ShareThisThe real estate meltdown and credit crisis have slammed a huge segment of society, but first-time homebuyers could be in the best position to take the leap into homeownership.
A few years ago, information inundated potential first-timers about how to take the leap via first-time homebuyer programs and other avenues that would make down payments affordable and escalating home prices feasible.
In today's turbulent real-estate environment, renters might think the days of first-time home-buying assistance are over. But that couldn't be further from the truth, experts say.
"The programs for first-time homebuyers that were always tried and true are still there," says Robert Baker, education manager for Housing and Credit Counseling Inc. in Topeka, Kan. Combine that availability with low interest rates and low home prices, and you have one of the best times in recent history for first-time buyers to take advantage of these programs.
"This is the best time I have seen in my entire career for someone to buy a home. I've been in this business for 28 years and I've seen situations where the interest rates were high and the price of housing was low, and I've seen it in reverse," says Marc Savitt, president of the National Association of Mortgage Brokers. "But this is the first time I can remember both the price of housing and the interest rates are extremely low and extremely affordable. This is the best time I have seen in my entire career for someone to buy a home."
Not only are market conditions favorable, the government is adding incentives to attract first-time homebuyers. As part of the economic stimulus package, a tax credit worth 10 percent of the purchase price up to $8,000 is available to first-time homebuyers as long as they sign on the dotted line this year. Unlike previous tax credits for first-time buyers, this one does not require repayment.
Homebuyers must meet income requirements to be eligible for the entire credit. If you're single, you must earn $75,000 or less. Married couples must earn less than $150,000, though those who earn more can qualify for reduced credits.
In addition to the one-time credit, first-time homebuyers can take advantage of special programs through the Federal Housing Administration, or FHA. The FHA doesn't make mortgage loans directly, but it insures loans made by private lenders, protecting those lenders from losses.
FHA-backed loans tend to have less stringent credit requirements, and they let homebuyers use financial gifts from family members, nonprofit organizations and employers to pay the entire down payment. However, the onset of the economic downturn has brought a change in these programs.
"We've raised our required down payment from 3 percent to 3.5 percent," says Lemar C. Wooley, a spokesman for the U.S. Department of Housing and Urban Development. "But that is still substantially lower than the 20 percent you'd have to pay for a conventional loan, if you can get it at all."
Many first-time homebuyer programs now require higher credit scores to qualify, says Baker. Although buyers could qualify for an FHA loan with a credit score below 700, they might have to make a higher down payment. Some of the programs instituted by private lenders not affiliated with FHA generally require credit scores above 700, Baker says.
Many programs also contain an education component, so prospective buyers will get help with budgeting, as well as advice on clearing up any debt or credit problems. So even if they don't have the required credit score, a housing or credit counseling agency can help them improve their financial situation as they look for first-time home buying programs that they will qualify for.
Another requirement of many first-time homebuyer programs is that participants must have income below 80 percent of the region's median income. But if your salary was lowered or your bonuses stopped, you might be earning less than 80 percent of the median income now. So even if you didn't qualify before, you might now. However, as median income levels drop, so does the amount that represents 80 percent.
"You may have been somebody that was above the 80 percent median income level five or 10 years ago but now based on family size and median income in your area, you're now below 80 percent and you can take advantage of this," says Baker.
Another thing to remember: Don't always take the term "first time" literally. Many programs don't rule you out if you bought a home before. "If you haven't owned a home for three years or more, you are eligible for many of these loans," says Savitt. "If you've got reasonable credit, a job, you've paid your bills on time and you've got a couple of dollars, you're probably going to qualify."
Mortgage rates fell sharply after three weeks of rising.
The average 30-year fixed-rate fell 15 basis points, to 5.52 percent. A basis point is one-hundredth of a percentage point.
This week's average 15-year fixed-rate -- a popular option for refinancing -- fell 9 points, to 4.84 percent.
The average jumbo 30-year fixed edged down 1 basis point, to 6.44 percent.
Adjustable-rate mortgages split this week. The one-year adjustable-rate mortgage was unchanged, at 5.19 percent. The popular 5/1 ARM fell 7 basis points, to 4.86 percent.
(Distributed by Scripps Howard News Service. Reach Tamara E. Holmes at editors(at)bankrate.com)
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