7 Steps to Take Advantage of Today's Homebuyer's Market
Bills.com says it's a great time to buy -- for those who prepare
SAN MATEO, Calif., March 18, 2009 – Need some good news? With housing prices nearly 15 percent lower than last year, the slow economy means it might be a great time to buy a house, according to Bills.com president Ethan Ewing.
"For individuals who have a steady source of income, good credit and cash in the bank, today could be an excellent time to purchase a home," Ewing said. "Low prices, a large inventory of homes for sale, low interest rates and beneficial government programs have made this year one of the best ever to buy a home, especially for first-time home buyers."
The median sales price for U.S. homes was 14.8 percent lower in January than it was a year earlier.(1) And first-time homebuyers can benefit from the tax credits implemented as part of the 2009 American Recovery and Reinvestment Act (better known as this year's economic stimulus package).
Ewing offered these tips for individuals and families thinking of investing in a piece of America this year:
1) Know your score. Check your credit score before you make any decisions. Credit scores range from 300 to 850. The median U.S. credit score is about 693, according to Experian, one of the three main credit reporting agencies. A score below 680 usually results in a borrower being charged a higher interest rate or being denied credit. In this economy, you will need a good score to qualify for a mortgage. If your score is lagging, wait a few months. In the meantime, pay every bill on time, pay down as much debt as possible and increase income if possible to improve your chances. If possible, ask creditors for increases on your credit limits to help out the "credit available" aspect of your credit score – but do not tap into the addition.
2)Do not stretch too far. Often, borrowers are told they can qualify for a higher mortgage than they can comfortably pay. It is wise to keep housing expenses below 35 percent of your total income. Leave breathing room in your budget so that if something unplanned does occur, you will be able to keep your home. If you are not certain, wait to buy.
3) Know the full costs of buying. The down payment and principal and interest on a mortgage payment are only the beginning of home-related costs. For a typical mortgage payment, "escrow" payments, or the costs of home insurance, property taxes, and, in some cases, private mortgage insurance, can total hundreds of dollars per month in addition to principal and interest. Determine the property tax amount – the largest part of the escrow payment – by checking with your real estate agent or county property tax assessor before you buy. Be sure to not deplete savings or cash on hand when making a down payment, since new home owners often must complete initial work on the home, such as painting, flooring, landscaping or bringing an older house up to date. After that, a rule of thumb is to budget 1 percent of the home's purchase price per year for home repairs and upkeep.
4) Understand private mortgage insurance (PMI). Mortgages with less than a 20 percent down payment require PMI in case the owner defaults on the loan. When the home owner pays the mortgage down to 80 percent or less of the home's value, the home owner can request the lender to cancel the PMI on a conventional mortgage and stop paying the additional amount. Meanwhile, PMI is tax-deductible, at least through 2010.
5) Check for prepayment penalties and other provisions. If your loan has a prepayment penalty, borrowers face hefty charges if they pay it off early. This provision also can apply to future refinancing, so be forewarned. To determine if there is a prepayment penalty, review the Truth in Lending disclosure or ask your lender to find out. Prepayment penalties have come under increased scrutiny since the mortgage crisis began, so if you find your loan has one, voice your dissatisfaction directly and clearly to your lender or broker. 6) Consult a tax advisor. First-time home buyers -- including people who have not owned a home for at least three years -- qualify for a tax credit of up to $8,000 if they purchase a home before Dec. 1, 2009. The credit does not have to be repaid if the buyer keeps the home for at least three years. In addition, all home owners qualify for tax credits for certain home energy efficiency improvements made in 2009. 7) Buyer beware. Some of the lowest prices on homes today are "fixer-uppers" or homes sold "as is" because of foreclosure. Invest in a home inspection before agreeing to purchase any home. You may even be able to split the cost of this inspection – typically less than $400 – with the seller. The inspection will inform you of any faults in the home and help you determine the approximate cost to remedy those problems. Without an inspection, you could wind up owning a home that requires thousands of dollars of repairs.
"If you have good credit and funds available for a down payment, dot your I's and cross your T's – then take advantage of today's excellent opportunity to step onto the path of home ownership," Ewing said.
About Bills.com (www.bills.com)
Based in San Mateo, Calif., Bills.com is a free one-stop portal where consumers can educate themselves about complex personal finance issues and comparison shop for products and services including credit cards, debt relief assistance, insurance, mortgages and other loans. As the online portal to Freedom Financial Network, LLC, the company has served more than 50,000 customers nationwide since 2002 while managing more than $1 billion in consumer debt. Its RSS feed is available at http://www.bills.com/news_releases/.
Bills.com holds the No. 257 spot on the Inc. 500 list for 2008, and the No. 3 spot on Entrepreneur Magazine's Hot 100 list of the fastest-growing U.S. companies. Company co-founders and co-CEOs Andrew Housser and Brad Stroh were named to the Silicon Valley/San Jose Business Journal's "40 Under 40" list in 2008, and were recipients of the Northern California Ernst & Young 2008 Entrepreneur of the Year Award.