If you have any outstanding debt, the time to pay it off is now. Not only will a reduced debt load make it easier for you to qualify for a mortgage, but you will find that the costs of homeownership will quickly eat into any money you had planned on putting aside for paying old bills. Old debts also collect interest, which means the longer you hold on to them, the more they cost you.

But as far as homeownership goes, the biggest problem with old debt is the approval for a mortgage. Less debt and smaller debt payments will mean a mortgage company will trust you with a larger amount to purchase your home with. A higher debt load may limit the size of your mortgage, forcing you to look at smaller homes than you were hoping to see, or look in neighborhoods that you had hoped to avoid.

Either way, you should adjust your savings to unload some debt, and still have some savings left for the down payment.

Why is this such good news? Because there has never been a better time to purchase a home…but be careful because Congress has indicated this will be the last extension of this credit.

For First-Time Buyers:

First off, who exactly qualifies as a “first-time buyer”? Well, it’s pretty simple: anyone who has never owned a home OR has not owned a home for 3 years prior to your purchase.

The amount of the credit is still 10% of the purchase price up to a maximum of $8,000. The deadline has been extended to April 30, 2009, but if a written contract to purchase is in effect by April 30, 2010 the purchaser will have until July 1, 2010 to close.

People with higher incomes can now qualify for the credit, but this only applies to purchases occurring after November 6, 2009.

The income limits for sales occuring on or after January 1, 2009 and on or before November 6, 2009 are $75,000 for single taxpayers and $150,000 for married couples filing jointly.

For Current Homeowners:

Who qualifies for this credit? Buyers who have owned and lived in their previous home for five consecutive years out of the last eight years. The amount of the credit is 10% of the purchase price up to a maximum of $6500. 

However, if you make more than $125,000 as a single filer or $225,000 as a married filer you will not be eligible for this credit. 

Frequently Asked Questions:

1. What types of home will qualify? Any home that will be used as your primary residence, as long as the home is less than or equal to $800,000. But also note that you cannot purchase a home from any family members.
2. How do you claim the tax credit? You have to claim the tax credit on your federal income tax return. Remember this is not a deduction so you get the entire amount of the credit. Also, you do not get the credit at closing. No other applications are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for either tax credit by talking with a professional before moving forward.
3. Do you have to repay the tax credit? Not as long as you live in the home for at least 3 years. If you no longer use the property as your principal residence before that time, you are required to repay the credit. 

Where do I start?

The first step is finding a lending institution that has an FHA program. Once you apply for an FHA loan, the Federal Housing Administration will examine your application for the following items: your income to debt ratio, how (and if) you paid previous debts, overall income, number of family members, etc.

Bad credit applications will generally be approved if it has been two years since bankruptcy and you’ve made debt payments on time for at least 12 months. If they decide that you meet the qualifications and are an acceptable candidate, they will approve the loan.

What are the Benefits?

Besides increasing loan acceptance by private lender, here are some of the more obvious benefits:

• Lower down payment
• Lower closing costs
• Lower interest rates
• Helps for those with little or no credit
• Greater leeway for those with a bad credit history

What are the disadvantages?

The loan process can be very tedious. It may take a while to figure out which type of loan to apply for and meet all the qualifications before getting approved. There are stringent guidelines for qualifying the property for an FHA loan, and the specific specs and qualifications will vary per state and area. So make sure you are working with someone who is an expert on this type of loan program.

On the Good Faith Estimate you will see a breakdown of all of your expenses – what the house will cost you monthly along with any “escrowed” expenses, such as your taxes and insurance. If you have less than 20% down on your house you will be required to pay your taxes and homeowner’s insurance in your monthly payment. This protects you from getting stung when those bills come due, because you are paying 1/12th of the due amount every month in your payment.

However, if you have 20% down, by all means pay your own property taxes and insurance when they come due. That way YOU will earn the interest on your money during the time you are waiting to pay your taxes and insurance

Down Payment

As far as your down payment (which right now is substantive because of the lending fiasco going on nationwide), you will almost assuredly need at least 3.50% down if you are going on an FHA loan. If you are using a conventional loan, be prepared for at least a 5% down or more, from 10% to 20%. There is virtually no such thing as “zero -down” anymore.

Third Party Fees

You will also be paying third party fees – fees charged to you for functions performed on your behalf during the process, including the following:

• An appraisal to ensure you aren’t paying too much for your house.
• A title search to make sure old debts against the property get paid prior to closing so they do not become “clouds on the title”.
• A mortgage credit report.
• Other small fees for couriers, express mail, etc.

Additional Fees

Of course, there are always more fees that seem to materialize from thin air. These can include processing and underwriting, commitment fees, settlement fees, escrow agent fees, or any number of a combination of these. The lender is required to include these but you should always ask if you do not understand what they are.

Organize. Start right now setting money goals and devise a plan to reach them. First of all, you are going to need some cash for a down payment. Go to http://www.hud.gov/buying to learn more about how to buy a home. Use HUD’s Housing Counselors to help you manage your money, learn about credit, and answer any questions you will have. There is even a federal site that will provide tools and materials to help you have a better understanding of money and economics at http: http://www.federalreserveeducation.org.

Watch Spending and Savings. When I tell you to put a little money aside every month, I know it’s not easy and that you will have to make difficult choices. But you need to keep your eye on the prize. Educate yourself about compound interest. You can even educate your children to be savers by helping them understand that investing a little can bring them a lot. Http://www.mymoney.gov gives the basics of financial education.

Elevate Your Credit Score. If you want to buy a house or do much else in life, you need to be concerned about your credit. You’re not going to be able to get financing for the house you want if you have a bad credit record, so go to work on it right now. Go to http://www.annualcreditreport.com to obtain your credit score. Learn the ABCs of Homebuying on http://www.hud.gov/webcasts/archives/homeforall.cfm. For information about credit scores and reports, go to http://www.homeloanlearningcenter.com.

There are a lot of people who are willing to help you realize your dream of home ownership, but they can’t do this for you. Get yourself organized and go to work aiming for your dream home.

Basically, now is the time is now to stop the the “wait and hope pricing gets lower” attitude as transactions are taking anywhere from 45 to 60 days to close.

If you have not already been pre qualified and pre approved, feel free to contact me and I’ll help you submit the necessary paper work, even if you don’t have a property that you have picked out. This credit is an extraordinary deal and not one that is likely to come around again.

However, buying a home is still a major commitment, no matter how great of a deal you find. So to avoid regret, here are a few steps I think you’ll find helpful:

• Work out a Budget. If you currently have a steady job, a decent credit score and saved some money for a downpayment, you will have a much easier time applying for and finding an affordable mortgage.
• Don’t be tempted to borrow more than you can afforded. And I’d like to add “comfortably afford”. It’s always a good idea to leave yourself a cushion for a potential increases in your cost of living, such as food and fuel prices. Also think about what you’ll need for furnishing, renovation and decoration, and other home-buying expenses.
• Decide what kind of property you needed. How many bedrooms are you looking for? Is outside space, or secure parking important to you? Make a wishlist to help you decide what’s essential and what is just a luxury.

1) SHORT SALES: These seem to be the most common sales in today’s market. In a nutshell, this is a house with a mortgage higher than what can be garnered from a sale. So lenders allow borrowers to sell their property for less than what they owe on their mortgage to avoid foreclosure. However, the lender does not base their decision to allow a short sale on the loan balance alone. Their decision is based on the current value of the home, as well as the circumstances surrounding it.

2) REGULAR SALES: These are generally people who’ve taken care of their homes, have equity, and can sell them at their regular value. With this type of home sale, you can usually send an offer and hear back from them within a week.

3) BANK OWNED PROPERTIES. These are homes that have already been foreclosed on. When making an offer on this type of home sale, you can also expect an answer within a week or two, much like a regular sale. Therefore, there are two great parts about banked owned properties: 1) the short response time, and 2) the great deals you can get on the price. But there are much fewer bank-owned properties than short sales. And keep in mind that it can be hard to find one in good condition.

4) FORECLOSURES: This seems to be the term everyone thinks of first when they are looking for a good deal. Technically speaking, a foreclosure takes place when the homeowner can no longer keep up with mortgage repayments on their home. The lender can then recover the amount owed on the loan by selling or taking ownership. The thing to remember with a foreclosure is that once it’s bought, it’s bought. In most cases, you are not allowed to inspect the house before making an offer.

Here are 3 pieces of information I hope you will consider regarding your new or current home loan:

1) You should always aim for a fixed home mortgage rate. As you can see from the current economy, an adjustable rate loan can get you into trouble down the road by fluctuating up higher than you can afford.

2) It’s a good idea to meet with a home loan financial adviser you trust, and make sure they have the experience you need to make the right decision. By taking the time to build a relationship with them, you can more easily stay out of trouble. You want to work with a loan adviser you are comfortable calling at any time for answers and advice.

3) Never ignore any notices you receive from the bank. If you are currently in a bad mortgage, please know there may still be options to help you get into a better mortgage before your house goes into foreclosure.

In real estate, escrow provides a form of mediation between each of the parties involved. This includes the buyers, sellers, lenders, agents, and title company. So in essence, the escrow is simply a holding place for all funds, instructions, and documents necessary for the purchase of the home:

• the buyers funds for the down payment,
• the lender’s funds and documents for the new loan,
• and the sellers deed.

As a buyer, escrow will typically begin when your Realtor delivers the purchase contract and the buyer’s earnest money deposit to the escrow company. The escrow company will then prepare and deliver the initial escrow instructions and other related documentation.

Once your mortgage loan is in place and the new title has been recorded, the escrow agent will prepare and deliver the closing statements to both you and the seller. Be sure to review these statements in detail so you can resolve any inconsistencies before proceeding.

Finally, when the terms of your purchase agreement have been met, the escrow agent will assign the property title to you and distribute the funds to the seller, record the deed, and close the escrow.

Ultimately, the use of escrow is intended to provide security and peace of mind for buyers, sellers, lenders, and real estate agents alike by making sure no funds or property will change hands until all of the terms and conditions have been followed. Keep in mind, the rules and procedures around escrow and closing can vary by region, title company, and lender.