Austin Property Talk

6 Biggest Mistakes Home Buyers Make

CNNMoney.com posted an article on Monday about some of the biggest mistakes that uninformed home buyers make when they go through the process of purchasing a home.  These mistakes can become all the more prevalent with the approaching expiration deadline of the Federal Tax Credits.  Home buyers must be "under contract" by April 30th in order to qualify for either the $8000 First Time Home Buyer Tax Credit or the $6500 Repeat Home Buyer Tax Credit. 

As a result, the tendency is to try to skirt the normal time lines for purchasing a house in order to force a potential purchase that will qualify for one of these incentives.  This is further evidence as to why it is so important to seek out a trusted adviser, a skilled REALTOR who will guide you through the process helping you to avoid careless mistakes and/or oversights.   

According to this article, some of the biggest mistakes that buyers make include:

1) Not knowing your credit score before you start the process.  The differences in interest rate and loan fees can be significant for just a 20-30 point difference in your credit score.  Knowing that up front can help you to take the necessary steps to address errors and clean up glitches.  

2) Making large purchases on credit prior to or during the processing of your new home loan.   Making purchases such as a new car, furniture or appliances on store credit or your Mastercard can significantly effect your ability to secure the proper financing for your home purchase.  

3) Skimping on a Home Inspection.   If you ever watch those HGTV or TLC shows with novice house flippers or investors, one of the biggest mistakes some of them make is failing to have a home inspection.  They think that because the house is a "fixer-upper" anyway, the money spent on an inspection is pointless.  Same holds true for a regular home purchase.  Money spent on a home inspection is well worth it.  

4) Overlooking contract contingencies.  When a contract in Texas is written properly, there should be at least two major contingencies written into every offer.  The first is the option period which gives you a certain period of time to complete inspections and negotiate repairs.  The second is a financing contingency period which gives you an extended deadline to finalize your loan.  Both are meant to protect the buyer and save you money.  Again, all the more reason to seek advice from someone who has skills and knowledge in the real estate field.  

5) Not budgeting for Property Taxes and Insurance.   In Central Texas we are fortunate the we usually don't have to carry expensive insurance policies against major flood and natural disasters.  However, in other parts of the country, those can be a large added expense.  In Texas we do have to budget for higher property taxes than in other parts of the country.  Depending on the value and location of your house, taxes and insurance can run an extra $400-700 a month on top your mortgage principle and interest.  

While the road to home ownership can sometimes seem wrought with pot holes, as long as you are working with a professional, such as a REALTOR, who will educate you, you should not run into as many obstacles.  On the flip side, the road is littered with unfortunate stories of people who thought they could do it on their own or who wanted to save a buck and ultimately ended up in a nightmare situation. 

Buyer's representation on a home purchase is essentially free to you so you might as well take advantage of it.  I've put together a whole library of buyer's resources to help guide you along the way on your home purchase and protect you from unforeseen incident. 

Link it Up

4 Links to interesting news & insight about homes, home loans and the real estate market for you on this Friday.  

What's that in your mailbox (or directly deposited into your checking account)?  Woo-hoo -- your tax refund from the IRS! But that giddy feeling can lead you to squander most or all of the dough on stuff you don't really need. Here are three ways to make it easier to save at least some of it. (How to Save some of your Tax Refund)

Mortgage rates yesterday ended a rally streak that brought consumer borrowing costs back down toward their best levels of 2010. Almost erasing all the losses experienced before and after the Federal Reserve exited the secondary mortgage market. (Mortgage Rates Give Back Gains after Steady Winning Streak)

Spring in Texas: Bulbs blooming. Hail pounding your roof. There's nothing quite like that helpless, sinking feeling of wondering how many thousands of dollars you'll be out or worrying about what's happening to the new home you're trying to buy. (Know what to do when Hail and your Roof Meet)

Austin ranked 18th on a U.S. Environmental Protection Agency listing of metropolitan areas with energy efficient buildings, falling behind both Houston and Dallas. Read more: (Austin ranks 18th on green building list, behind Dallas and Houston - Austin Business Journal:)

The Final Countdown . . .

Get More Information . .

First Time Home Buyer Tax Credit

Repeat Home Buyer Tax Credit

10 Ways to Get a Down Payment

Nicole Lahti with United Lending here in Austin Texas recently published a blog post detailing 10 Ways to Get a Down Payment.  

With the new expanded tax credits available to home buyers between now and April 2010, mortgage rates hovering around or below 5%, the market is ripe with opportunity. 

However, with first time buyers especially, the question can often be, "Id like to buy but where would I come up with the down payment?" 

Currently, the least amount that you can put down would be with a FHA loan which requires 3.5% down on a qualified purchase.   

But you might be surprised about some of these creative sources for a down payment that may not have crossed your mind.  Take a look at this list.  

Tax Credit Extension

In case you haven't heard, the President signed an expanded version of the $8000 First Time Home Buyer tax credit that has been the buzz of the real estate industry for the past 6-9 months.   The original tax credit was set to expire on November 30th, driving more buyers to the closing table during the last few months than during the same time period in recent years.  

The original tax credit was such a success in stimulating sales nationwide, that Congress and the White House agreed late last week to extend the deadline through April 30th of 2010.  In addition to the deadline extension, qualifying income limits were increased slightly and documentation requirements tightened.  Ive put together a free report with all of the details about the revised First Time Buyer Tax Credit. 

However, this time around they've sweetened the pot.  In addition to extending the credit for first timers, the legislation was expanded to include a $6500 tax credit for home buyers that have lived in their current primary residence for at least five consecutive years out of the past eight years.  Under the previous guidelines, move up home buyers did not qualify. 

Interesting tidbits:

- According to the National Association of Realtors, first time home buyers accounted for more than 45% of sales in the past year.

- According to a Goldman Sachs study close to 70% of all current homeowners would be eligible for the tax credit under the new expanded guidelines. 

Tax Credit Extension?

There has been a lot of discussion and speculation lately through various news outlets about the extension and upgrade of the existing First Time Home Buyer tax credit.  As you know, the current $8000 tax credit is set to expire on November 30th.  I've seen numerous postings on Facebook and Twitter stating that the bill has already passed congress and has been approved by the White House. 

It has not gotten to that point just yet, but as this article points out, the Home Buyer Tax Credit should pass later this week.  

While the final details of the latest version will not be released until the bill has been signed off on by President Obama but speculation is that Tax Credit 2.0 will both raise the allowable income limits for first time buyers and also add a stipulation for move-up buyers (non-first timers).  

The pending expiration of the existing tax credit led pending home sales to soar in September which marked the eight consecutive month that the number of pending sales has increased.  Pending sales are a predictive indicator since contract signings can precede actual closings by up to 2 to 3 months.  

Both are good indicators for market activity in the near future.   

Further Evidence . . .

By this time, the dead horse has been beaten to a pulp by real estate professionals.  Yes, the government is offering a $8000 tax credit for first time buyers.  Yes, the tax credit is set to expire on November 30th (though there has been a heavy push to extend.) And last but not least - Yes, the Tax Credit is stimulating sales. 

A recent article published by the Austin American Statesman reported that according to data supplied by the Austin Board of Realtor, home sales in Austin rose by over 6% in September (year over year).  This significant jump in sales is the first comparable increase in the past 2 years.  Read how the First Time Homebuyer Tax Credit has help fuel sales. 

For many would-be buyers, the security of the tax credit benefit has been the deciding factor in making a decision top purchase.  For others, its allowing for some flexibility to make those all important cosmetic changes. 

Benefits of Home Ownership

Aside from the personal and emotional reasons to buy a home, ther are also a number of financial reasons why owning a home is a great decision.  In addition to exceptional home affordability and near historic low interest rates, here are some important financial benefits to owning a home. 

Increased Net Worth:  Few things have a greater impact on net worth than owning a home.  The Federal Reserve Board of Consumer Finance Reports that homeowners have an average net worth of $184,400 compared to just $4,000 for renters. 

Big Tax Deductions:  One of the largest tax deductions available to anyone is the amount of interest paid on a mortgage.  For example, a $150,000 home paid at an interest rate of 5.5% can add up to approximately $8,000 in interest paid.  The applicable tax deduction amounts to a significant savings - effectively reducing the amount of a homeowner's monthly loan payment. 

Long-Term Appreciation:  Over the past couple of years, home prices have corrected and become more affordable in most parts of the country.  That is great news for buyers.  However, it has overshadowed the long-term appreciation of a regular home's value.  The reality is, despite market ups and downs, real estate historically appreciates around 5-6% a year.  Even taken at a conservative appreciation rate of 3%, a home purchased today for $150,000 should grow in value to $364,000 over 30 years. 

$8000 Tax Credit:  Im sure you haven't forgotten. The government is offering an $8000 tax credit for first time home buyers - or for folks that haven't owned a home during the past three years.  The program is scheduled to end soon.  Potential buyers must complete their first tme home purchases before December 1st to qualify for this special credit. 

If you are considering purchasing a home, this is the ideal time.  Call or email me today to discuss your specific situation and how you can benefit from today's market. 

Mortgage Market Watch

Here is a brief overview of how changes in the financial markets have affected mortgage rates over the past couple of weeks. 

Two weeks ago at thier regularly scheduled Open Market Committee meeting, the Fed decided to ration out their remaining purchase commitment of Mortgage Backed Securities through the first quarter of 2010. In other words, instead of committing to purchase more, as speculated, they will space the remaining purchases out over the next six months.  This will be  done in an attempt to provide a smoother transition back to "normal market conditions.

What effect does this decision have on mortgage rates?  In the interim, rates should remain fairly steady.  However, once the Fed ceases its purchases or MBS, interest rates are anticipated to climb steadily - most likely back above 6%.

Last week, the Labor Department's Jobs Report did not  provide promising news, with an uptick in unemployment rates to 9.8%. 

On the flip side, the report on Personal Spending indicated that spending rose in August at its fastest monthly pace in almost 8 years.  However that news must be taken with a grain of salt since a large part of that spending can be attributed to the "Cash for Clunkers" rebate program which is no longer in effect. 

Sales of existing homes were down in August, but pending home sales were up significantly at 6.4% (mostly as a result of buyers working to take advantage of the $8000 First time Home Buyer Tax Credit).

Remember:  With home loan rates still at near historic lows and slated to increase incrementally over the next 6 months, as well as the First Time Homebuyer Tax credit set to expire on November 30th, now is the best time for you to get off the fence and take action if you have been thinking about possibly buying a house. 

If you, a family member, neighbor, friend, or co-worker have been thinking about purchasing a house, email me and we can discuss the best way for you to introduce the two of us.  I have time to help a few first time buyers in the next few months and Id love to spend my time helping those people that you care about most. 

315,000 People Across the United States have done it - Have You?

As of the end of August, over 300,000 individuals have claimed their $8000 tax credit by purchasing a home and amending their 2008 tax returns according to CNN Money.  You can read the full article here.

In case you are not familiar with this or how you can qualify, Ive put together a brief report with all of the details on the $8000 First Time Home Buyer Tax Credit.  

According to a recent survey done by the National Association of Realtors, over one million buyers have qualified for the tax credit with that number expected to reach 1.8 million before the deadline of November 30th.  Buyers are not required to claim the credit on their 2008 tax return and many are waiting until they file next April. 

If you've been on the fence about whether or not to buy, now is your best chance to take advantage on this incentive.  To be safe, its recommended that you be "under contract" to close on your purchase no later than mid-October. 

Who do you Know who Would like an Extra $8000 Next Tax Season?

Just a quick note to let you know how I might help you, or anyone you would introduce to me.

Its no secret that one of the least exciting times of the year for most people is Tax Season.  For many it means paying a little extra to the government and for the lucky ones, it means a small refund.  What if this time next year, you or someone you know could enjoy an $8000 tax credit?  I’d imagine that would make doing taxes just a little bit more exciting . . . 

As you now know, the $8000 Tax Credit program for First Time Buyers and those who haven’t owned a home in 3 years is now in full swing.  In addition, interest rates for 30 year mortgages are at all time lows (some under 4.5%).  The timing could never be better for someone you know to buy their first home, whether it be a friend, family member, or even a co-worker who could use this free $8000 opportunity as their own personal "economic stimulus" package. 

Timing is crucial as this incentive expires November 31^st of this year.  I'm wondering if you can help me continue to spread the word.  I’ve put together a free report for anyone looking to gather more information.  All you have to do is go to www.AustinFirstTImeBuyer.info.

More info on claiming the First Time Buyer Tax Credit

Here is an excerpt from an article posted yesterday at Yahoo Finance called, 7 Misconceptions about the "Stimulus."  Misconception #4 deals with the time table for claiming the First Time Homebuyer Tax Credit that I mentioned in my video below. 

Misconception #4: You can't get the 2009 first-time home-buyer tax credit until you file your tax return next year.

Actually, taxpayers who buy a first home in 2009 do not need to wait until they file their 2009 return (by April 15, 2010) to benefit from the credit. To get the money into the economy faster, the federal government is giving you a choice of claiming the first-time home-buyer credit on either your 2008 or your 2009 tax return.

There's actually a way to benefit from the credit even before you buy your first home. If you plan to buy by the November 31 deadline, you can reduce your withholding on your paychecks right away. The increased take-home pay could help you with the down payment. File a new W-4 form with your employer to adjust your withholding. (And remember to re-adjust your withholding again next year.)

If you have already filed your 2008 return, you can use Form 1040X to amend it. If you purchase a first home after the 2008 tax-filing deadline of April 15, 2009, you can still claim the credit on your 2008 tax return either by requesting a six-month extension for filing your return (which doesn't extend the deadline for paying any taxes owed) or by filing an amended return.

Stimulus Bill Affects?

So if you haven't heard, the $787 billion dollar federal stimulus bill is set to be signed into law tomorrow by President Obama. If you are not sure what exactly is being passed, don't worry, you are not alone.  I try to keep my nose out of the politics as much as possible and besides, who in their right mind has time to read through a 1071 page bill (apparently not even those who voted on it). 

The question remains though, what affect will this stimulus bill have on the housing industry? There was much speculation that the bill would perhaps include home buyer tax credits up to $15,000 or $22,000 and that somehow mortgage rates would be uniformly dropped to 2.99-4.00%.  

However, it appears in actuality, when the bill is finally signed into law, it will be more about preserving what we already had as opposed to providing monumental change for buyers, lenders and the industry.

Charles McMillan, President of the National Association of Realtors sent out the following letter to NAR members yesterday summarizing the important details of the bill in regards to the real estate market. 

Here's our take on the Stimulis Bill and Treasury announcements made this week. We look at the Stimulus package AND the Treasury's package holistically, in compliment with each other - mostly because that's how the Obama team is looking at it. Your representatives, the NAR Board of Directors, asked us in November to do 4 things (with an unspoken but clearly understood mandate to PRESERVE what we already have). Here they are: 1) get loan limits raised for high cost areas, 2) make the $7,500 tax credit NOT a loan, 3) try to find ways to push interest rates down (which are higher than they should be due to systemic risk right now) by 200 basis points, and 4) help provide solutions to the foreclosure/short sale problem.

So here's what we have achieved: 1) the loan limits will be raised to $727,000 in high cost areas, 2) the tax credit will be raised to $8,000 with NO payback [a true credit], 3) interest rates have come down 125-150 basis points, and 4) the bill has over $50 billion in it for foreclosure mitigation, with Geitners Treasury plan signaling that the second half of TARP and TALF will be used to mitigate foreclosures through a government guarantee, drive down interest rates by buying another $200-300 billion of mortgage paper from the GSES's thereby freeing them up to do the same with new mortgages, and Fannie has just agreed to lift the cap of 4 investment properties eligible for loans and raise it to 10.

In addition, we preserved what we have - which some tend to forget is always on the table when these negotiations start up again - mortgage interest deductability, real estate tax deductability, and the $250,000/$500,000 cap gains exclusion (an overall package worth more than $100 billion and for some a very attractive funding source for their pet projects).

We did make a run at the $15,000 credit -- and we would have loved to have gotten that or the Homebuilders $22,000 credit idea as well as their 5 year loss carryback deal, but they were considered too rich for this program. What it did do though is totally take the debate off of whether a tax credit should be reinstated at all (it expired last year) and whether it was a true credit or a repayable loan, and kept the conversation on how much it should be. It also kept the debate off of 'what we are willing to give up to get a $15,000 tax credit' and kept the debate again, on how much it should be. It's pretty hard to complain when they give you what you ask for and you lose something you never had.

More than anything, what the signage of this bill will do is end the speculation.  Many home buyers were/are in a holding pattern waiting to see what would be passed.  Now that we know, its time to take action.  2009 will present a tremendous buying opportunity for those who are motivated, intelligent and decisive.  The buyer's tax credit (up to $8000 now) and removal of the repayment clause are great incentives for first time buyers. 

What does this mean for you personally?  Give me a call or shoot me an email and lets discuss your specific situation and determine your best course of action.