Lennox's Real Estate Blog

sharing my passion for real estate

Goodbye tax credit, hello purchase power

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Well, it was fun while it lasted. The -now expired- Federal Tax Credit provided people all over the U.S. with an extra compelling incentive to buy a home. This sales activity helped stimulate the housing market and the U.S. economy. So, the end result is that the tax credit did what it was designed to do. But all good things must come to an end, right? Well, kind of. The tax credit is no longer available, but interest rates have dropped, including on FHA loans which are down nearly half a point since May 1. That means buyers using an FHA loan to buy a $200,000 home will have nearly $9,000 more purchasing power.

The following illustrates this point:

5/1/2010 5/26/2010 Change
Interest Rate: 4.875% 4.500% -0.375%
Purchase Price: $200,000 $208,890 $8,890
Loan Amount: $193,000 $201,579 $8,579
Monthly Payment: $1,021 $1,021

Using this same scenario, buyers purchasing a $400,000 home using an FHA loan have close to $18,000 more purchasing power. In other words, for the same monthly payment, today’s buyer could purchase a home worth $18,000 more than they could have on May 1, 2010.

Who knows how long interest rates will remain this low, but for those looking to buy a home in the near future, this increase in purchase power could be their golden ticket. For specific guidelines and FHA loan limit amounts by state, please visit: http://www.fha.com/lending_limits.cfm

Lastly, here is a good article that recently ran in the Wall Street Journal about the dip in interest rates and what it means for homebuyers and the U.S. economy: Home Buyers Get Surprise Boost From Europe Crisis as Loans Drop to Below 5%

As always, thanks for reading,


Written by Lennox

May 26, 2010 at 2:35 pm

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