There still time to get in to your dream home:
Tax credit was extended until April 2010 Deadline for qualifying: Purchase agreements must be signed by April 30, 2010, and closings must be final by June 30. Tax credit: It's equal to 10 percent of the purchase price of a primary residence, up to a maximum of $8,000 for first-time homebuyers and $6,500 for repeat buyers. First-time buyers are defined as people who have not owned a home in the previous three years. Repeat buyers must have owned their current home at least five years. The credit cannot be used for houses costing more than $800,000.
What does it mean to you?:
How does it work? Tax credits are known as "fully refundable" meaning the amount by which the credit exceeds taxes owed will be paid out in cash to the taxpayer, according to the Internal Revenue Service. If the first-time homebuyer elects to amend a 2008 return and already has paid all taxes owed, he or she could get a check for the full $8,000. A current homeowner buying a new home this year could collect the full $6,500.
How is it a good time to buy?
With the tax credit extension approved by congress and with mortgage rates and Real Estate values at historically low its’ time to get off the fence. More and more neighborhoods in Paterson NJ, Clifton NJ, Passaic NJ, Passaic County, Essex County and Morris County New Jersey were affected by the great volume of foreclosures and short sales in 2009; in New Jersey per an article that I read in NewJersey.com one out of four hundred and seventy home owners received a notice of default or intent to foreclose from their bank. You see foreclosure is not affecting only urban New Jersey but also homeowners that live in the suburbs are going thru the same problems.
What does this means to you?
As more homeowners get in trouble the more available inventory there is for you to chose from Short Sales, Real Estate Owned by the Bank also know as REOs. There are many opportunities right now for first time homebuyers, investors, and homeowners looking to upgrade to a larger home. Incentives for the tax credit are available to homeowner that are looking to upgrade to a larger home up to $6500 tax credit available to them. Investments opportunities in these neighborhoods are attracting more and more investors that are buying and rehabbing distressed homes and reselling or renting them out. Either way this is the time to make a decision and get in to your new home.
How much will I pay if I buy a home?
This is a common question for first time home buyers there are ways that you can figure out how much you can afford to pay the following examples should give you an idea and a head start in figuring out how much of a home you can afford. The Banking system and regulators have established certain guidelines to follow. It is a good idea to consult with a mortgage professional before you start searching for a home. As a home buyer you one of the things you want to determine is your needs and wants once that’s our of the way start crunching some numbers:
This is just to name a few categories, write it down on paper or in a spreadsheet in your computer. Add it all up and see how much expendable cash you have at the end of the month. This can give you an idea how you stand right now financially. A few key words that you want to learn, PITI “Principal Interest, Taxes and Insurance” MIP “Mortgage Insurance Premium”, LTV “Loan To Value” Taxes “are those paid to the city” Insurance “Just like when you finance a car you need insurance, Home insurance is no different you need Liability Insurance”, DTI “Debt to Income Ratio” Front Ratios “The portion of your income used for mortgage payment expressed in a percentage value”, Back ratio “the portion of your income used for your mortgage plus your consumer debt” Back Ratio and Front Ratios can give you a representation of what percentage of your income is going to be used for your housing expense.
Figuring all out is quite simple:
Your front ratio should be =I/PITI and your back ratio =I/PITI + Monthly Expenses.
The following Example is for demonstration purposes only:
Gross Household Income: $100,000
80% LTV “this means you are going to invest $60,000 of your own money”
Monthly Expense $1200
Real Estate Taxes 78000 per year /12 months = $650 per month
Note: with a 20% investment of your own money you don’t need MIP
The first calculation that you want to make is your front ratio:
100,000 X 0.28 = $28,000 per year now Divide your product by 12 month and wala your have your Mortgage payment or what is lovingly called PITI in this case $2,333 per month.
Next Step back ratio:
Add your monthly mortgage payment to your consumer debt in this case $2,333 + $1,200 = $3,533 This will be your total monthly expense, now to find out where you stand with your back ratio here is the formula: $3533X12/$100,000 = 42% Back Ratio… what this means is that you will be spending 42% of your gross income in housing and consumer debt.
Ok what is acceptable per banking math is as follows; front ratio shall be no greater than a 28% and the back ratio shall not be any greater than a 35%. These guidelines are flexible with some lenders check with your local lender.
The other side:
If you bought a home for $300,000 at 80% LTV you will be financing $240,000, 30 year mortgage, and the bank aggress to give you a generous interest rate of 4.75% using the previous income and expenses then it will look like this:
Mortgage payment PITI = 2001.95 “Includes Home Insurance of $1,200 per year”
Your Front Ratio will be at 24%
Your Back Ratio will be at 38%
That means you will be able to buy a $300,000 home!
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