability to make a purchase now and you pass up this opportunity, you will likely regret it as we are unlikely to see conditions like this again in our lifetimes.

Gary Straub is an independent real estate consultant who has been a real estate professional for 36 years.