The first-timer's guide
Understanding new tax credits is step No. 1 in buying your first home
By Joanna Beresford 05/21/2009
With the revised first-time homebuyer federal income tax credit currently in effect, now is the perfect time to consider making that biggest of purchases: your first home.
1) Learn about the first-time homebuyer federal income tax credit
If you are considering purchasing your first home or have not owned a home for at least three years, learn the parameters of the temporary first-time homebuyer tax credit, one of 10 provisions of the American Recovery and Reinvestment Act that was signed into law on Feb. 17. According to federalhousingtaxcredit.com, a consumer Web site created by the National Association of Home Builders, the bill provides a tax credit of up to $8,000, (calculated at 10 percent of the purchase price) for those who qualify and purchase before Dec. 1. Unlike the previous tax credit, the money does not have to be repaid as long as the homebuyer does not resell the house
for at least three years. “The tax credit can help make the American dream of homeownership a reality for potential buyers who previously could not afford the investment,” says Young, who encourages consulting with a tax professional.
2) Calculate what you can afford
Before you start searching for your new home, know what you can afford. According to the US Department of Housing and Urban Development, your total monthly mortgage payment — including principal, interest, taxes and insurance — should be about 29 percent of your monthly gross income.
What you can afford is also based on, among other things, how large a down payment you can make and how much money you can borrow. You can start estimating this figure by using an affordability or loan calculator found on the Internet. These calculators can help compute what may fit comfortably within your budget, based on factors such as annual income, annual debts, interest rates and credit score. Though Internet calculators and statistics are good references, it’s always best consult a financial advisor to determine exactly how much you can afford.
3) Choose a neighborhood
After you determine your home-buying budget, think about where you want to live. Are you going to stay in your current neighborhood, or do you want to hit the open road and start fresh? No matter what, you should thoroughly research the demographics of the area. Some additional factors to consider are how far you will be from work and shopping. If you have children, do some careful research on area schools.
4) Make a list of needs and wants
Early in the home-searching process, list your basic needs — such as minimum square footage, number of bedrooms and bathrooms, location and, of course, the price you can afford. Web sites of leading real estate brands should have guided property searches that allow you to choose one or more of these criteria. If there are features that you would love to have in your home but could live without, put them on your “want” list. This includes things like a pool, big yard or extra bedroom.
5) Work with an experienced real estate professional
Searching for and purchasing your first home is an exciting experience, but it can be overwhelming. To help each step in the home-buying process run smoothly, consider working with a seasoned real estate professional. Choosing a professional who is knowledgeable in your local and national markets, has access to the newest listings and can help you negotiate prices will increase the chances of finding your dream home.
This story appears courtesy of ARA content. Joanna Dehn Beresford resumes her regular home column next week.
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