The clock is ticking

<p>The clock is ticking. Are you taking action to close on your purchase?</p><!-- Nothing to do. The paragraph has already been output --><p>There is frenzy in the real estate market right now due to the impending expiration of two government programs, which have fueled the market in the last year. The homebuyer tax credit and the Federal Reserve's mortgage-backed-securities purchase program are both ending in the spring. Once these programs expire, the real estate market is going to change. Home prices will remain attractive due to foreclosure and short sales, but interest rates will rise and homebuyers will no longer receive an incentive from the government for purchasing their new home.</p><p>Let's take a look at the homebuyer tax credit. This program was extended and expanded late last year. Congress extended the expiration date for all purchases in contract by April 30 and closed by June 30. In addition, a $6,500 tax credit was added for move-up buyers who have owned a primary residence for the last five years. The $8,000 tax credit for first-time homebuyers was kept unchanged. </p><p>A tax credit is different than a deduction in that, it's a dollar-for-dollar incentive on the purchase. Most homeowners are able to deduct their mortgage interest and property taxes from their income. If a homeowner earns $50,000 in a year and pays $5,000 in mortgage interest and property taxes, they will only be taxed on $45,000. If the homeowner is in the 30 percent tax bracket, this would give them a savings of $1,500. A tax credit is less complicated and more attractive because it is straight dollar credit, which is not based on a percentage of income or expenses. If a purchaser qualifies for the first-time homebuyer tax credit, they will actually receive a check for $8,000. The mortgage interest and property tax deduction will remain in place, but the expiration of the homebuyer tax credit is spurring people to take advantage and purchase now.</p><p>The Federal Reserve's mortgage-backed securities program is a little more complicated because the market has a funny way of thinking for itself. Unlike the Federal Funds Rate, the Federal Reserve does not actually set mortgage rates. It is a common misperception that the Fed sets mortgage rates. In fact, the market sets mortgage rates just like the market sets stock prices. In order for the Fed to impact mortgage rates, it actually had to create a demand in the market. </p><p>Last year, the Fed pledged $1.25 trillion to purchase mortgage securities, thereby creating a demand, driving the price of mortgage securities up, which in turn dropped interest rates to the low 5 percent range we see now. Interest rates are expected to rise when the Fed stops buying mortgage bonds. Some analysts believe private investors will come into the market to fill the vacuum, but interest rates are still expected to rise at least .5 percent. On a $350,000 mortgage, that's about $100 per month.</p><p> Federal Housing Administration changes are also coming down the pike beginning April 5. Starting with new loans on April 5, the upfront mortgage insurance premium on FHA loans will be increased from 1.75 percent to 2.25 percent. On a $400,000 loan, the added cost would be $2,000. </p><p>In addition, in early summer FHA will restrict seller concessions to 3 percent. Currently, sellers are allowed to credit buyers up to 6 percent of the purchase price in actual closing costs. When the change goes into effect, buyers will be limited to 3 percent of purchase price as a credit.</p><p>If you're in the market to purchase real estate, now is the time. No one has a crystal ball and there is always the possibility of the government extending some programs or creating new ones, but as of now, they are set to expire. Contact your trusted Realtor now. It's a great time to buy!</p><p>(Brent Blaustein is a loan agent with Princeton Capital. He can be reached at 769-4327.)</p>