Illinois Mortgage Rates and News

The purchase market has been picking up steam over the last few months.Most of the activity is with new buyers coming in to buy their first home (they have a great advantage, not having a home to sell) and a good portion of what they are buying is the distressed properties, short sales and foreclosures, which are weighing down the market. Recently Fed Chairman Bernanke said that he saw signs that the real estate market is bottoming out and stabilizing. We won’t know if that is the case until after the fact, but there is no doubt that the market is buzzing now. Here are some of the reasons you should (especially if you are a first time home buyer) buy a home now:

$8,000 first time home buyer tax credit – This is one of the biggest reasons for home buyers to buy now rather than waiting. If you are a first time home buyer (or haven’t owned a home in the last 3 years) the government will pay you up to $8,000 for buying a home now. The credit will be for 10% of the purchase price up to $8,000 and you can get the credit this year by amending your tax return after the closing. There are some income caps, so this won’t work for everyone, but if you qualify, the first time home buyer tax credit is a great incentive to buy.

Selection – There are homes in the market in all areas and all price ranges. With more houses on the market you can pick and choose and find the home you want. It wasn’t so long ago that buyers were jumping on new listings as they came onto the market, even if the home wasn’t exactly what they were looking for. You can pick and choose, now.

It’s a buyer’s market – Again, the best time to buy is when most people want to sell. If you buy now you can get a lot more house for your money, and you have a lot more negotiating power.

Interest rates are low – Chicago mortgage rates have bumped up recently, but are still near their all time lows. Low mortgage rates means your mortgage payment takes you a lot farther than it did before. We’re not that far off of the all time lows we hit several years back. It is smart to take advantage of the low mortgage rates while they are still available.

Great financing is available – There’s a lot of talk about how the problems in the mortgage market have made it harder for borrowers to get financing. Some programs have been cut out, and guidelines are tougher than they were before. But there is still a lot of mortgage money available, including options for low down payment, and FHA is a great way for first time home buyers to buy that first home.

Tax savings – Buying a home is one of the best ways to save money on taxes. Your mortgage interest, real estate taxes and in many cases mortgage insurance are all tax deductible. If you are a first time home buyer this means that after-tax, you can pay a lot more for a mortgage payment than you pay for rent.

Appreciation – This might not seem like the best reason to buy, with prices stagnating and falling in some areas, but in the long run, home prices always move up. There is a lot of pessimism in the real estate market today, but even the most pessimistic are bullish in the long run.

Equity build up – As you pay down your mortgage you build up equity in your home. Most people don’t even think of this because it is so gradual, but every mortgage payment (as long as it is an amortizing loan) pays a little less interest and a little more principal. In a way owning a home is a form of forced savings.

Rents are rising – Buying a home means you can fix your mortgage payment, at least the principal and interest portion. Rents are projected to rise this year and over time.

Those are the hard financial reasons for buying a home now, but there are other good reasons to buy now:

You need more room – Has your family has grown, and you are bursting at the seams? You need a new place to put all your stuff? If you have needs that you’ve been putting off, this could be the right time to buy and take advantage of the buyers market.

Control – If you own your home, you can do what you want to with it. Have a dog? Not a problem. Want to plant a garden? Go for it. Want to paint stripes on the walls? Paint your heart out, it’s your home and you are in control.

Pride of ownership – There is a big difference between renting a place and having a home of your own.

It’s the American Dream – Not only that, but buying a new home gives you a reason to throw a house warming party.

These are some reasons for buying now, but buying isn’t the right course for everyone. Buying a home is a long-term investment. If you can’t afford to hold on for the long run, you might be better off renting.

Illinois Mortgage Rates and News

More information for first time home buyers:

First Time Home Buyers Loan : Tax Benefits Make Real Estate a Smart Investment for Chicago Area First Time Home Buyers

Have you filed your taxes yet? Are you writing out a check to the IRS, or getting less of a refund than you expected? If you are still renting, you are probably paying more in taxes than you should. In previous posts I’ve gone over other financial advantages of owning your own home – how you gradually build equity in your home as you pay down your mortgage, and how appreciation can build wealth as your property goes up in value over time. But one of the key benefits of owning real estate, here in the Chicago area or throughout the country, is that paying your Home Mortgage puts a little more cash in your pocket through tax deductions.

Strong communities have high rates of home ownership. Home owners take pride in their homes and protect their investments by taking an interest in their schools, local government and the health of their communities. This means they have established roots and have stronger ties to their community and to the nation. One of the strengths of the United States is that it is a nation of home owners. The Government understands this and encourages people to own their own homes. They do this in several ways, but the most important way is through deductible interest.

Real estate is treated differently than nearly every other purchase in this regard. If you were to get an auto loan to buy a new car, the interest is treated strictly as an expense. The same goes with school loans or purchases on your credit cards. It’s different when you get a mortgage. With a mortgage, all your interest, as well as your property tax, and in many cases your mortgage insurance, is tax deductible.

This means that you may be able to buy your own home for the same amount as you’re paying in rent now. Let’s say you’re paying $1,500 in monthly rent, not uncommon in many areas throughout the Chicago area. How much would that payment afford if you were to buy? The truth is, you can afford a much higher monthly payment when you look at it on an after-tax basis. Here’s how this works:

Let’s say you were to buy a $250,000 home with a 5% down payment, on a 30 year fixed mortgage at 6.0% over 30 years. If you are buying in the Chicago area it might look something like this:

$250,000 purchase price / $237,500 mortgage

$1,423 Principal and interest

400 Taxes

50 Insurance

154 Private Mortgage Insurance

$2,027 Total payment

Of your illinois home mortgage payment (principal and interest), $1,187 is the interest portion. Add that to what you paid for the real estate taxes and mortgage insurance you get $1,741. This is the amount that you base the tax deductions on. How much of a benefit you get, depends on your tax bracket. If you are in the 30% tax bracket, it looks like this.

$1,741 Interest + Taxes + mortgage insurance

x30% Tax Bracket

$522 Tax Savings

Now subtract the tax savings from your full mortgage payment.

$2,027 Total monthly payment

-$522 Tax Savings

$1,504 Effective Rent

In other words, a rent payment of $1,500 is equal to a mortgage payment of over $2,000. This is a great benefit for first time home buyers, or anyone buying a home, and when combined with appreciation and equity build up, an example of why real estate ownership is such a great financial investment.

Are you a first time home buyer in the Chicago area? Or are you someone looking for more information on how to save money when buying a home and getting a mortgage? I’ve put together a free 49 page Home Buyer’s Guide which goes into detail on the entire mortgage and home buying process. Just click on the link to download your free copy.

Illinois Mortgage Rates and News