A reader named Brett recently wrote in to ask for advice on finding a good deal on a new home. He and his wife are in seemingly stable jobs, and they’re looking to buy their first home. In a nutshell, he was wondering how to: (1) tax advantage of the forthcoming homebuyer tax credit, (2) get a great rate on a mortgage, and (3) find a good property at a good price.
That’s a pretty tall order, but I’ll take a whack at it.
Taking the Tax Credit
Changes to the first-time homebuyer tax credit have been fast and furious over the past week or so and, frankly, I’m getting a bit worn out from talking about it. If you’re sick of hearing about it, feel free to skip down to the next section. 🙂 But if not, please read on…
In the beginning, it was essentially a $7, 500 interest free loan. Then the House of Representatives decided to remove the repayment requirement. The Senate then followed up by increasing it to a $15, 000 tax credit with no repayment requirement and no first-time homebuyer limitation. But then… When the House and Senate got together to work through their differences, it got knocked back down to an $8, 000 first-time homebuyer credit.
As of right now, the details surrounding this are still somewhat murky. It sounds like it will apply to homes purchases between January 1 and August 31 of this year, and that the income limits will be $75k for single filers and $150k for joint filers. My best advice here is to simply keep your ears open and listen for details as they come available. There should be more info soon.
Getting a Great Deal on a Mortgage
Unfortunately the 4% mortgages that were floated by the Senate never materialized. Nonetheless, there are still great deals to be had when it comes to finding a mortgage. Given that lenders have become increasingly risk averse, one major factor in landing a great mortgage rate will be having a high credit score. Unfortunately, while there are things you can do to improve your credit score, they all take time. Thus, if your score is currently in the crapper, finding a low rate might be tough.
The only other advice that I can offer here is to ask around and find a reputable mortgage broker. If you get multiple recommendations, all the better. Contact them all to establish a relationship and see what they have to offer. Then, when you get closer to actually buying a house, take the best offer that you can get and shop it around to the other brokers. See if they’ll beat it. Many brokers are hungry for business, and will do whatever they can to win you over. Beyond finding a low rate, you might be able to get some concessions on closing costs, etc.
Getting a Great Deal on a House
Real estate is so intensely local that it’s hard to give good advice from afar. On top of that, there’s a lot of disagreement about where we are with regard to finding the bottom of the market. That being said, I can offer one fairly generic tip, and that is to keep a close on how long various properties have been on the market. One trick that many realtors/sellers will use is to de-list and then re-list a property that has been on the market for awhile. With a fresh listing date, it won’t look like it’s been on the market as long, but that doesn’t make the sellers any less desperate to sell.
What About You?
Do you have any tips to add to what I’ve written above? If so, please don’t hesitate to share them in the comments.
29 Responses to “Getting a Good Deal on a New Home”
Heya this is somewhat of off topic but I was wondering if blogs use WYSIWYG editors or if you
have to manually code with HTML. I’m starting a blog soon but have no coding know-how so I wanted to get guidance from someone with experience. Any help would be greatly appreciated!
Isn’t the Credit just a loan? It has to be repaid in 15 years
I am soooo excited….after trying to get a house since July…my husband and I are finally closing next Friday and get to take advantage of this new credit. Finally…
here is the link for the tax form…I know it was posted above somewhere. It is to claim the credit on your 2008 tax return, whether you bought in 2008 or 2009. The difference is the amount, dates, and whether it is paid back or not.
The tax help for First time home buyers. I cannot find the 8,000 tax for homes purchased after 1Jan 2009 any where on the irs site so is this real if so where is it found? Othoer wise I think I will just file for the 7500 repay over 15 with no intrest.
Optimistic but confused. I am sure the us gov does not mind the fog a disallusions of tax help.
I want to say that they got rid of AmeriDream the end of September. I didn’t realize all this stuff has been going on that long. I know the past couple years that my husband and I have been looking for a house all the while saving up all the needed money, the market has been aweful. We have been able to save more than enough money for the down and closing but we don’t want to pay it if we can get it somewhere else because too many of the houses require way too much work to even make them liveable.
I remember looking into AmeriDream when I bought my first house. I forgot all about it until you mentioned it – I didn’t realize the program had been canceled.
This mess was apparent in my area (Ohio) awhile ago – I started seeing the signs of it as soon as I started looking for my first home and that was six years ago. A lot of the “instant” subdivision builders in my area dealt in government backed loans. They provided their own creative financing that was extremely competitive – independent banks and mortgage lenders couldn’t touch them. So, most of the people that built their homes in these subdivisions financed through the developer. There were obvious problems with the way they approached their financing. For one, it was a 100% financing unless your credit was completely horrible (and I mean like bankruptcy horrible). The worst thing they did revolved around rate buy-downs though. The common one was a 2-1 buy down – they would buy the rate down 2 percent the first year, 1 percent the second year, and then it would lock in at years 3-30. So, if the rate was say 6% fixed, then the rate would only be 4% the first year. The problem with this was that the home buyer only needed to be approved at 4% since that was how the loan was originating. It didn’t matter if the same person wouldn’t have been approved at 6% – they only needed to be able to afford it at 4%. A lot of people got in at the decreased rate by the skin of their teeth and there was no way they could afford it once it increased. I remember thinking “How… Why?! would any lender do that to themselves?! It’s going to blow up in their face!” and then I found out – It’s a government backed loan and they were covered. It never blew up in their face – It always blew up in our (the taxpayers) face. When the properties got foreclosed on, it was HUD (the government) that ended up footing the bill and it was actually HUD (through an approved broker) that is taxed with selling the properties.
The tax payers started footing the bill for this crap LONG before any stimulus plan. This has been going on for a long time and it’s going to take even longer to fix it.
Hello. My girlfriend and I are planning on buying a house this year, but we will be unmarried both when we purchase the home and when we file our taxes. We will both be principal owners and it will be the first home for both of us. Does anyone know if we can both claim the $8000 credit? Or would only one of us be able to do so. We each make about $40000 a year and from everything I’ve read be eligible for the credit.
they use to have a program called AmeriDream to help home buyers to where they could ask for closing & down to be paid by the seller if the seller really wanted to get rid of the hosue (whether a person or a bank). I fought so hard to try to keep that around my emailing the government officials and everything who were tying to get it taken away. It didn’t help…they have been taking away every last resourse that people turn to.
I agree with you. I am sort of sick of it. People say now is the time to buy…but it is EXTREMELY stressful. The very first time my husband and I were under contract (in April 2007 – that is how long we have been looking..just off & on and then have been looking at about 8-10 houses every weekend since July 2008) we packed up our apartment and were ready to close. Just days before closing it didn’t end up appraising and the bank decided instead of taking a $20,000 hit they were going to foreclose on it. I can’t tell you how depressing & stressful it was to completely unpack everything and put it back in its original spot. We have since had the same situation happen about 3 times since October 2008. We have learned not to pack up because the bank can do anything. It is like they play by their own rules…and then they ask to be bailed out. It is just starting to waste my money & time and for a first time homebuyer…the experience has been aweful.
ok, thanks for the information BIll. I have an email into my accountant and they are going to look into it and see what would be the best way to approach the situation.
“Why are banks doing this? They are taking a small amount of $10,000 and passing it up and foreclosing on a house when it will cost 2-4 time more, the house wonâ€™t be back on the market for 6-12 months, the condition of the house will get worseâ€¦and often times vacant houses get broken into.”
If you get an answer to that one then please let me know – maybe you can let the government know as well. I just read an article about this last week that pretty much echoed what you are saying – The banking industry is doing very little (if anything) to minimize the amount of foreclosures. It’s concerning to hear that they are still foreclosing (potentially losing upwards of 40% plus), rather than taking an immediate 5% to 10% hit. My guess is that they wouldn’t be doing this if their losses from foreclosures weren’t being covered by well… You and me. They seem to be unwilling to help clean-up the mess that they created. I have a hard time understanding how a stimulus package will fix anything as long as that type of behavior is allowed to continue.
It costs nothing to amend a return. You just have to fill out a new 1040 and a 1040X and mail them and all supporting documents. Look online how to do it and be careful. I believe that the irs scrutinizes a 1040x more carefully. Better to give too much supporting documentation that too little. Here is some info online http://taxes.about.com/od/taxtrouble/a/form1040X.htm
Penalties and fees are typically assessed because someone underpaid taxes for a significant time. This is the opposite situation.
As always, it might be wise to get professional tax help, if for nothing else than to confirm the info you read applies correctly to your situation. 8000 is a lot of money to mess up on. Even Cabinet level Gov’t officials who helped write the tax code can mess their taxes up.
I haven’t, I am sorry. I know the old law you can on either 2008 or 2009…and Bill stated you can amend it. I will talk with my accountant in the next few days to find out how it works and will then post because I would love to claim my taxes now…and then amend and not have to wait until this time next year to get my $8000.
Bill & Heather:
I have read on here and one other site that you can claim the 8000 credit on your 2008 taxes just like the old (current) law. But I have also read on multiple sites as well as from my mortgage broker that you have to wait until you claim your 2009 taxes. Do you have any literature or can you provide where you learned that you can in fact claim on 2008? I appreciate the help!
thanks for your info. We have been going back & forth on houses w/ the banks and we want to just claim our tax return. I didn’t know that we can amend it that way we don’t have to wait until this time next year to get the $8000. Do you know if it costs anything to amend…i.e. does the IRS charge a fee or penalty?
10. The Arabic Student, you probably already know this but I just wanted to point out that you can only take the lesser of 8000 or 10% of the value of the house. For a 70,000 house, it would be 7000.
12. Heather, the 8000 can be claimed in 2008 or 2009, your option. If you have already filed your 2008 but then want to take the 8000 credit in 2008, you can amend your 2008 return to include it.
oh…on that stimulus…my husband and I plan on spending every dime of it if the house follows through either on furniture and/or upgrades & fixing up the places. It is almost impossible to buy a house in Colorado under $200,000 that doesn’t need a ton of work.
does anyone know if the new $8,000 can be claimed on either 2008 or 2009 taxes? I would love to do it sooner if our house goes through instead of waiting until this time next year.
I have a question…my husband and I are sort of in a rough situation. Ever since July we have been under contract on numerous houses and they ALL fall through because they appraise for too low and the sellers owe more than they are worth…so of course the sale doesn’t go through, the bank takes the house and starts the froeclosure process. We are beginning to get very irritated seeing that it is now Feb. Most of them fall through less than a week before closing.
We are currently under contract with one that is $135,000 and we put in for $145,000. We are to close this Friday. The house got appraised by one FHA appraiser @ $120,000 and another at $125,000. Right before we got it appraised we locked in our interest rate at 5% and we had to buy it down and need to bring an extra .5% (between $625-$725) to closing to get that rate. Anyways, now the bank needs to decide if they want to take a $10,000 loss and sell us the house or forclose on it. Banks like to take their good old time and we are now not closing and we will be in a 30 day lock instead of a 15 day lock. Our interest rate will not be 5.5% and we still have to buy it down because the bank is taking their sweet time. My question is, what happens if it goes over the 30 day lock (what happens to the interest rate since we can’t unlock & then re-lock back in)?
The banks are just wasting our money short term & long term…and we will be paying a few thousand more for our apartment. Why are banks doing this? They are taking a small amount of $10,000 and passing it up and foreclosing on a house when it will cost 2-4 time more, the house won’t be back on the market for 6-12 months, the condition of the house will get worse…and often times vacant houses get broken into. Maybe that is why in Colorado about 8 out of 10 houses under $200,000 are completely trashed and not liveable.
I just closed on my house at the end of January! That $8,000 credit is going to be NICE. The house cost $70,000 and with the VA loan I got there was no down payment. Hopefully this stimulus does something for the economy, but I think most people aren’t going to buying luxuries with it. They’re going to be using it to pay down debt which doesn’t do anything to create new jobs.
Brett – In addition to what Nickel has said here, I suggest finding a Realtor who is known for or prides themselves in finding a good deal. I am lucky enough to know a woman who does just that in our small housing market.
Also someone experienced with foreclosures and short sales is important because some of the deals you find will fall under these categories.
Good Luck to you!
I think prices are going to continue to fall through 2009. Keep an eye on valuations in your area and then make a move when prices flatten out. Also, I would not be surprised if more rescue packages come out of DC as things continue to deteriorate. Take your time.
Foreclosures are the way to go. They are like the new “gently used” car.
I actually purchased my home from a broker that handled government owned (HUD) properties. At least in my area, it seems like you can get better deals on distressed properties when Uncle Sam owns them. Bank owned properties are typically listed higher.
My house was two years old when I bought it for 50,000.00 under appraisal value around five years ago. I did have some work to do, but it was mostly cosmetic, low-cost repairs. I don’t know what things are like now, but it was a painful process five years ago b/c government backed foreclosures were relatively new to my area – hell, foreclosures in general were new to my area. Nobody knew how to handle them, which resulted in a lot of phone time for me. Other than that, it was a great way to purchase my first home. I live in neighborhood where everyone else paid 50,000 – 70,000 dollars more than I did. Suckers…
Two more quick notes –
My opinion on the above comment regarding tax values – they’re basically irrelevant. They are so slow to react to changes in the market. Check out sales data for similar houses in the area.
Also, when I was searching a lot of banks (sellers) were trying to create auctions on their foreclosed listings. For example, if they had several visits to a house over a weekend, they would dramatically (10-30%) drop prices the following Monday to try to generate multiple offers. It worked on me in one instance – on a house that had been listed for over a year, they got 5 offers in one day. My advice would be to remain calm and patient throughout your search. There are so many houses on the market and more than one is right for you.
Regarding “Getting a Great Deal on a House” –
Do your due diligence when picking your real estate agent. I met with several agents before settling on mine. I knew the type of house I was looking for (foreclosure with minimal to modest repairs) and the neighborhoods I was interested in. I looked for an agent with experience in my unique segment of the market. He could walk into a house with me and within 10 minutes tell me about how much $ it would take to renovate it. He had been in dozens of foreclosures in the area, so he knew when individual house prices were relatively low/high. He also loved data – and continually monitored what was going on with the sales data in my search areas.
This all being said – let me know if you are in need of a great realtor in the Twin Cities area!
Call around for loans to see who has the best rate. And play banks against each other. If Bank of America gives you 5.5% see if SunTrust will give you 5.375%. If you have good credit history and a 15-20% down payment you can bargain. Banks are looking for creditworthy people to loan money to.
Also remember you are buying a house to live in. Sure you want a good deal, but you want a house you love. Don’t “settle” for a house you kinda want just because you get a great deal. Make sure this is a house you can spend 10-30 years in (whatever your time line is) and then try to get a good deal.
My husband and I just bought a house in the city we were relocating to. We got a great deal on a beautiful house. We were moving to a slower, more depressed market than what we came from and we saved at least 20% over what this house would have cost us in the market we moved from. We were under a time constraint and probably could have saved even more if we didn’t have that. So be patient in your negotiations and start the bidding at 15-20% of the asking price (30% below in some areas). Trust me…sellers WANT to sell and will entertain nearly any serious offer. Homes are sitting on the market for months before even getting 1 bid.
Look at the tax value of the home and start below that. Even great homes in the best neighborhoods in town are going for tax value or less (for the last decade or so tax value has been considered to be a very conservative value of a home, but not any more).
I just wanted to thank you for continuing to post on the homebuyer credit. I am closing on my first home in March and really appreciate that you continue to distill the latest happenings into an easy to understand format for me.
Something to consider – the seller is paying my closing costs, INCLUDING points. So my mortgage broker (who I am actually related to) is going to include as much in prepaid interest as she can. Using rates earlier this week, that is going to knock a 5.35% 30 year fixed down to 4.25% fixed. If you’re bidding on a home, asking the seller to pay part or all of the closing costs (up to what your lender will allow) may be a good option and may be a way to get your rate down.
Points aren’t bad if someone else is paying for them!
Nickel – I believe that house values are still inflated (Incomes-to-home values ratio) by historical measures. Therefore, the “real values/prices” will continue to drop.
However, I also believe that the government’s actions will create very bad, if not hyperinflation, pushing the “nominal prices” up.
Can you please discuss this trade off. In other words, even if the real value of the house declines, the nominal value would go up, pushing down the real value of the mortgage, potentially resulting in a huge windfall for homeowners and essentially screwing the banks…which in turn screw the taxpayers and people that rent….because we’ll still be bailing them out…again.
My mortgage broker told us that a healthy down payment helps – a lot. You’re more likely to be approved for the loan, and it might even reduce your interest rate.
Of course, the less you borrow, the less you’re paying over time too!
I would aim for 20% down, because it eliminates the hassle and cost of PMI.