How First-Time Home Buyers are Affected by a Slow Economy

First-time home buyers are affected by the slow economy in a few meaningful ways. They are able to participate in and take advantage of government programs, they have expanded choices and they face stricter borrowing standards. Overall, it is a great environment in which to buy a home, but you should be aware of both the benefits and drawbacks.

Government-Sponsored Incentives

The first-time home buyers' tax credit gives new homeowners a tax credit of $8000. This credit is available as part of The Worker, Homeownership and Business Assistance Act of 2009, and you can receive it when you buy a principal residence and meet certain criteria. To be eligible, neither you nor your spouse can have owned a principal residence within the previous three years. There is also an income cap that states that you cannot earn more than $75,000 as a single person or $150,000 as a couple. If you earn more than this, the tax credit is prorated.

Depressed Prices Mean Greater Choices

If you were lucky enough not to own real estate when the bubble burst, you now have the opportunity to take advantage of lower prices and greater selection. From homes in foreclosure to bank short sales to highly motivated sellers, the range of options that you have to choose from is as diverse as it ever has been. You no longer are forced to overpay for a home in fear that a higher offer will come along or that you will not be able to afford a home if you wait. You now can be selective and be very aggressive on price. In many neighborhoods, there are so many options that, should one house be “lost,” another comparable choice may be available right down the street.

There is the possibility that prices will fall further as a second wave of financial turbulence drives the market lower. Should this occur, it will likely be driven by a further collapse in commercial real estate. Overall, there is no reason to be in a hurry. If prices do rebound, you will see only a small rise in prices. You are better off being aggressive and potentially seeing prices rise by 3 to 5 percent than agreeing to overpay at the outset.

Tightened Lending Standards

The drawback to the slowing economy is that lending institutions are imposing far tighter lending standards. This may mean that the bank requires a sizeable down payment. If this is the case, you may have to adjust your search to include only properties for which you can afford this amount, even if you can afford to service the debt on a higher-priced home. While this is intended to encourage responsible lending and purchasing habits, it has a significant impact for many people on what options they can pursue. The additional several hundred dollars per month is affordable, but coming up with tens of thousands of dollars is prohibitive. You need to make an honest assessment of your ability to produce a down payment and work with your lender so as to avoid wasted time and disappointment after you have found the home you wish to purchase.

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