The economic woes have created an opportunity for potential home buyers to snatch up a good deal on a house. Add to that low mortgage rates and an $8,000 tax credit for first-time home buyers, it seems like a great time to buy. But is it worth the risk?
According to whom you ask, the answer is yes or no. The difference lies in what type of investment the house will be. If looking for a long-term gain, most experts agree that today is a good time; deals are available and rates are good. However, if the plan is to turn a profit in five years or less, today’s market is not a wise investment.
Housing prices continue to fall and the outlook for the remainder of 2009 does not look good according to MSN Money. Although no one can predict when the market will rebound or when the bottom is really the bottom, it is a fair assumption that 2009 will not be a great year for housing prices.
Qualifying for a Loan
One factor to consider when buying a home is qualification. Leary lenders are not willing to give money to anyone. According to an article on MSN Money, “A Home Buyer’s Market? Hardly,” by Liz Pulliam Weston, today’s lenders are looking for three main components in a buyer:
- Good credit score – FICO above 680
- A down payment of 10% or more
- A steady documented income that is proved with tax reports and other documents.
Without these qualifications, buyers will be hard pressed to get a loan.
Tax Stimulus
But the government and the real estate profession are eager to get people in the market. As a result, part of the huge $789 billion economic stimulus package that was signed into law gives first-time home buyers a $8,000 tax credit or 10% of the purchase price (whatever is less) for buying a home within the dates of January 1, 2009 and December 1, 2009. Unlike the previous $7,500 tax credit, the $8,000 does not need to be paid back to the IRS.
Although it looks good, buyers need to be aware of what they are stepping into warns Weston. Searching for deals in foreclosures is a complicated process and buyers can get burned. A great deal on a short sale may turn sour if the house inspection turns up a list of problems that the bank is not willing to fix. Talking to a knowledgeable real estate professional that has worked with foreclosures and short sales in the past is advised.
In short, the housing market is a tumultuous investment. Long-term purchases might make financial sense, but short-term the outlook isn’t good. According to Jay Papasan, one of the authors of the book, “Your First Home,” when the housing market hits its bottom, home prices will more than likely level out.
Bottom line: there is no need to rush. Low prices will likely be here for a while.
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