Attention! First Time Home Buyers

Eric Bramlett is a Real Estate Broker in Austin, Texas. He suggests that first-time home buyers consider the following seven tips before signing on the dotted line. Why? Buying a first home is a big step, and requires several serious decisions. You will feel less intimidated when you break down the process of purchasing a home into manageable steps.

1. Begin by asking yourself a question. Will you live in your next home for at least 3 years? If ‘yes,’ purchasing a home makes sense rather than continuing to rent. With average appreciation, you’ll break even on closing costs after two years and you will begin making money at year three.

2. You don’t need a down payment. A hefty down payment is not required. And, you don’t have to have perfect credit, either. Zero down payments are still common, and many banks will jump at the chance to loan you 100% of the home’s value.

3. Get Pre-Qualified. This is a very easy, and important step. In many cases, this can be done over the phone, gives you the buying power to know what you can offer and before you get in the car with your realtor, you’ll know what that new home will cost each month. Knowing your monthly payment will tell you the price range you need to explore.

4. Contact a Real Estate Professional Pronto! Realtors® have access to approximately 99% of the homes for sale in a given market. Your agent will share her/his knowledge of the market and help you make the best possible offer—which isn’t always the highest offer! Choose a Realtor® who listens to you. Her/his insight will be invaluable.

5. Make a List of “Must Have’s” and “Wants.” Your search will be easier and you will be more confident in your decision if you organize your search by making two lists: one includes items that you MUST have—such as the price, the size, the school district, commuting distance, and the like. Your second list of “wants” are items that would be nice to have, but that you can live without. If two of you are buying together (married or not), your lists should reflect what you BOTH are looking for.

6. Pick your favorite neighborhoods. You can change things in the house, but you can’t move it. Drive through different areas and tell your agent what areas most appeal to you and why. Then, concentrate on finding a home in that neighborhood that fits your “must have” list.

7. Make your decision. Your home is likely your largest investment, and making an offer can be scary. However, if you follow the above steps and you’ve found a home that meets your “must have” desires and most of your “wants,” it’s in the right neighborhood and within your budget, go for it! Don’t let another buyer get what would make you happy.

Renters - Stop paying someone else's mortgage!

Are you or someone you know renting a home or condo? If so, did you realize that renters pay the owner's mortgage? And the owner gets all the benefits, including being able to deduct property taxes and mortgage interest (even when most or all of the mortgage payment is paid by the renter!) from his tax liability, and depreciation.

If your monthly rent is $600, after one year, you will have paid $7,200 of your landlord's mortgage; after 3 years: $21,600; after 5 years, $36,000.

If your monthly rent is $900, after one year, you will have paid $10,800 of your landlord's mortgage; after 3 years: $32,400; after 5 years, $54,000.

One last painful example (for you, not your landlord): if your monthly rent is $1500, after one year, you will have paid $18,000 of your landlord's mortgage; after 3 years: $54,000; and, after 5 years, $90,000!

Wouldn't you rather use that money to pay your own mortgage? Instead of throwing your money away on rent, build equity in a home of your own. Interest rates continue to be quite low; many homes and condos are currently vacant and eager for a loving homeowner. And, sellers are waiting for offers right now. Call me and we'll talk!

Private Mortgage Insurance and Your 2007 Tax Deductions

Purchasing a home with little or no down payment can benefit buyers. However, Private Mortgage Insurance (PMI) is required of all buyers whose down payment is less than 20% of the purchase price. And, the price these buyers pay for PMI is a premium that lenders require to protect themselves from financial loss should the buyer default on the loan.

Previously, PMI was not tax deductible and often represented a sizable increase in monthly payments for the buyer. In order to get around this, many buyers opted for a 2nd mortgage, often at increased interest rates in order to avoid paying PMI. Why? Because the interest on the 2nd mortgage, while substantially higher than the 80% first, then became tax-deductible.

As soon as the loan balance in combination with appreciation in the value of the property exceeds 80%, private mortgage insurance can be removed. However, the lender will not alert the borrower to this. It is the homeowner’s responsibility to inquire.

Congress just passed a law changing the tax code to allow PMI to be claimed as a tax deduction. There is a catch or two, however:
· The deduction only applies to households earning less than $100K annually;
· If the annual income is less than $110K, but more than $100K, a proration table identifies allowable deductibility in that PMI;
· In order to use the PMI tax deduction, the buyer must itemize deductions when computing their tax liability for 2007; and,
· This tax deduction is good for 2007 only; Congress must enact another law (or write an extension to the new one) for the deduction to be carried over to 2008 and beyond.

Is it worth it to itemize? One rule of thumb suggests that, if the mortgage is around $130,000, itemizing is worthwhile. For specifics about this new opportunity, it is wise to consult a tax professional. I know several, should you wish a referral.

Check out my January newsletter for more information on PMI and the 2007 tax deduction.