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(originally published September 2009)
Are you ready to become a homeowner? Like other states, Indiana has been hit hard by high unemployment rates and an increasing number of foreclosures. Despite tough times, there is a silver lining: with near-record low interest rates, down payment assistance programs and tax incentives, now could be a good time to buy your first home.
Purchasing a home is often one of the biggest investments a person can make. The biggest obstacle for many potential homeowners is financing. Owning a home is a big commitment, and potential homeowners should work within a reasonable budget to avoid becoming overwhelmed by expenses down the road, like so many recently have. Start by analyzing your budget and determining what you can realistically afford to spend per month. Keep in mind that most lenders require a down payment of three to 10 percent of the purchase price. It is critical that you factor in long-term expenses like insurance, property taxes and maintenance that are too often overlooked.
First-time homebuyers can qualify for down payment assistance through the Indiana Housing and Community Development Authority (IHCDA). The First Home/PLUS program offers six percent down payment assistance, up to $7,500, with no interest and no monthly payments. Borrowers repay in full once they refinance or sell the home.
Through the Market Stabilization Program, IHCDA offers up to $25,000 for homebuyers purchasing a foreclosed property. The funds can be used for closing costs, the down payment and rehabilitation on the property. This zero-interest loan is not required to be repaid if the home remains your primary residence for at least ten years.
Additionally, first-time homebuyers who purchase a home before Dec. 1, 2009, can receive a tax credit equal to 10 percent of the purchase price, up to a maximum of $8,000. To qualify, you cannot have owned a home during the three-year period prior to the purchase. Because the tax credit doesn’t have to be repaid if you retain the home as your primary residence for at least three years, it can be a great way to help offset the costs of purchasing a home.
Most homeowners secure a mortgage, or loan, to help with financing their home. Mortgage rates are close to an all-time low, according to Bankrate.com, a web site that pulls data from nearly 4,800 financial institutions across the country. The lower your mortgage rate, the less interest you pay over the course of the loan.
Your credit score can also impact your interest rate. Generally, the higher your credit score, the lower your interest rate. Credit scores are calculated using several factors including payment history, how much credit is available to you versus how much you use and how long you have established credit.
You can boost your credit score by always paying your bills on time and by not maxing out your credit cards. For example, if you have a $5,000 limit, try to keep your balance around 20 to 30 percent of that ($1,000 - $1,500). Also, try to limit the number of credit cards you apply for and maintain at least one card that is more than two years old.
Some homeowners use a mortgage or loan broker to secure a loan to finance their purchase. Make sure you check with my office’s Securities Division, which regulates the activities of loan brokers, to see if your broker is licensed. Use our searchable databases at http://www.indianainvestmentwatch.com/ or by calling 1-800-223-8791.
For more tips on purchasing a home, visit http://www.indianainvestmentwatch.com/.