First-Time Homebuyers: Waiting Can Cost You Thousands of Dollars

First-time homebuyers hoping to cash in on the $8,000 first-time homebuyer tax credit need to act fast, and for more than one reason. With 45 days left before the first-time homebuyer tax credit expires, all signs indicate the $8,000 tax credit will not be extended beyond Monday, November 30, 2009. In addition, current mortgage rates have started to rise this past week.

It’s a buyer’s market, with numerous foreclosure properties to consider. By combining the near historic-low current mortgage rates with the $8,000 first-time homebuyer tax credit, new homeowners can save thousands, if not tens of thousands of dollars, by acting now. Let’s take a look at an example:

Assuming a buyer has 20% ($60,000) to put down as a down payment on the purchase of a home selling for $300,000, the loan amount would be $240,000. With the current mortgage rates as low as 4.99% (paying no points) on a 30-year fixed-rate mortgage, this scenario carries a monthly principal and interest payment of $1,287. Over the 30 years, this borrower will pay $463,320 in principal and interest. By subtracting the $8,000 first-time homebuyer tax credit, this amount is reduced to $455,320.

Now let’s assume this homebuyer waits to long and the $8,000 first-time homebuyer tax credit expires, and mortgage rates climb to 5.875 (paying no points). For the same loan amount of $240,000 with a rate of 5.875 on a 30-year fixed-rate mortgage, the monthly principal and interest payment is $1,420. By waiting too long, the same homebuyer is now paying $133 more per month, lost out on the $8,000 first-time homebuyer tax credit, and will pay $511,200 over the 30-year period of the mortgage loan, a difference of $55,800 from the first scenario.

This scenario paints a pretty clear picture. Purchasing a home is a very significant investment, most likely the largest one you will ever undertake. That said, please don’t mistake this as advice to rush out and purchase the first home you see. Take this advice to not pass up an opportunity to purchase the home of your dreams in hopes of finding a better deal down the road. We are in the midst of unprecedented times in the housing industry. We may never see the combination of low home prices, low current mortgage rates, an $8,000 first-time homebuyer tax credit and such a large number of available homes for sale. The sooner you act, the more you can save.

–Robert Hyder