It is fairly obvious that we don’t like the nearly trillion dollar spendulus bill, and you can figure that one out by just perusing our site. But its passage is a foregone conclusion, and no matter what the budget conscious folks on Capital Hill do, the bill has been signed into law.
How does the old saying go? “When life gives you lemons, make lemonade.” Ah, so even lemons have redeeming qualities? Of course, lemon is great on fish, makes a great drink, and without it, there would be no lemon cream pie!
So, let’s get a bit optimistic here and find what you can do with the absolute best lemon in this stimulus package. If you have not owned a house for the last three years, you can buy one.
Home prices have dropped severely and, if you shop around, especially if you broaden your range to find the areas with the most properties available, some houses are downright ridiculously cheap. This is primarily because a massive inventory of foreclosed homes has hit the market, and they are not as hard to find or as difficult to purchase as they used to be. Get yourself on the MLS listing and look. All you have to do is register with a real estate broker, which doesn’t obligate you to buy anything at all, and you will get an email each day that provides you the results of your search. It will also give you access to the MLS so you can enhance or expand your search.
Now, why do we mention this in the context of the stimulus package? This article pretty much sums it up. The bill has passed and has been signed by the President into law. There was a $15,000 tax credit for those that purchased a home this year, but it was dramatically reduced, removing just about anything that would help the middle class, but it is still worth $8000 to first time home buyers. The key is knowing if YOU are a first time home buyer. If you have not owned a home in the last three years, you qualify! If you did, there may be other avenues that would allow you to still qualify for these funds. We recommend you contact a qualified tax accountant, and don’t underestimate a professional accountant’s worth in this world of subtle tax benefits. They will know aspects of the bill that no one else will know, and tax planning is critical to take advantage of this situation. Many accountants will provide you assistance just for having them prepare your taxes, and if you buy a house, you are going to want their advice at tax time anyway.
Now, we realize there is a ton of fear out there about the economy, and there could be further drops in home prices as foreclosures increase and more people lose their homes. However, this is the government’s focus. There is a very good chance that the $15000 credit will come back, and bear in mind this is a tax credit. If you paid $8000 or more in taxes last year, this is $8000 waiting to be picked up off the sidewalk. With the new bill signed into law, you could even get that $15000 after all.
Note this is a tax credit, not a tax deduction. Kiplinger explains the difference better than we can. There is a huge difference. The credit could be worth many times the deduction depending on your tax bracket.
How would we approach acquiring the best deal? Be gutsy. It is the best time to take advantage of foreclosures. We realize that to some of you that this seems like taking advantage of others’ misfortunes. Honestly, that is how money is made. It may be sad but it is very true, and some of the people that left their foreclosed homes walked off with a major gravy train leaving the banks holding the bag, so don’t worry about it. In one case we found, the banks leveraged a house up to its full market value at the peak of the market. The owner refinanced and then returned to his home country with the funds. All the bank had after that was a house worth about half the mortgage. Whoops.
So what should you do?
1. Look for bank owned properties. If they say they are bank owned, many are owned by Fannie Mae or Freddie Mac. Others are owned by banks that are not good at managing real estate. They are anxious to sell, so get on board. These are consistently the best deals. Typically, the owners are long gone and the house is vacant, which keeps you from exposing yourself to the bitterness of taking over a foreclosed home while the former owners are still in residence. These also will close the fastest because all the complex issues involving the deed are resolved already. Finally, the banks are the worst negotiators in the industry. They have to sell to get these homes off their books, and they list them at substantial discounts. Just don’t be afraid of a fixer upper and get a home inspection to make sure you aren’t walking into the money pit because these houses sell “as is”.
2. If you are patient and into risk and possible disappointment, you can add what are known as short sales to your list. The risk is that many short sales can take months to close, and even if they accept your offer, the entire deal can fall through in a heartbeat. But the price on the home, if you do close and are patient is well worth the trials. You identify a short sale in the MLS listings by the provision that they are “pending approval”. This is most often because their are lien holders that are going to lose their proverbial shirts on the house, and they have to sign off. This can cause crazy delays. For example, one bank that agreed to a short sale sold the mortgage during the closing process and the house ended up in limbo, so be prepared to be disappointed.
3. Get a broker that deals in short sales or bank owned property. If they are the primary seller, they get a bigger commission than if they have to split it with the selling realtor, so their motivations are higher to help you.
4. Get a good lawyer. The legal fee is high to have a lawyer represent you, but consider that your deal is fantastic if you win, so you don’t want a small error or oversight on your part to cost you the opportunity. Good real estate lawyers are hard to find, so if you don’t already know one, check around with your friends and associates to see if they had one they liked. We have stayed with ours for years after a purchase in which this lawyer went out of his way to protect our interests. Consequently, he has been protecting them ever since.
5. Now, don’t totally stick with rules 1 and 2. There are many houses out there at fantastic prices, so pay attention to the listings and realize you can make offers. If you are prone to getting attached, you don’t want to do this, because you may get told to take a hike. Don’t be thin skinned, and get the history from the broker and look for a house with a dropping asking price. It implies the sellers are getting anxious. Often it says nothing negative at all about the home. It could indicate an owner that has to move ASAP or that is pressured financially or that is actually buying a new home and doesn’t want to be carrying both mortgages. Make your offers and be prepared to walk away. You may be surprised at the discount you get.
6. Look for estates. People selling homes that have been vacated by a deceased relative are anxious to sell. Vacant homes are vulnerable to vandalism, and, in general, the people that now own that property just want their inheritance ASAP. These are often great properties to negotiate.
7. There are some slick ways to play multiple simultaneous offers. We will not cover them, but a good real estate broker will be able to advise you. Those that can’t aren’t the best to deal with for this kind of bargain hunting.
8. Don’t shop for the better deal once you find one you like and know is right. It is easy to blow it, to have a bird in the hand and go after two in the bush. You may have found a home you like in general, but you are nervous as are most buyers. Then suddenly you see what look like a couple of better deals. What should you do? Stick with the original if you are generally satisfied. Those better deals may never happen. Take the sure thing if you already found a winner.
9. Find a good local bank. A credit union or local bank not exposed to this bail-out nonsense. Some of the bailed out banks are charging such ludicrous interest rates that they should be ignored anyway. Local banks and credit unions were not exposed to the same leveraged securities that brought down the big boys, and they are better to deal with in the long run. Mortgage houses may look like a good deal, but can make you miserable as they pursue an endless trail of paperwork and faceless representatives. The local bank or credit union will likely have an officer assigned specifically to you. That is leverage and strength when it counts. When you get to a question that could break the deal, do you want to wait days to speak to a faceless representative from Joe Blow Mortgage? Or do you want to know the specific name and number of your local banker? We know our choice.
10. Finally, and most important, have fortitude and commitment to your objective. If you are not committed from the get-go to buying the house, don’t waste your time or the time of those around you. It will likely cost everyone money for nothing.
The deals right now are so strong across the board that it is very likely you can find a great home for you at a low price. It is also likely that the mortgage will be a nice clip below your current rent. If it is, think of the difference as interest on your down payment. Say you put $40,000 down and end up paying $500 less in your mortgage than rent. That is a boat load better than the interest any bank is paying on your basic savings or checking account. Get out a mortgage calculator and work it out. We like this one.
Will home prices continue to drop? Perhaps, but how much can you save on rent? It may just make up any difference. You may not hit the bottom of the market. You may just have to wait years to break even on the purchase price. But you will have a place to live, get tax deductions and credits you can get in no other way, and if you do it right, pay much less than it costs you to rent. That is win win win.
Please note before you jump in, there are some areas in the country where rents are still ridiculously low compared to home prices. This could be because of rent controls or other factors. If your mortgage will not be at least equal to what you would pay for rent, you may want to skip our advice. It doesn’t mean your target home is not a great deal, but it could put you behind the eight ball for years to come.
You can save money and get a great deal on a home right now. The government is contributing massively in their effort to shore up home prices. If you can get a mortgage that is well below what you are paying for rent, it may just be the right time for you to buy. Review our 10 steps and rules above and take action. No one is going to do it for you.