First Time Home Buyer

Can the financial news get any more depressing? We are being reminded constantly by the media of who bad the economy is and you may be feeling that now would be a bad time to consider buying that first home. Gas prices are near record highs and inflation continues to increase faster than our incomes and the jobs are going by the wayside every day not to mention that real estate is being pounded by adjustable rate mortgages that are beginning to reset and result in higher payments and an increase in foreclosures. With all of these things is it really a good time to buy a house? The answer is absolutely!

It is true, many will tell you that the outlook to buy a new home is grim at best and reports say that existing home sales will decrease nearly 7% this year. Additionally new home sales are decreasing about 3 times that and it is getting so desperate that some developers are offering unique and extravagant deals on homes including two for one deals. Still, if you have available funds to secure the financing this is a great time to take advantage of all the incentives and buy that first home. The housing crisis is more of a problem for the individual who needs to sell an existing home before being able to buy a new home; for the first time home buyer they avoid that and can just buy.

No funds right this minute? That is probably OK because the housing problems is expected to continue for the next 2 - 3 years and therefore you have time to prepare. There is currently and is expected to continue to be a significantly higher number of available homes than qualifying buyers. This means that the first time home buyer who has good credit and a down payment can benefit with a large choice of homes that are selling for great prices; a market view that is called the buyers market.

Buyer’s Market

A large number of homes for sale, fewer people buying homes, home prices dropping continuously and interest rates not out of control yet; these are just a few incentives to buy now. Throw into the mix the deals and incentives the developers, builders and real estate agents are adding to the mix to try to move the homes and move new owners in and the tax credit from the government and how can you not buy now? Still not sure if you are ready? Ask yourself a few questions: Is your credit score in good shape or can you easily raise your score? Do you have assets that you can liquidate to get a down payment? Do you qualify for the incentives? If you answered yes to these questions you could be moving into your dream house this year. Additionally, with the buyer’s market you are almost guaranteed to be able to buy more house than in years past. So stop holding out…buy now!

A report was released recently by the LIUNA, Laborers’ International Union of North America. The report detailed the implications of the homeowner and the nation’s economy when the adjustable rate mortgages reset in 2010 and 2011. For the releasing of the report at a conference held outside f the KB Home Headquarters, LIUNA was accompanied by homeowners from a KB Home development and community reps who feel the worst is yet to come in the mortgage and housing crisis. The report, titled ‘The Ticking Time Bomb: Adjustable Rate Mortgages and Depreciating Home Values in New Subdivisions’, takes a look at mortgages that were originated between 2005 and 2006 in Maricopa County, Arizona by three of the nations largest corporate home builders including KB Homes. According to the report more than a third of all mortgages are five year ARMs that will reset in 2010 and 2011 meaning that people will be trapped in their loans and unable to refinance before their interest rates reset due to high loan amounts and decreasing home values. The report also goes to show that the home values have declined significantly in just the last year.

What this is causing is a huge jump in subdivisions with an increasing number of foreclosures; an epidemic that can mean death to a subdivision. With an economy that is quickly spiraling toward recession the problems that are resulting from the mortgage and housing crisis threatens entire communities. Many new subdivisions that are experiencing an unhealthy number of vacant foreclosed homes are really worried about the threat that looms in 2010 and 2011 when a large number of loans will have the interest rates reset. This disaster for current homeowners can be a guiding light to the potential first time home buyer in a couple of ways.

The First Time Home Buyer:

The biggest thing for the first time home buyer is to educate themselves; be aware! When looking to finance your first mortgage take the advice of many who have lost their homes due to foreclosure and make sure you get a fixed rate mortgage. A fixed rate mortgage will not reset after a number of years so you will know what your payments will be. If the interest rates significantly lower after time you can always check into refinancing to get the better rate.

When looking for your first home look around the area at the number of vacant homes. Will your new neighborhood be changing drastically as more homes are foreclosed on? This could cause your property value to decrease further than the exceptional deal you may have gotten. Take heed from the report if you are looking to buy your first home in a subdivision that may be facing the time bomb of foreclosures as well.

Gamble with the roll of the dice. Some potential first time home buyers may see this as a prime time to get into a home and a sub division they would otherwise never be able to afford. They may enter the subdivision with the hope that eventually the tide will turn and the sub division will be restored to its previous glory. However, know that it may turn the opposite direction and end up being a neighborhood you will grow to fear or regret and then be trapped and unable to sell as the home values have spiraled downward.

LIUNA is now calling for agencies including Fannie Mae, Freddie Mac and HUD to buy or securitize mortgages and to exercise more examination of mortgages that come from corporate home builders or lenders under the control of home builders who have caused much of the crisis. With unethical and often illegal manipulation that put many people in the way of harm in their mortgage these home builders need to be investigated further lest the subdivisions of America fall away.

Phil Gordon, the Mayor of Phoenix, Arizona states that the housing bailout legislation is a great start but falls short to stop the mortgage meltdown being experienced today. Today Mayor Gordon will meet in Washington, D.C with House Speaker Nancy Pelosi and other lawmakers to fight for additional funding for the first time home buyers. He states that the new housing bailout will help those with troubled mortgages but does not help the first time home buyers; something Mayor Gordon wants changed. According to Gordon, “We got hit particularly hard because most of our foreclosures are as a result of the sub-prime. While people have been losing jobs here, (it’s) nowhere near the rate of the rest of the country.” Gordon goes on to say the speculators are to blame for a lot of the mortgage meltdown by adding, “The fundamentals of Arizona are strong. People are still coming here, jobs are still growing. But there were so many speculators who bought homes to make a profit on.” Gordon believes mortgages should not be a vehicle to profit but should be meant to raise a family. This is a sentiment that is shared with many families and potential home owners that are hoping for a break for the first time home buyer.

This past weekend, the Senate approved the housing bailout legislation that was primarily designed to aid troubled homeowners and slow down the rate of foreclosures. President Bush signed this legislation this week. The legislation includes provisions that will also help families that are in no danger of losing their home as well. One of the money-saving provisions that is hidden deep inside the housing bill includes changes for reverse mortgages.

A loan against home equity that is not required to be paid until the house is sold or the homeowner dies is a reverse mortgage. To qualify for a reverse mortgage the homeowner(s) must be 62 years of age or older. A reverse mortgage can offer the much needed income for the retired individual or couple who have gathered a lot of equity but little in savings. The bill has addressed two aspects of the reverse mortgage that has made it less than attractive to potential borrowers; fees and loan limitations.

Most reverse mortgage borrowers will pay a hefty upfront fee which will reduce the total amount of money that is available to borrow. The housing bill will limit the origination fees for federally insured reverse mortgages on loans up to $200,000 of a homes value to 2% with an additional 1% for up to $6,000 over $200,000.

The amount of the reverse mortgage is based on the current interest rate, the home’s value and the borrower’s age. Previously the maximum home value for a federally insured reverse mortgage topped at $200,160 to $362,790 and was dependant on the homeowner’s location. The restrictions prevented the homeowner in a high cost area form getting the most out of the equity in their home. The legislation bill has raised the maximum home value to $625,500 resulting in homeowners living in high cost areas to qualify for a larger reverse mortgage loan.