Five questions every potential buyer should ask when deciding whether to rent or buy a home
WASHINGTON – First-time homebuyers will benefit from a financial "trifecta" in 2009: it's a buyers' market, interest rates are at all-time lows, and they can qualify for a new, hefty federal tax credit.
"The tax credit for first-time homebuyers is a great incentive to buy a home now in a buyer's market because, unlike the program in 2008, the money does not have to be repaid," said Diane Casey-Landry, chief operating officer of the American Bankers Association.
The program is available for homebuyers who have not owned a principal residence within the last three years. The tax credit is available on purchases from Jan. 1, 2009, and before Dec. 1, 2009. The tax credit is equal to 10 percent of the home purchase price, up to $8,000, and does not have to be paid back.
The income limits for borrowers are $75,000 for single persons and $150,000 for married couples filing a joint return. Any type of new or resale home is eligible. The new owner must live there for at least three years, or may be required to repay amount of the tax credit. First-time purchasers in 2009 can claim the credit on either a 2008 tax return (by filing an amended return) or a 2009 tax return.
Still, deciding whether to buy a home or rent an apartment can be a complicated decision. How do you know what's right for you? Potential buyers should ask themselves several key questions before making this important decision.
1. What will monthly costs be, and can I afford the payments?
Keeping mortgage payments under 30 percent of your monthly income is a good rule of thumb. If you can't keep mortgage payments below that, you may be better off renting for awhile.
2. What other debt do I have?
Total rent or mortgage payments plus credit obligations should not exceed 35 to 40 percent of monthly income.
3. What is my credit score? Can I qualify for a good interest rate?
A high credit score indicates strong creditworthiness, and that qualifies you for better interest rates on a mortgage. Maxing out on your credit lines and paying bills late will lower your credit score. The impact of a credit score on interest rates can be significant. For instance, a borrower with a score of 760 could pay nearly two percentage points less in interest on a mortgage than someone with a score of 620. Lower interest rates mean lower monthly payments. If your credit score is low, you may want to delay buying a home until you can improve your score.
4. How much will taxes, monthly maintenance, or other fees cost?
Owning a home means you'll have to pay real estate taxes and other costs like insurance and maintenance. On the other hand, owning a home brings big tax savings at the end of the year. As a renter, the owner pays those costs for you.
5. How many years will I stay here? Generally, the longer you plan to live someplace, the more it makes sense to buy. You'll build equity in your house and its value will likely increase over the years.
You might be a bit afraid or intimidated by the whole process of buying your first home. As top Clarksville TN, Montgomery County TN and Fort Campbell KY real estate experts, it's our job to guide you, from beginning to end.
We will take the time to go through each and every step of the buying process. There are no dumb questions!
Together, we will consider:
- How much can you really afford?
- How to qualify for a mortgage.
- How much cash you should put down.
- How to buy a home with little or nothing down.
- What it takes to get approved for financing. What banks and other financial institutions are looking for.
- How much your payments will be.
- The tax advantages of buying.
- Is renting or buying better for you?
Tell us a bit about your situation below. We'll get right back to you. There is absolutely no charge, and we offer this to you with no strings attached.
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