How To Buy A Home In Today's Market

Some buyers today have had their desire to buy dampened because they think they can't. In fact, today's market offers a unique opportunity to save by buying now. First of all, properties are available now below the average market price, with selections through all price ranges for starter homes, buy-up houses, executive properties and luxury estates. Today is a good time to start on the path to your dream home.

Also, lenders are offering attractive rates and innovative financing, such as buydowns and various adjustable loans. That means your same income can qualify for more home today.
Buyers who act now not only can take advantage of today's market, they also can begin to benefit from the Big Four wealth builders of homeownership.

Four Wealth Builders

Leverage
Leverage means using borrowed money (OPM: "Other People's Money") to control a property and receive its benefits.

Here's how leverage works. Say you've acquired a $100,000 house with only a 10% down payment ($10,000). Suppose the property appreciates 10% in the first year and the house is worth $110,000. You've "earned" $10,000 on your investment of $10,000-a profit of 100% in a year. (Financing costs would, of course, lower the net yield.) That's leverage-a big return by using borrowed money.

If home prices rise only 3% a year in the next decade, the home you bought this year for $100,000 would be worth $134,392 in ten years. With $10,000 down, you'd realize a 344% profit. If prices rise 5% a year, you'd profit 629%; at 8% a year, you'd profit 1,159% due to your leveraged purchase.

Tax Breaks
You'll also realize savings from the tax advantages of homeownership. A homeowner's taxable income is reduced by tax deductions (for interest payments, points and real estate taxes where applicable). Later, any gain you realize at sale gets special treatment. No federal tax is payable on gains of up to $500,000 in the case of jointly filed returns and $250,000 for other returns provided the qualification tests are met: during the five-year period leading up to the sale date you must have both owned the property for a total of at least two years and the property must have been your principal residence for a total of at least two years. State income tax rules may or may not follow the federal rules, so state taxes may apply to all the gain-call us.

Savings
Mortgage principal payments go into your own pocket, not someone else's. You're saving and building equity as you pay for a home that's appreciating in value. (The amount of appreciation depends on inflation, the local economy and whatever home improvements you make.) But there are fewer appreciation windfalls in today's market. You must buy wisely. Not all properties in all locations will give you the top-dollar investment return you want. Our up-to-the-minute market research will help you buy smart.

Owner Pride
The fourth pillar of homeowning involves, of course, many things besides keeping a roof over your head. You acquire, along with a structure, the responsibility for maintenance and repair. Most homeowners find the benefits of owning far outweigh the upkeep efforts-and many homeowners enjoy the work. You also put down roots and become more involved in the community. In short, you own an investment that builds intangible riches while you lock in your housing costs and avoid unpredictable rent hikes.

How You Can Buy: 6 Ways Buyers Can Take Advantage of Today's Real Estate Market

Be Realistic
Set your sights realistically; don't expect to move directly into your dream home in the most expensive part of town. Get a toe in the homeownership door by buying a modest place, modestly priced-in a good location. Improve your home as you can afford to; and/or let your equity build to help you buy the dream house in the dream location later.

Closing Cost Help
If you haven't been able to save for a down payment and closing costs, consider:

Negotiating a gift, secured loan or shared equity arrangement with parents or other people looking for a good investment.
Selling something of value-with the realization that you'll be able to replace it later.
Penalty-free early withdrawal of up to $10,000 on an IRA for a down payment.
Financing the closing costs, if your lender agrees, or getting help from the seller.
Using a tax refund.
Borrowing on your life insurance or securities.

Pre-Qualify
"Pre-qualify" yourself as a borrower by calculating what price home you can afford. Generally (depending on lender and type of financing) lenders consider your total basic monthly affordable housing cost-including mortgage principal and interest payments, real estate taxes and insurance payment. Your affordability is based on 25% to 28°0 of your gross monthly income. Or, with additional long-term debts included, the ratio is 33°% to 36%. Remember: Some lenders extend these limits, based on their assessment of your financial situation and the loan plan you select. As a pre-qualified buyer, you'll have an advantage over other buyers who aren't, when sellers consider your purchase offer.

Innovative Financing
Get acquainted with the various kinds of loans available: fixed rate, adjustable rate, government-backed loans (FHA and VA), assumptions, buydowns, blended loans, seller takebacks, and more. (Terms and interest rates vary considerably-among loans and among lenders; these factors, along with your income and length-of-ownership expectations, must be weighed-and we're here to help you do that.)

FHA loans, for example, allow first-time buyers to put as little as 1.25% to 2.25% down, depending on the price of the home. Housing costs generally can't be more than 29% of pretax monthly income; housing plus other debt can't be more than 41%. These are generous standards compared to conventional financing, which means your buying power is increased. Ask about loan ceilings.

Shop For A Lender
Of course, you want the best terms you can find. If you run into inflexible qualification requirements, don't be discouraged. Some lenders are simply tougher than others. In general, look for these characteristics in a lender:

Loan programs explained plainly and simply.
Loans processed quickly.
Dependability.

Consult A Professional
There are more details involved in buying a home than are outlined here. If these basics seem appealing, let us help you understand the home-buying process. Please call for more information.

How Uncle Sam Puts Money In The Pockets Of Home Buyers

John and Jane have a combined income of $50,000 a year. They purchased a home for $150,000, putting 10% down and financing the remaining $135,000 with a 30-year, 7 % mortgage. Their monthly principal and interest payments amount to $899 a month. Here's how the value of tax deductions will save them cash in their first year and years to come, based on 2002 tax rates. (Figures are for illustration only. Your figures may differ.)

As Renters

As Buyers

Income

$75,000

$75,000

            Itemized Deductions:

State income tax     (assuming 6% rate)

3,670

3,020

Contributions & others

400

400

Interest payments, 1st year

9,450

Points (3)

4,050

Real estate taxes

1,800

           Total itemized deductions:

4,070

18,720

Deduction used (standard or itemized)

7,850

18,720

Exemptions (2)

6,000

6,000

Taxable income

61,150

50,280

Federal income taxes

10,310

7,370

Tax Saving: Federal

$2,940

State

$650

Total Tax Savings: 1st Year

$3,590

First Year- Monthly

$299

Annual (after 1st year)

$2,330

Monthly (after 1st year)

$194