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Housing Prices More Afforable

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By ILYCE GLINK Tribune Media Services

The Tampa Tribune

Published: August 14, 2008

A few years ago, I bought your wonderful book, "100 Questions Every First-Time Home Buyer Should Ask," and it's the best book I've ever seen of its kind. I call it "the bible of first-timers" and have recommended it to many first-time buyers.

The book also made me realize that having a great credit score (above 800) does not help much when one does not earn a lot of money and has no money for a down payment.

I don't want to continue renting and really would love to be able to buy something.

I live in Miami and make $30,000 annually. My credit score is above 800 and I'm self-employed. I know there are many programs for first-timers and low-income people, but I don't know where to start.

Your question is timely. Congress recently passed a housing bill that could help some first-time buyers. Some of the recently passed legislation could help people like you. But first you need to take a close look at your finances and make sure you can afford to buy a home.

You need to determine how much you can afford to spend on housing and then determine whether there are homes available in your price range.

Historically, lenders counseled buyers that they could not afford to buy a home if the price exceeded about two and a half times their annual income. In your case, that would mean you would have to look for homes that would cost $75,000 or less. But with lower interest rates, a lender may allow you to buy a home that costs three to three and a half times your income, or about $100,000.

Lenders usually counseled buyers that their housing expenses and other debts should not exceed 36 percent of their take-home pay. In your case, you shouldn't pay more than $10,800 per year for your housing expenses, property taxes, insurance and other debts.

The housing bill allows first-time buyers ( individuals who have not owned a home in the past three years) to take up to a $7,500 tax credit in the year they close on their first home. A tax credit is a dollar-for-dollar reduction in the amount of taxes you will pay the IRS.

Although you will reduce your taxes in the first year, you'll have to pay back the $7,500 to Uncle Sam over 15 years. So what you're really getting is an interest-free loan with generous repayment terms.

In this real estate market, the other bit of good news is that FHA loans only require a 3 percent down payment. They may cost more, but a person with little money to put down can buy a home.

So if you purchase a house for $100,000, you would have to scrape together $3,000 for the down payment plus some extra for reserves.
Interest rates are low, at less than 7 percent for a 30-year fixed-rate mortgage. If you put down less than 20 percent, you'll have to get private mortgage insurance (PMI), or pay the FHA's 1.5 percent mortgage insurance fee each year.

Good luck, and let me know how it goes.

Write to Ilyce Glink at Real Estate Matters Syndicate, P.O. Box 366, Glencoe, IL 60022 or e-mail thinkglink@aol.com.

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