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Why Rent: Advantages of Home Ownership

It's staggering when you think about the cost of living, especially if you're a renter and not a home owner. If you are currently paying $1,000 a month for rented housing, over the next three years your property management company will effectively have reaped $36,000 of your hard earned cash. In most cases, you know your rent will go up every year, even if you live in an area that has rent control regulations. You're paying the mortgage for the property owner, when you could be building equity in your own real estate investment.

The tax deductions available to homeowners vary, but there are solid rules the IRS lines out for us. Real estate taxes, mortgage interest, pre-paid interest, and interest on construction loans are all things to take into consideration as tax benefits. For first-time home buyers, it makes even more sense to buy right now. Not only are home prices lower than they have been in the last five years, mortgage interest rates, at the time of the writing of this article, are near historical lows – this means your parents and your grandparents couldn't have secured a mortgage at a lower rate than you could've in the last month.

To add to this advantage, the government is offering first-time buyers (anyone who hasn't owned a home in the last three years) a temporary tax credit of up to $8,000 that doesn't have to be paid back. What's great about this credit is one can even amend their 2008 tax return to recapture the credit this year, which means they don't have to wait until next April to get their money.

The Best Could Be Yet to Come
Last year, a study was released by the Joint Center for Housing Studies of Harvard University. The study reflects upon the housing bust that began in 2006 and deepened into 2007 and 2008. While much of what has contributed to the housing market's decline has already been widely covered elsewhere, this report also demonstrates what potentially lies in wait.

During the housing market's boom years of 1995 to 2005, household growth was approximately 12.6 million. In the next decade, 2010-2020, it is estimated that household growth will increase 14.4 million.

This increase in households will come from a number of different factors including households resulting from divorce, "echo boomers" becoming adults, and a continued increase in immigration. Any increase in any one of these areas could lead to an increase in demand for housing in the near future.

The Greater the Need, The Higher the Price
The more you want or need something, the more you are willing to pay for it. It's simple economics. Take housing, for instance. Inventories are up, fewer people are buying today as compared to a few years ago, and prices have declined.

As prices decline, builders build fewer homes. Even though new homes sales were recently reported higher for the month, the number still represents an annualized decline of nearly 1.4 million homes since 2005.

With multiple-year declines in new construction, this simply means that as more people come into the market to buy a home, there will be fewer homes from which to choose, and prices will be forced higher.

So What Now?
While this article is a discussion on whether or not now is a good time to buy, it's also important to look back a little. In just the last few months, the number of homes being sold has increased. Compared to February of 2008, existing homes sales this February increased 5.1% and new home sales were up 4.7% across the country. Even more telling is that in the areas where housing has been hardest hit, buyers are coming out in droves. California, up 83%; Florida, up 24%; Las Vegas, up 28%; Miami, up 47%. Buyers are clearly excited and are looking at property – and more home sales are occurring.

No one can time the market perfectly and find the exact bottom. But even if you don't, it's okay. Interest rates are at their lowest in decades, home prices are extremely low, and this combination yields the greatest increase to home affordability in years.

If you or someone you know is currently renting, I urge you to call me to discuss the many low- and no-down payment loan programs that are currently available to prospective home buyers. My team and I work cohesively with the borrower's financial consultant to ensure the client's long-term goals are met.

• The $8,000 tax credit is available for first-time home buyers only.

• The tax credit is a true credit. It does not have to be repaid.

• The only repayment requirement is if the home owner sold the home within three years after the purchase.

• Home buyers who file as single or head-of-household taxpayers can claim the full $8,000 credit if their modified adjusted gross income (MAGI) is less than $75,000.

• First-time home buyers would receive an $8,000 tax credit for the purchase of any home on or after January 1, 2009 and before December 1, 2009. To qualify, you must actually close on the sale of the home during this period.

• A refundable credit means that if you pay less than $8,000 in federal income taxes, then the government will write you a check for the difference.

• All homes, whether single-family, townhomes or condominium apartments will qualify, provided that the home will be used as a principal residence and the buyer has not owned a principal residence in the prior three years. This also includes newly-constructed homes.

Understanding Your FICO Score and How it Affects Home Buying  

Home buyers who are seeking a mortgage find out early-on that their credit score plays an important part in the home buying process and in determining the interest rate that a lender offers.

What is a credit score?

A credit score is a number that lenders use to estimate risk. Experience has shown them that borrowers with higher credit scores are less likely to default on a loan.

How are credit scores calculated?

Credit scores are generated by plugging the data from your credit report into software that analyzes it and cranks out a number. The three major credit reporting agencies don't necessarily use the same scoring software, so don't be surprised if you discover that the credit scores they generate for you are different.

Why are credit scores sometimes called FICO scores?

The software used to calculate a great number of credit scores was created by Fair Isaac Corporation--FICO.

Which parts of a credit history are most important?

Use these percentages as a guide:

35% - Your Payment History
30% - Amounts You Owe
15% - Length of Your Credit History
10% - Types of Credit Used
10% - New Credit

Your Payment History Includes:

·         Number of accounts paid as agreed

·         Negative public records or collections

·         Delinquent accounts:

1.    total number of past due items

2.    how long you've been past due

3.    how long it's been since you had a past due payment

What You Owe:

·         How much you owe on accounts and the types of accounts with balances

·         How much of your revolving credit lines you've used--looking for indications you are over-extended

·         Amounts you owe on installment loan accounts vs. their original balances--to make sure you are you paying them down consistently

·         Number of zero balance accounts

Length of Credit History:

·         Total length of time tracked by your credit report

·         Length of time since accounts were opened

·         Time that's passed since the last activity

·         The longer your (good) history, the better your scores

Types of Credit:

·         Total number of accounts and types of accounts (installment, revolving, mortgage, etc.)

·         A mixture of account types usually generates better scores than reports with only numerous revolving accounts (credit cards)

Your New Credit:

·         Number of accounts you've recently opened and the proportion of new accounts to total accounts

·         Number of recent credit inquiries

·         The time that's passed since recent inquiries or newly-opened accounts

·         If you've re-established a positive credit history after encountering payment problems

·         In general, checking to make sure you aren't attempting to open numerous new accounts