The recent word for the Federal Reserve (12/17/09) stated that short term interest rates will continue to remain low for “an extended period”.

This is interpreted by many that this means months. Well this sounds good but the reality is interest rates have been creeping up. As recently as the week of November 16th-20th interest rates were as low 4.6% for conventional, 30 year fixed rate loans.

As of this week it is hard to find a loan rate under 5%, most rates are closer to 5.25%. This is a minimum of a half point jump in a month. It doesn’t seem like much but a half point is a half point! On $150,000 loan that equals $45.87 a month, $550.44 a year and over the life of the loan the additional cost is over $16,500

So my point is if your out there waiting for home prices to drop just that little bit more because you want to buy at the bottom the rate you might get on your loan my cost you more in the long run. My feeling is from what I see in this local market is we have bottomed and home prices have stabilized. There is just to much inventory for prices to start to rise but I believe the price depreciation we have been seeing is coming to an end.

This is a great article on the First Time Home Buyer’s Tax Credit. Click on the continue reading button to get the PDF link. This is worth reading if you are planning to buy or even thinking of buying.

With interest rates as low as they are right now and home prices at their most affordable buying rather then renting is just an opportunity that shouldn’t be passed up!

Tax Credit Advice

The latest on the first time home buyers tax credit is it will be expanded to include current home owners too.

The first time buyer is still eligible for the $8000 and income levels have been increased to $125,000 for a single buyer and $225,000 for couples. A buyer has to have a binding contract signed on or before April 30th, 2010. You will then have until July 1st, 2010 to close the transaction.

Current home owners are eligible for a $6500 tax credit. The house they are selling must have been their primary for 5 consecutive years out of the past eight years. Income, contract and closing dates are the same as the first time buyer. The part I had to laugh about is the purchase price of the new home can not exceed $800,000.

My opinion is that this credit for time buyers will help them get into a home now that homes are at their most affordable pricing in decades. This is based on income to cost ratio. I know there are many people out there that have the ability to pay a mortgage most often a payment that is lower than the rent they are paying. The only things missing was a large enough down payment. This is where the credit comes in. It helps that buyer get the down payment they need.

As we wind down to the end of October some of the first time home buyers I am working with are really starting to scramble. Sure there is talk that the tax credit will be extended but for now we have to act and believe that November 30th will be the last day of eligibility.

Basically we have five weeks from today to close a transaction. Normally it takes at least six weeks for a loan to process add in the the fact that closings are already piling up at the end of the month trying to squeeze one more in is going to be more difficult each and ever day that passes.

The other issue is multiple buyers for the same property. Yes you could save up to $8000 in taxes but if there are more than one buyer for a home that will drive the price of the home up and I bet it will be more than than $8000. Another problem is the better homes will be bought first.

My advice is don’t wait any longer make a decision! The other option is to hope the government steps in an extends the credit. If that happens then we will all get some breathing room.