I'm a recent college grad and I'm looking to buy my first home. I'd like to buy a house and not rent an apartment because I like the fact that paying my mortgage each month is investing money into my future.
I'm particularly excited about the first time home buyer tax credit I've heard about. I think this will be a great advantage in buying my first home. But I'm curious how does this work? If I don't have a lot of taxes this year does the government just send me a check for $8,000?
I'm also curious if being eligible for this tax credit will help improve the home mortgage loan I qualify for?
I’m also wondering, as recent college grad, what kind of loan interest rates can I expect when I go to the bank? Is one loan better than another? I’ve heard several different opinions.
Is it better for me to make a larger down payment and make smaller monthly payments? Or pay a smaller down payment and have larger monthly payments.
I’m also considering whether buying an older home is a good idea for a first time home buyer? I like the fact that I can pay less per square foot and therefore buy a larger house. But how do I avoid buying a “money pit” that will cost me more in the long run?
I know my first home purchase won’t be my last, but I’d like something that I can be proud of and possibly put some “sweat equity” into that will payoff down the road. Thank you in advance for answering my questions.
Wow!! A series of great questions. Please let me try and address them one at a time.
FIRST TIME HOME BUYER TAX CREDIT
Signed into law by President Obama on November 6, 2009, this credit is extended into 2010. Many people did not close before the December 1, 2009 deadline.
This extension allows you to enter into an agreement with a seller no later than April 30, 2010 and you must close on the home by June 30, 2010. You’re considered a first time home buyer if you have not owned a home in the past 3 years.
You will get a tax credit up to $8,000. It has income limitations of $125,000 for single filers and $225,000 for those who file jointly. The purchase price of the home must be less than $800,000. I do not know many first time home buyers that have bought a home for $800,000 so this is a generous limit!
You will need to consult a tax person on how it works exactly, but a credit against your tax is still money in your pocket. The new $8000 credit can be used towards the down payment of a house bought in the credit qualifying period. You need to work with your lender to take advantage of this provision.
Having this tax credit, could help you qualify for the home loan especially if you get a lender to allow you to use it in the down payment portion of the transaction.
BEST LOAN FOR A COLLEGE GRADUATE
Frankly Chip, I believe the best loan for a first time home buyer is the FHA home loan. Interest rates at this time (Dec 2009) are about 5%. That’s a great rate!! The first home I bought in 1978 was an FHA home and my rate was 8.75%. Consider these low rates a gift right now.
The larger your down payment the better. You just want to be sure you’re buying home in a market where the home values have bottomed out. If you’re not sure about this, talk with your agent. If the market is still going down, you may need wait or at least seek advice on the market values.
BUYING AN OLDER HOME
I personally feel this is the best way to begin. You can find some very nice older homes, perhaps even foreclosures where you can buy and still have a very nice home. Yes you may need to do some work before moving in, but this sweat equity is money in your pocket.
To avoid the “money pit” (BTW I Love that Movie!!) have a home inspection done. If the home is solid and all the mechanical things are solid (i.e. heating, plumbing, wiring) don’t be afraid of putting a little paint and carpet in it before moving in.
Hopefully Chip I have given you some food for thought. Happy house hunting!
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