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It Still Makes Sense To Buy Verse Rent

Nearly a full third of households are still renting. If your friends, family or even you are still renting, you could be paying a hefty price.

Before talking about purchasing a house, it’s important to note two things. First—and this is extremely important—the housing market is actually localized. So the outlook in Kitsap County is different than another city across the state or on the other side of the country. Second, home prices are tied to employment. For example, if someone feels like their job is in jeopardy, it might be enough to stop them from making a move. So, if the Detroit, Michigan job market is feeling a pinch (which it is), the home prices in Detroit, Michigan may be down as well (which they are). But we live in a military falsehood with people coming and going all the time and billions of dollars coming into the PSNS Shipyard and Bangor Sub Base every month.

But with all those factors under consideration, it still makes sense to buy instead of rent. In fact, renting may be costing you a bundle.

Let's look at an example…

If you are paying rent at $1,500 per month and your landlord increases your payment by a modest 5% each year, you would wind up paying just about $100,000 over a 5-year period! Worse yet, after forking over $100,000, you still would have nothing to show for it.

And speaking of having nothing to show for it, how about any improvements you might make to a rental property? It's not uncommon for renters to freshen up the paint, install new light fixtures or plant some nice flowers outside. But guess what… all your efforts, labor and the benefit of that improvement belong to the landlord, not to you.

With convenient zero to small down payment options still available for qualified buyers, affordable home prices and low interest rates, the very same money could have been used towards home ownership.

Even using a standard 30-year fixed program, a mortgage of $300,000 could be obtained with a total monthly mortgage payment—including property taxes and insurance—of around $2,200. Assuming a 25% tax bracket, this would be equivalent to the average amount spent on rent during the same period after your tax benefit.

And the benefits of home ownership are quite considerable. Because the mortgage is being paid down each month, equity is being built. After 5-years, the $300,000 mortgage could be reduced to $279,000, adding $21,000 to your net worth!

But if laying out the initial increase in monthly payment and having to wait for your tax benefit to show up next April is a tough nut to crack, the IRS wants to help. Instead of waiting to file for the tax benefits derived from your new home purchase, you can simply adjust the amount of your withholding. This allows you to have less tax withheld from each paycheck so you can handle the new mortgage payment more comfortably throughout the year. In essence, you are taking your tax refund as you go instead of letting Uncle Sam hold it all year, interest free.

Visit www.irs.gov and use the IRS withholding calculator. This very handy tool can quickly show you the impact that a change in withholding will do to your net paycheck. Remember to balance this with the expected refund and it is always a good idea to check with your tax advisor.

5 Reasons to buy a home in 2010!

For many of us, a new year represents a clean slate, a time to start anew and do things better than the year before. Whether you're into setting concrete resolutions or you prefer to think more generally about your goals, there's one item that you should have on your list:

Buying a home in 2010. Even if you're already a homeowner, here are five reasons why this year is the right time to think about purchasing a new home:

1. First-time home buyer tax credit

The home buyer tax credit has been extended to April 30, 2010, and it's no longer just for first-time buyers. First-time home buyers qualify for up to $8,000 and existing homeowners qualify for up to $6,500 on a new home if they’ve lived in their current home for five years or more. Remember: April is just a few months away, so if you're going to take advantage of the tax credit, start looking for your new home now!

2. High inventory of homes

There is no better time than now to buy a home because in all likelihood, there will never again be such a large selection of available homes in every part of the country. You can literally pick the neighborhood and city where you'd like to own a home in and in many cases, the actual street on which you want to live.

3. Low cost of homes

Homes are on sale! Not only are many homes readily available, they’re also about half price in most areas. Many homes that were valued at $260,000 just two years ago are now down to $175,000. Buy your dream

home now before property values rise.

4. Low mortgage rates

Interest rates have not been this low for more than decade; buying a home now could potentially save you thousands of dollars just on the rate alone than if you wait for rates to rise.

5. Capital gains, building equity and tax deductions

Buying a home now is truly an investment – more so than ever before. Why? Because homes are cheap and every investor knows that it's smart to “Buy low, sell high." If you buy a home now and just pay the minimum payment on your mortgage each month, you’re still building equity that renting doesn't allow. If you own your home, it's also appreciating without your help. In 10 years, it’s naturally going to be worth more than it is now, making you a winner; you can sell it and reap the gains. Finally, there are many tax deductions for home improvements and home ownership generally that are pretty helpful, especially compared to renting a home where you get little, if any, tax benefit.

CALL:  JOANA HOOVER TODAY AT 360-362-2700

False Illusions and What You Need to Know

Homebuyer Alert…

For prospective homebuyers who are on the fence about making a home purchase, the next few months represent a countdown of sorts for two reasons.

The first of these, the coming expiration of huge tax incentives, may be a bit more obvious to most borrowers. April 30, 2010 is the last day to enter into a home purchase contract and still potentially qualify for a federal income tax credit of up to $8,000 for first-time homebuyers and up to $6,500 for repeat homebuyers. The credit can be claimed only on contracts that close by June 30, 2010.

Secondly, beyond the waning benefit of the Federal income tax incentive, another form of stimulus will soon disappear, as the Federal Reserve winds down a program that has been keeping home loan rates artificially low.

Rate Alert…

The lowest rates of 2009 were driven down to their attractive levels because of the Fed’s Mortgage Backed Securities (MBS) purchase program. Home loan rates have an inverse relationship with the value of MBS. When these securities trade higher on the market, rates move lower and vice-versa. So when the Fed originally agreed to be a big buyer, it helped provide a market for MBS, which helped keep prices high and, as a result, helped push home loan rates low.

And while the Fed continues that program through the end of March 2010, the reality is that the Fed‘s “extension” was really more of a rationing intended to prevent home loan rates from spiking as the program is phased out. It’s sort of like weaning the market off of its life-saving treatment instead of forcing it to go cold turkey.

Already, some in the media have mistakenly reported the extension of the program through March as good news, telling consumers that rates will continue to decline, and remain low into the spring. This gives a false sense of security that homebuyers and refinancers simply cannot afford.

The problem is…

Those reports do not accurately report what’s going on or where rates are really headed. That can have a very costly impact on consumers who may miss out on historically low rates if they listen to these media outlets.

Here’s what’s really going on…

In May 2009, the Federal Reserve's purchases of MBS peaked at an average of $25 Billion per week. As of November, the average weekly purchases dropped down to $14 Billion. At the end of November, the Fed had already used over 80% of the allocated funds for MBS, meaning less than 20% remained to be used over four months.

Making the problem worse is that the Fed now has less money available to purchase MBS while at the same time, the supply of these securities has increased as a result of refinance and purchase activity that was triggered by lower rates.

Why is that important?

As the Fed now has fewer funds to last through the remaining months of the program, its ability to keep rates low will wane.
As the Fed's program winds down and ends, we’ll likely see two things happen.

First, we will probably see higher levels of volatility—with rates sometimes shifting dramatically in the middle of the day. That means it is more important than ever for buyers to work with a knowledgeable mortgage professional who has a finger on the pulse of the market at all times and can provide trusted, proven advice.

Second, since MBS will have less support from the Fed, rates are likely to rise over time.

In short, while rates are still very good, they may not be for long.

What should you do to protect yourself?

First and foremost, work with a knowledgeable Mortgage Banker who studies and monitors the market.

Second, don’t be fooled by media stories that only report the headlines and don’t understand the underlying implications of the Fed’s actions. If you ever hear something in the news but aren’t sure what it means to your situation, feel free to call or email me for in-depth answers and advice.

Finally, if you haven't yet explored how the current rate environment might benefit you or someone you know, let’s arrange a time to sit down and discuss your unique situation as well as your short- and long-term goals. Remember, rates are still very good, but they may not be for long.

Jerry Lampert

www.kitsapmomentum.com/elitegroup