2 reasons to buy a home now: Rates low, tax credit ends soon
While some economists believe home prices will remain low for the foreseeable future, other buyer-friendly incentives could disappear soon. If you've been on the fence about buying a home, here are some reasons to explore the other side:
•Record low interest rates. The average rate for a 30-year fixed mortgage was 5.12% last week, the lowest level since the end of May, according to mortgage giant Freddie Mac. The average rate for a 5/1 hybrid adjustable-rate mortgage — which offers a fixed rate for five years and then adjusts — was 4.57%, the lowest since January 2005, according to Freddie Mac.
While the credit crisis exposed the risk of short-term ARMs, a 5/1 hybrid is still a good option for borrowers who don't expect to stay in their home longer than five years, says Bob Walters, chief economist for Quicken Loans, an online mortgage lender based in Livonia, Mich.
"If you're a young couple purchasing a home, and in the next five years you'll need a larger place, or it's highly likely you'll be moving, it makes all the sense in the world" to use a five-year hybrid ARM, he says.
These low interest rates are unlikely to last, says Lawrence Yun, chief economist for the National Association of Realtors. Rising budget deficits will likely push rates higher over the next few years, he says.
•The first-time home buyer's tax credit. The economic stimulus package signed into law provides a tax credit of up to $8,000 for first-time buyers who purchase a home before Dec. 1. Unlike an earlier tax credit, this one doesn't have to be repaid. The credit phases out for taxpayers whose adjusted gross income exceeds $75,000, or $150,000 for married couples.
The term "first-time home buyer" is a bit of a misnomer. If you haven't owned a home in the past three years, you qualify. If your spouse has owned a home in the past three years, however, you're not eligible.
The credit is refundable, which means that even if you owe less than $8,000 when you file your 2009 tax return, you'll receive a refund for the balance. This feature makes the credit a valuable tax break for middle- or low-income families who pay little or no federal income tax.
To qualify for this tax break, you must close on the home by Dec. 1.