To buy or not to?

As we approach the dog days of summer in DC it has actually been more pleasant than usual, particularly once it stopped raining. The question on many people minds are whether they should consider taking action. That is should they Buy if they are renting, Refinance if the currently or just continue to Rent.
Ah, with affordability being a key issue to many what is the right thing for YOU? If you are looking to take advantage of the first time homeowners credit of $8,000 which the Administration is promoting to stimulate the economy and to soak up some of the available housing supply it could be. If you are looking to time the market it may or may not be depending upon the community which you are choosing. For one thing, rates are really attractive, even if they may not be at their lowest, they are still very favorable.
If you are planning on being in an area for 5 years or longer it may make sense to purchase. First you have to realize that it will take that time to recover the cost associated with purchasing you home particularly since the people in the know expect appreciation to be relatively modest.
What you need to identify is and have your realtor assist you in this effort "Motivated Sellers". A motivated sellers is an owner who has had a death in the family, gone throufh a divorce, loss of job, facing bankruptcy or foreclosure or has to relocate because of a change of job. They are usully willing usually to assist you in providing a contribution towards your closing cost, will sometimes take back and hold owner financing and finally, may be willing to accept less because of the equity which they have accrued.
However, if you have a position which may not exist the answer is obvious that regardless of how good a price is, it is worst to bite off more than you can chew. Additionally, if you are in a position which is commission based then you need to be able to document the last 2 years where is comprises more than 25% of your total. Lastly, if you are self employed then you need to have the last 2 years of Tax Returns and all schedules.
When it comes to Refinancing what are the keys to making it work for you? As interest rates goes, values tend to be a good reflection of usually working in a reciprocal manner. However, when the economy tanks as it has (even in our area), there is usually an erosion of value of home prices which is a result of tighter credit and greater inventory. Hence forth many people who were buying with virtually as little as $500 into the deal or not having to physically provide documentation are now forced to do so and therefore it has created an uncomfortable situation for many people who expected appreciation to continue as well as their situation to improve.
If you are planning on being in the home for 3 or more years then refinancing will most likely work for you. You should expect to pay a point regardless of your credit because the spread which lenders make between a .125% of a point is so small that you make actually be able to move down .375 - .5 of a point. You should look to have the cost of your refinance covered in less than 3 years. Remember the balance will go up if you are rolling all of your costs into the loan, which includes title fees including title insurance, lender fees, escrows and taxes. The best pricing of loans is usually a 60% Loan to Value situation with a credit score of 740 or above. However, most people who are thinking of refinancing are facing loan to value of over 70 or 75% and credit score does matter. Most owners will be negatively effected by loan pricing if their credit score is below 720 and their LTV is at 75% or higher. The thing which one needs to remember is that the lower the credit score goes the lower the loan to value which the lender is willing to extend the same favorable terms. This is known as risk based pricing.
Also, the rule of thumb of having to save a point on a new loan is not universal. This is because 1% to $200,000 doesn't mean the same as .75% to $350,000. This is known as the multiplier effect. Another factor about rates is that there is no way of knowing when they will rise so trying to time the market to get the lowest rate is virtually impossible. I have had many people miss out on a rate because they for a lack of a better term got greedy or were willing to gamble to see if they could get the rate thay pyschologically had in set in their mind. And as a result waited 3 months and still didn't get it. It costs them time, money and energy trying to get there.
If you are currently in an ARM which may be getting ready to adjust in the next few years or have an interest only loan, you probably want to refinance within the next 3-6 months. As the economy begins to recover, rates are surely going to rise, even with the adminstration tweaking away in trying to keep them under control. Additionally, inflation is expected to come back and rates tend to move up as other things become more expensive in order to keep up.
Now as for you renters, does it make sense for you to continue to rent - possibly? How long do you expect to live in your current market? How much are you spending on rent when you could be paying to a mortgage? Are you actually saving money and building up a down payment? What are the tax adantages of owning? Do they really help you? Do you have access to 3.5% to put into a home of your own? Can you qualify? Is your credit in order? Can you qualify with the help of a gift for an immediate family member? What incentives does your local communities, markets have for first time home buyers? Do they have empowerment zones or programs geared at spurring community investment and home ownership? What options are available for you? Owner held financing? Are you a handiman? Can you do a lease - option? These are just a few things which you may consider.
So hopefully I have laid out a few things to get you thinking. Should you have comments or something which I have not addressed, please feel free to email me at the Blog website. Until next time.