Lower Payments For New Buyers

By Elizabeth Hotz, First-Time Homebuyer Specialist

Elizabeth Searches New Listings for her First Time Buyers

My friends and clients are just having a ball in the Denver real estate market.  They are picking up bargains and getting discounts on their loan payments.  They don’t have homes to sell. So, they’re able to shop great homes at a  discount and even much lower payments than just 9 months ago.

Why?  Since last spring, prices for starter homes (even in the better neighborhoods) have declined slightly.  And interest rates are lower. So, the monthly mortgage payments have declined significantly.  In some cases, even the necessary down payment requirements have decreased.  Consider this example:University Hills is a darling community in southeast Denver.  It’s always been popular with first-time homebuyers.  It’s close to the University Hills Mall complete with Starbucks and Einstein Bagels. The Sunflower Market (my personal favorite) there offers Whole Foods-style groceries at discount prices.  University Hills is also convenient to the University of Denver and the new light rail line.

First Time Denver Home Buyers Tom and Kristen

The homes in this neighborhood were generally built after the Korean War for the returning veterans.  They’re not huge homes, but they’re cute, with nice lots and convenient to everything.  There are large mature trees, parks, and even the Wellshire Public Golf Course and access to the Highline Canal is nearby.  Some people can walk to the light rail and go downtown and less than 20 minutes.  And everybody there has easy access to Interstate 25.

My dad and I have sold many homes there for first-time homebuyers.  During last May, the average sales price in University Hills was $213,560.  In the last two months the average sales price has dropped to $179,230. See, people are picking up bargains even in good neighborhoods.  Not all neighborhoods for first-time homebuyers have declined so much.  But University Hills is a good example of one that has.

Even more significant than the price decline is the decline in interest rates.  Last spring, most people paid 6 1/2 percent interest for an FHA insured loan.  Today, that same loan is being offered at 5% interest.  Down payment for these FHA loans is only 3% and Sellers will usually pay for the Buyer’s closing costs. That difference means that the amount of money you need to bring to the table is much less and you can keep more cash in your pocket for other things like moving expenses and that new washer and dryer.

If you bought a home at last spring’s price of $213,560 that, on the average, would result in an FHA loan of $207,153 approximately.  With the current average sales price there of $184,773, you now need only a loan of $179,230.  The resulting house payment for principal, interest and mortgage insurance in the Spring would have been $1,697.  The house payment for the average home today and only 5% interest would be approximately $1,365.  That’s a savings of over $330 per month! Of course, monthly property taxes and hazard insurance would be added to these figures.

Still, a house payment of about $1,400 per month is about as cheap as rent.  And here’s the icing on the cake: My clients get to deduct most of the house payment from their taxes.  So, if a homeowner is in the 28% federal tax bracket and a 5% state bracket, that’s like having the government pay for almost one third of the house payment.  Of course, you don’t make those deductions until the end of each year.

But, how can you get that savings every month to make the house payment? Ready? There is another trick here:  Many of my clients talk to their tax consultants to find out if they should increase the number of deductions that they take at work to accommodate their new write offs from their home.  Often, they will be able to increase their deductions so their monthly take-home pay is actually higher to help pay for the house payment.  Isn’t that slick!

My friends and clients just love this new real estate market.  It’s giving them opportunities they otherwise wouldn’t have had.  And these opportunities are coming at just the right time. Most of my clients are sick of renting and throwing away their money. Many of them have good jobs and some are even starting families.  That’s why we say this really is a great time to buy a home for first-time homebuyer.  It may be the best opportunity to buy a home for many years to come.