Q: I’m 53 years young and I’m wondering if I am too old to buy my first home. I have lived in apartments for most of my life. I’m single and like it that way but feel as if I’m throwing my money down the drain. What do you think?
A: Well, you’re only a few years older than me, and you’re decades younger than the 70-something woman who wrote in asking the same question not too long ago.
I’ll tell you what I told her: You’re not too old to buy a first home. In fact, if you’re going to buy your first home, no matter how old you are, you might consider doing it this year. Affordability is at very high at the moment, meaning you can afford to buy more house relative to the income you earn. That doesn’t mean you should go out and stretch yourself thin buying as big a home possible. It just means that at a certain income level, the range of homes and the prices for those homes may be more affordable to you now.
Also, if you close on your house before December 1, 2009, you will be eligible for a $8,000 refundable tax credit (up to $4,000 if you’re married filing separately) for first-time buyers, or anyone who hasn’t owned a home in the past three years. Filing for the tax credit is like getting a $8,000 gift you can use to buy furniture, pay off debt, use to pay your mortgage or save for future use. (The tax credit is 10 percent of the purchase price up to the $8,000 amount and it phases out if you make more than $75,000 per year, if you are single, or $150,000 per year, if you are married.)
I can tell from your email that you need to educate yourself on the process. There are plenty of helpful books about buying a first home (including my own), that will help, as will information on a number of websites.
After you figure out where you want to live (neighborhood is very important), what your credit history looks like, and how much you can afford to spend, you should work on putting together a top-notch home buying team: agent, lender, and home inspector.
Don’t be afraid to ask questions through the process. You’re going to spend a large amount of money, so you should take the time you need to understand exactly what’s happening.
In evaluating the prospects of buying a home, you should also consider the responsibilities that come along with home ownership. You’ll need to maintain the home, repaint it, make improvements and you won’t have a landlord to call to take care of these items.
Finally, in past years people assumed that real estate prices would increase year over year. And while that increase has occurred historically, in our current economic environment, you should play it conservative and assume that the home you purchase may not increase in value over the next several years. While many factors go into determining whether a home’s price will increase, home buyers should be judicious when making an offer, given the downdraft of pricing that occurred during the last year.
When you have thought about all of these issues, and have an understanding about what it takes to own a home and the costs involved in purchasing a home, you’ll be ready to take the next step.
March 20, 2009
Clarification: In a recent column discussing the $8,000 tax credit, I misstated how the tax credit would be applied to single buyers. According to the IRS.gov website, a single, unmarried buyer would be able to claim up to an $8,000 tax credit on the purchase of a first home that closes by December 1, 2009. Couples who are married, but filing separately, can each claim up to $4,000.
According to Chet Burgess, an enrolled agent who owns Brookwood Tax Service, in Atlanta, the $8,000 tax credit is available to a single house purchase. Unmarried couples who purchase their first home before December 1st, can each take up to $4,000 as a tax credit on each of their income tax returns. If two friends buy a single family home together and both are going to use it as their primary residence, they would each get a $4,000 tax credit on each of their tax returns. However, if each friend buys a different home to use as his or her primary residence, each can take a $8,000 tax credit on each of their federal income tax returns.
Please note that this only applies to first-time home buyers who are purchasing their primary residence. And the buyer must keep the home as his or her primary residence for at least three years.
April 3, 2009