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Get a Real Estate Deal While the Getting is Good

March 20th, 2010

If you are still sitting on the fence, contemplating a real estate purchase, you may be wondering if now is the time to act. The small improvements in the housing market may be the sign you need.

Home prices are still low and the continued drop in prices has seemed to end. The rates for mortgages are at a historical low point. On top of this, the incredible tax credit advertised for new home buyers was recently extended until April 30 and now includes the current homeowners.

However, you do not need to go crazy and start buying up homes. There are still areas seeing a continuing decline in prices and current homes are taking longer and longer to sell. In addition, you may not receive as much as you thought for your existing home.

Are you really eligible for the Tax Credit?

Current homeowners who sign a contract to buy a home on or before April 30 get a dollar-for-dollar reduction on their taxes of 10% of the purchase price of the home, up to a maximum of $6,500 (first-time buyers can get up to $8,000).

However, statistics from the National Association of Realtors show that buyers average about 12 weeks looking at homes before deciding on a home to purchase. Based on these figures, time may be short for you if you are just beginning to look for a home.

In addition to the calendar restrictions there are income parameters to meet in order to qualify for the full credit. Married couples must earn less than $225,000 and singles must make under $125,000. Repeat buyers must show that they lived in the home to be sold for five of the past eight years. On the bright side, you will have until June 30 to complete the transaction once you have signed the contract. First Time Home Buyers should act quick in order take advantage of the current market conditions.

What will you lose if you wait?

Other than the obvious loss of the tax credit, you may see a significant hike in available mortgage rates. If the plan to cease buying mortgage-backed securities at the end of March is executed by the Federal Treasury, then you can expect the 30 year fixed mortgage could increase by as much as 1% by the end of 2010. Based on today's rates of 5.18%, that would mean a new rate of 6.1%, costing an extra $174 per month for a $300,000 mortgage.

For those that are in a place where the average home price is still dropping, waiting will not cost you much. If you are considering a $375,000 home purchase and you pay 20% down, your payments for a fixed-rate mortgage would be $1,644 at 5.18%. But if the home price drops 5% and the subsequent mortgage rate climbs to 6%, your payments would only increase $65 per month. Even better, if the home price drops 10% or more, you would be ahead of the game with a lower payment than the 5.18% payment. In order to make the best decision for yourself, check local real estate sites to find out if their inventory numbers are increasing and also check out realtytrac.com to see if the number of foreclosure filings are still going up. Too many properties along with bank-owned houses in your immediate area indicates that the recovery is not underway just yet.

Just how fast can you sell your current home?

In order to make a quick transaction, a seller must price sharply, even if there are signs of a slight recovery.

"Everybody thinks their house is worth more than it is," says a Dallas realtor. Before you sign on the dotted line, get in touch with a few agents and ask them to give you a true number that could help speed up your sale. If the number is too low, you may have to wait. You also need to consider that the recent credit crisis have made lenders wary of lending. They may require you to sell your current home before you are approved on the loan for the next home you are buying. Any delay in the sale of your existing home could leave you holding the bag on two mortgages, a nightmare for almost anyone.

This is where you need to try and negotiate with the sellers. Ask them for a contractual stipulation that frees you from the contract if your current home does not sell. If the seller does not go for this idea, ask for a clause that will let the sellers to resume their marketing efforts, but also allows you to pull out or move quickly ahead if the sellers get another offer. You may run across a few headaches in trying to modify a purchase contracts, but recent circumstances have shown that a home purchase should be considered very carefully. "This may be the best time in history to buy a home," says a Denver realtor, "but only if you can really afford it."

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