My Boise Dream

As many have expected, the Congress has passed legislation extending the first time homebuyer’s tax credit.  This part of the economic stilulus package was set to expire at the end of November, but with the new legislation will now run until April 2010.  Many point to the tax credit as helping raise the number of home sales the past couple months both across the country, and here in the Treasure Valley.  This extension will be welcome news to many Buyers and Sellers who feared they had missed out. 

The new legislation also expands the program by adding a $6500 tax credit for people who already own a home, although that is limited to people who have owned for 5 years of the previous eight.  There are also limits on price and income.

For more details about the extended tax credit compared to the previous version, see this pdf.

Additionally, 11 states have programs that allow the credit to be used towards the Buyer’s downpayment.  Idaho is one of those states.  For a little more info, see this pdf.

One of the questions we’re getting right now is “Should I wait to buy in case prices go even lower?”  The first part of my answer is “No one knows if prices will go lower”.  The second part of the answer is “Are you willing to bet interest rates will stay this low as well?”  Price is not the only money piece of the puzzle.  Sometimes interest rates can have a bigger effect on your home purchase than you expect.

Interest rates have recently been below 5%, which is fantastic!  Assume you’ve found a $200,000 home and you’d like to put down 25%  and you qualify for a 30 year mortgage of $150,000 at 5%.  The Principle and Interest on that loan would be  $805.23 and that is as much as you’re able to pay.  What if you wait ?

If the price goes down 8%, to $184,000 and you still put $50,000 down, you will need a loan for $134,000.  Sounds great so far, if the rate stays at 5%.  But if interest rates go back up to just 6% (still historically low) the payment on that loan is $803.40.  Your gamble on prices really only saved you $1.83.  And if the prices don’t go down but interest rates go up, you’ve lost the advantage of a cheap loan.  Your $150,000 loan at 6% instead of 5% will cost you $899.33 per month, an increase of $94.10 per month.  Still attractive?

Again, no one knows what prices and rates will do.  But be aware of BOTH when trying to decide to buy.