Government incentives, economy make 2010 a good time to buy
With a plethora of government incentives like the Homebuyer Tax Credit and the Home Ownership Purchase Enhancement program, 2010 might prove to be the best year to purchase a home.
In an effort to spur economic growth and help out citizens who may be struggling to buy a home in the wake of the recession, the federal and state governments have introduced several financial incentives for people looking to buy a house.
One such incentive is the First-Time Homebuyer Tax Credit, introduced in 2008 and extended into 2009 and, most recently, 2010.
This federal program is a tax credit for individuals and couples who purchase a new home before May 1.
First-time homebuyers who purchase houses from January to May 2010 may be eligible for a 10 percent tax credit, up to $8,000, that does not have to be repaid.
Homeowners who have lived in their current home for five of the last eight years and purchase a different home may qualify for a $6,500 tax credit to refinance.
A new state homebuyer initiative is the Home Ownership Purchase Enhancement (HOPE) program, presented by the Missouri Housing Development Commission (MHDC). This program provides that qualified Missouri families that purchase a home in 2010 are eligible for a credit equaling the amount of the 2009 real estate tax bill associated with the property they purchased, up to a maximum of $1,250.
Further, eligible Missourians who purchase a newly-constructed, energy-efficient home or buy an existing house and remodel it or add Energy Star appliances to make it more environmentally friendly may qualify to receive an additional amount of credit.
Realtor Patty Schnakenberg of Homestead 3 Realty said she believes the Homebuyer Tax Credit has benefited the real estate market in Concordia, although no one has yet taken advantage of the new HOPE initiative, which was just announced last month.
The MHDC has allocated $15 million for the HOPE initiative. This program targets home purchasers whose maximum gross household income falls within the Commission's predetermined 'low' or 'moderate' income categories, based on county of residence. La-fayette County income thresholds are $70,400 per year to $98,560 per year, depending on the number of people in the household and the percentage of area residents who have incomes of less than the statewide median income.
Homebuyers whose incomes meet the MHDC's guidelines are eligible for the program as long as purchasing contracts and all other documents relating to the purchase are dated after Jan. 1 of this year and as long as they do not vacate or re-sell the home for a full year of their purchase date.
The HOPE credit is in the form of direct deposit into the qualified homebuyer's bank account, and is interest-free and does not have to be repaid. Both first-time and repeat homebuyers are eligible to take part in the HOPE incentive.
Schnakenberg reported that Homestead 3 assisted 16 buyers purchase homes through the First-Time Homebuyer Tax Credit in 2009, and have several buyers who are still looking to take advantage of the tax credit thus far in 2010.
To qualify for the First-Time Homebuyer Tax Credit, homebuyers must have their purchase contracts signed by May 1, and the transactions must be closed by July 1, 2010, Schnakenberg explained.
Schnakenberg pointed out that buyers have the option of using both the HOPE incentive and the First-Time Homebuyer's tax credit incentive on the same property.
The government incentives coupled with relatively low house prices and interest rates may provide homebuyers better deals in purchasing real estate in 2010 than in recent years.
"Home prices are the lowest we have seen in several years," Schnakenberg said. "This is somewhat due to foreclosures available at a reduced price. Interest rates are also staying low, in the 5-6 percent range. Combined with the tax incentives, this has become one of the best times in history to purchase a home."
Schnakenberg commented that many Missouri communities are experiencing a high volume of foreclosures, although Concordia has not seen as many.
Schnakenberg said Homestead 3 has been forced to adapt their business to the demands of the market. The company has to be ready to sell foreclosure and short sale properties, and must guide the buyer through the process as it can be lengthy and very challenging, especially short sales, she said.
The underwriting for final approval for conventional and government guaranteed loans is definitely more stringent at this time, Schnakenberg said.
The Missouri Housing Development Commission has made three different financing options available under its First Place Loans program to provide further assistance to people wishing to buy their first homes this year.
Schnakenberg said the Rural Development loan and the Federal Housing Administration (FHA) loan are more commonly used than the First Place Loans.
The Rural Development loan is the most commonly used first time homebuyers 100 percent loan, Schnakenberg said.
For the FHA loan, the borrower must have 3.5 percent of the purchase price for a down payment.
"With both of these loans, the closing costs can be $3,000 and up," Schnakenberg explained. "However, included in that is a portion of the homeowners insurance and a portion of the property taxes, which are placed into an escrow account for the borrower. The mortgage company does this so that if the borrower defaults on their loan, there will be reserve to pay the taxes and insurance. Sometimes the seller agrees to pay for a portion of the buyer's closing costs, thus reducing the buyer's amount of actual cash needed at closing."
A Veteran's Affairs (VA) loan is also available for military personnel, which has a zero-percent down payment.
"There is a downside to the programs mentioned above," Schnakenberg cautioned. "The underwriting for these loans is much more stringent, partially because of all the recent foreclosures. Buyers in the past may have been able to secure these types of loans with merely fair credit scores, but currently they are required to have somewhat higher scores. I would recommend buyers check with their local bank to see what types of loans are available to them."
The HOPE initiative will last as long as the $15 million allocated for it does, and the homebuyer tax credit will expire on May 1. The homebuyer tax credit was introduced in 2008 and has been continued another year-and-a-half. Potential home purchasers may be unsure of whether to scramble to buy their houses before these programs run out, or to wait and see if the programs will be extended or even if a new wave of financing incentives are introduced.
"I personally feel that similar tax incentives will be available until the real estate industry, related professions, and job opportunities improve," Schnakenberg disclosed. "It appears the public will remain in a conservative mode until there is more confidence in the job market."