Baylake Bank & ABA Remind First-time Home Buyers of Tax Credit Deadline; Provide Checklist of Key Questions before Buying

September 8, 2009 - First-time homebuyers will benefit from a financial "trifecta" in 2009: it's a buyers' market, interest rates are at all-time lows, and they can qualify for a new, hefty federal tax credit. "The tax credit for first-time homebuyers is a great incentive to buy a home now in a buyer's market because, unlike the program in 2008, the money does not have to be repaid," said Diane Casey-Landry, chief operating officer of the American Bankers Association (ABA). The tax credit is available on purchases that are finalized by December 1, 2009.

The program is available for homebuyers who have not owned a principal residence within the last three years. The tax credit is equal to ten percent of the home purchase price, up to $8,000, and does not have to be paid back. For a home you construct, the purchase date is considered to be the date you first occupy the home. The income limits for borrowers are $75,000 for single persons and $150,000 for married couples filing a joint return. Any type of new or resale home is eligible, but the new owner must live there for at least three years, or may be required to repay amount of the tax credit.

Even with the great incentives this year, deciding whether to buy a home or rent an apartment can still be a complicated decision. How do you know what's right for you? Potential buyers should ask themselves several key questions before making this important decision:

1. What will monthly costs be, and can I afford the payments?
Keeping mortgage payments (loan payment, taxes, insurance) under 30 percent of your monthly income is a good rule of thumb. If you can't keep mortgage payments below that, you may be better off renting for awhile.

2. What other debt do I have?
Total rent or mortgage payments plus credit obligations should not exceed 35 to 40 percent of monthly income.

3. What is my credit score? Can I qualify for a good interest rate?
A high credit score indicates strong creditworthiness, and that qualifies you for better interest rates on a mortgage. Maxing out on your credit lines and paying bills late will lower your credit score. The impact of a credit score on interest rates can be significant. For instance, a borrower with a score of 760 could pay nearly two percentage points less in interest on a mortgage than someone with a score of 620. Lower interest rates mean lower monthly payments. If your credit score is low, you may want to delay buying a home until you can improve your score.

4. How much will taxes, monthly maintenance, or other fees cost?
Owning a home means you'll have to pay real estate taxes and other costs like insurance and maintenance. On the other hand, owning a home brings big tax savings at the end of the year. As a renter, the owner pays those costs for you.

5. How many years will I stay here?
Generally, the longer you plan to live somewhere, the more it makes sense to buy. You'll build equity in your house, and its value is likely to increase over the years.

In addition to thinking through these questions, consumers should have a thorough understanding of the mortgage market when shopping for a loan:

• Understand the difference between “pre-qualified” and “pre-approved.” Getting pre-qualified is a casual process where the lender tells you how much you should be able to borrow based on how much money you make, how much debt you have, and how much you have to put down on a house. Pre-approval occurs only after you actually apply for the loan and the lender gives you in writing the amount you can borrow. A buyer who is pre-approved is more attractive to sellers and their agents than one who is only pre-qualified. Once you find a mortgage that works for you, get pre-approved before you start making offers on a home.

• Be honest with the lender and yourself. You don’t want to borrow more than you can afford. Your bank can provide a calculator to determine if you can afford to borrow and if so, how much. Look at the basics of the loan. Don’t get distracted by all the bells and whistles. Choose the type of loan that makes the most sense for you. Use financial calculators like those provided by ABA to determine if you should go with a fixed rate mortgage or an adjustable rate mortgage.

• Know your credit situation. Obtain a copy of your credit report at least six months before you apply for a mortgage. This should give you enough time to challenge and remove any errors on your credit report and take care of anything that’s hurting your credit score.

• Consider all the costs. A lender will review costs like fees, closing costs, points, homeowner insurance, and taxes, but consumers also need to take into consideration repairs and maintenance costs. As a homeowner, you are responsible for those additional costs – there won’t be a landlord to call.

• Organize your finances before you go to the bank. While each bank may require different documentation, at a minimum you will need:
  o Pay stubs.
  o Tax returns.
  o Financial statements (one that is less than 60 days old).
  o Any additional information (such as proof of additional income) that you think will help your banker to positively evaluate your credit request.

Baylake Bank serves its communities from 28 financial centers in Brown, Door, Green Lake, Kewaunee, Manitowoc, Outagamie, Waupaca, and Waushara counties and from its website at www.baylake.com. For more information call (920) 743-5551 or 1-800-267-3610.

The American Bankers Association brings together banks of all sizes and charters into one association. ABA works to enhance the competitiveness of the nation's banking industry and strengthen America's economy and communities.