FTHB Tax Credit May Be Extended…
but your purchasing power is going to decrease in the new year when the FED scales back their purchasing of mortgage backed securities. The FED recently extended this program, but it is expected to begin being phased out in early 2010. This has been a great thing going, especially in recent months as we remain at historic, low rates. Unfortunately, this is an artificial low and as the FED scales back the purchase of these securities you will see mortgage interest rates rise. While I do not expect them to spike, even if we break into mid to low six percent range those are still great rates, but anyone who is trying to buy a home with a tight constraint on what they can spend per month will be unpleasantly surprised.
This can be hard to comprehend unless we assign some values to the narrative, really get our hands dirty. Ok, not too dirty, I know I don’t like to play with math on a Friday afternoon so we’ll keep it simple. Let’s say that you are looking at a home and you will be borrowing $150,000. We’ll say that your annual property tax bill on a home at this price will be $1,500/yr and that your home owners insurance will be $300/yr. We’ll say these are fixed costs for our example. Now let’s take a look at what your payment will be at 5.4% and 6.25%.
At 5.4% APR: Principal & Interest Payment is $842.29/mo, Insurance is $25/mo, Taxes are $125/mo. Your total payment PITI comes in at $992.29
At 6.25% APR: Principal & Interest Payment is 923.57/mo, Insurance is $25/mo, Taxes are $125/mo. Your total payment (PITI) comes in at $1073.57.
Clearly this is not the end of the world, but if your monthly mortgage payment can not exceed $1000 and remain affordable, you’re no longer going to be able to shop for $150,000 homes when rates go up. Almost an extra hundred dollars per month, every month for the life of your 30 year loan. Now, to buy a home and keep your payment below that thousand dollar threshold you have just seen the max loan amount available drop to approximately $138,000. Twelve thousand dollars just evaporated from your home buying budget in this scenario; the only thing that changed was a modest increase in the interest rate. Also, not the end of the world, unless of course you can’t find any homes that meet your criteria at this price range.
One can never know exactly what the future holds. While I frequently wish that my crystal ball wasn’t broken, I do know that if you need to make a move and can afford to buy a home, it’s a fantastic time to be a buyer. Will it be a fantastic time to be a buyer next year? Probably. But the unknown of what the interest rates will be doing and whether or not the FTHB tax credit will be extended could absolutely have a serious, and likely negative impact, on the kind of home that you can buy. While it’s probably to late to be considering a short sale purchase and expect to be closed by November 30, 2009 there is absolutely still time enough to start the hunt on a more traditional purchase. Rates are good, inventory is there and more and more homes are priced appropriately, if not quite aggressively to really stand out amongst the sea of short sale, foreclosed property still out there.
If you would like to get more information, see a list of potential candidates here in the greater Boise area, or talk about your home buying options please give me a call. You can reach me directly anytime at 208-991-HOME (4663). You can also enter your information in the phone link (top right of every page) and be connected to me in no time. If you’ve found your way here, but Idaho isn’t your destination of choice, feel free to call or email anyway and I will be more than happy to go to work for you (at no charge of course) interviewing agents anywhere in the country you’re moving to in order to find the right agent for you. I have had outstanding results putting my friends, family, and past clients in touch with agents in their soon to be new community that will work just as hard for them as I would.
