Why Buying

A Home In

Today’s Market

Is A Complete

NO BRAINER!

Written by Cheryl Kilvington, Prodigy Real Estate, 651-771-6328, Dated 3/22/2010

Cheryl Kilvington is certified as a

“I help you understand the

tax advantages

financing alternatives &

investment aspects

of home ownership, and why

NOW is an incredible time to buy.”

Cheryl Kilvington has been a

Realtor in the Twin cities since

1995. She successfully uses home staging and Feng Shui in

her real estate practice. Cheryl is

certified as an e-PRO specialist

using Internet marketing and as a Residential Finance Consultant.

Cheryl Kilvington—Prodigy Real Estate Group—651-771-6328

Email Me At: Cheryl@HappyHomeHunting.com

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Good for you!

You are in the right place at the right time.

Not very often does a set of circumstances come along that

opens the door to an unusual opportunity never seen before

and likely never to be seen again. Such a

“perfect storm”

of circumstances has aligned itself in today’s housing market.

The window of opportunity is very short—those who

act before April 30th, 2010 will reap unheard-of rewards, though

there will still be lesser opportunities in the housing market

throughout the whole year.

What are the elements of this Perfect Storm that make now such an unbelievably great time to buy? Well, for starters . . .

The selection is tremendous. There is a lot of great housing inventory out there to choose from.

True home values are above current prices. Great deals are to be had. Interest rates are incredibly low.

In fact, lower than they were during the Eisenhower administration.

Tax incentives available only to home owners.

In addition to the “regular” home owner tax incentives that allow you to deduct both mortgage interest and property taxes off of your income tax . . .

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. . . the Federal Government will pay a first time home buyer a tax credit up to $8,000 if you write a purchase agreement by April 30th of 2010 and close by June 30th. (Repeat homebuyers

receive a tax credit of $6500.)

People . . . this is huge!

How is a Tax Credit different than a Tax Deduction?

If you are in a 28% tax bracket, a Tax Credit of $8000 actually shelters over $28,000 of income

from taxes!

If you are a First Time Home Buyer who hasn’t ever ex-perienced the tax advantages of home ownership, this amazing “tax credit” factoid may have completely flown right over your head!

TAX

DEDUCTION

Reduces income

subject to

Tax

Deduction $8000

Tax Bracket X .28 Tax Savings $2240

TAX

CREDIT

Dollar for Dollar

Reduction in

Tax Liability

Tax Credit $8000 Tax Savings $8000

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But don’t worry . . . as you read on, I’m going to show you,

slowly and methodically, why, in most cases, buying a home

right now during this Perfect Storm, will be cheaper for you

than renting.

Besides the regular tax incentives, and the soon-to-expire tax

credit, home owners who sell their home any time after 24

months of ownership may exclude up to

$500,000 (for couples) or

$250,000 (individuals)

of profit from taxes of any kind! No other financial investment

allows the average American to shelter income in this way!

But, don’t assume I’m right about all of this without some

graphic illustrations to prove the facts.

Let’s say you’ve been renting for several years. Your current rent is $850 per month, and you’re thinking about buying a home for $150,000.

You wonder if you can afford it.

Maybe you’ll end up paying a lot more to own a home than you do now to rent.

You worry that homes will not appreciate at

all for the next few years.

Will it really work out to your benefit, or

should you just keep on renting?

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Using my specialized “Rent Vs. Own” Residential Finance

calculator, I can plug in our numbers to see if buying this

$150,000 home will make more financial sense than continuing

to rent for $850 per month. I’ll use 0% as our annual appreciation, in case home values don’t start to

rise any time soon. We’ll plug in a 3.5% down payment, which is required

for a standard FHA loan, and use today’s interest rate of 5.0% for a 30 year

fixed term. Notice these numbers have all been plugged in down the left

side of the calculator.

On the right side of the page, you’ll find our results. Our mortgage amount

is $144,750.

The principal and interest (P & I) each month amounts to $777.05. Monthly

property tax and home owners insurance (T & I) adds $218.75. Our total

monthly house payment (PITI) equals $995.80.

Gosh, that’s more than the $850 in rent you’re paying now, right?

Oops . . . wait a minute; read on! Here’s where it gets good!

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Then, we subtract the amount

of principal reduction that’s

happening each month you pay your monthly PITI payment.

That’s money you would have

just lost to rent, but it’s now

adding equity to your home.

We’ll add

monthly maintenance

expenditures

back in

to the monthly

payment.

Notice that . . . Our newly revised monthly payment,

after all tax savings, zero appreciation, and adding in monthly

maintenance expenditures amounts to:

$787.87 rather than $850 for this: for this:

Monthly Savings =$62.13

Annual Savings =$745.60 “But,” you may say, “I need that extra money each month; I can’t wait

until I do my taxes at the end of the year.”

In that case, you can simply change your exemptions on your W-4, so that less

money is withheld from your paycheck each month. Your income tax refund will be lower at the end of the year, but you’ll have more take-home pay each month.

Remember, you get to deduct

your property taxes and mort-

gage interest off your Income Tax bill. So we can

subtract that savings from

your monthly payment.

1 2

3

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So Back to that First-time Home Buyer’s Tax

Credit . . .

Here are the rules:

Buyer & spouse may not have owned a Principal Residence

in the previous 3 years

Closing dates must occur between January 1, 2009 and

June 30, 2010

Purchase Agreement offered and accepted by April 30, 2010

Maximum of $8,000 refundable tax credit

Income restriction - $150,000 married couples; $75,000 for

singles (for full credit)

Must be used as principal residence for three years

Remember: The effect of the tax credit is a dollar for dollar reduction

in the buyer’s tax liability compared to a tax deduction which reduces

their income subject to tax. An $8,000 tax credit shelters $28,000 of

income to a taxpayer in the 28% tax bracket.

What about repeat buyers?

Here are the rules:

Buyer & spouse must have owned and lived in current home

for five of the past eight years.

Closing dates must occur between November 6, 2009 and

June 30, 2010

Purchase Agreement offered and accepted by April 30, 2010

Maximum of $6,500 refundable tax credit

Income restriction - $225,000 married couples; $125,000

for singles (for full tax credit)

Must be used as principal residence for three years 8

Real Estate Market Cycle

We can’t tell when the market has hit bottom until it has already started to rise.

Then we can look back and see it.

Unfortunately for most of us . . .

. . . we tend to have a herd mentality. We follow the herd and feel most

comfortable jumping into something new when we notice others enthusias-

tically doing it.

Therefore, most people tend to react to the real estate market based on what everyone else is doing. They buy at the top of

the market, such as in 2005, when there was the lowest

chance for opportunity and the highest degree of risk.

A visionary buys at or near the bottom of the market, such as

now in 2010, when there is a higher opportunity for an

increase in value with lower risk of loss. (Warren Buffet

would be so proud . . .)

Low

Opportunity

High Risk

Low Risk

High

Opportunity

Optimism

Excitement

Euphoria

Denial

Fear

Panic

Depression

Hope

2001

2003

2005

2006

2007

2008

2009

2010

Optimism

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But, even with all this good news, you may be saying to yourself:

“I’ll bet I could make a better investment in the stock market, or

in CD’s. After all, who knows when houses will start appreciating in value again?”

I’m so glad you asked that question!

I actually have a “Your Best Investment” Calculator to test

out this question.

Let’s use the same $150,000 house for sale as in our last

example. Just to prove that there really are houses in the Twin

Cities in this price range, I pulled up a few on the MLS on Friday,

March 26, 2010, to show you. None of these houses are bank

owned, in foreclosure, or potential short sales.

Your 3.5% down payment on a $150,000 home is $5,250. We will compare your home purchase down payment with taking that same sum of money and investing it into a CD or the stock market. We’ll look at your investment over a five year period, and see which investment gives you the best financial return.

Hillcrest—$135,000 Richfield—$134,900 Fridley—$149,900 Woodbury—$141,900

Shoreview—$119,900 Col. Heights—$145,000 Vad. Heights—$131,900 S. St. Paul—$154,900

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Because we want to compare the home purchase with the return

on a CD or the stock market, I went into www.bankrate.com

to get today’s best rates.

The best 5 year

CD interest rate I

could find for

today is 3.28%. We will use that

to compare with

the return on

home purchase.

The stock market is a little harder to predict our return. A little

research produced experts who predicted a 5 year investment,

watched carefully and moved when necessary, should “likely”

produce a 4-8% return. I’ll average that and give us a 6% return. Our $150,000 house purchase will yield,

for the purpose of our example, a 0%

return. I actually believe, over the next

five years, houses will appreciate better

than that, but I want to make a point, that even if they don’t, they are still an

excellent investment, as compared to

CD’s and stocks.

So, this calculator to the right compares

the future value of the amount of money

necessary for the down payment on a

home using three possible alternatives: a certificate of deposit, a stock investment,

and purchasing the home.

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Notice in our Results on the right side of the graphic above, that

the calculator states “Home is the Best Investment.”

We see that the same amount of money, $5250, was invested in all three investment vehicles:

CD - increased to $6,169 after 5 years

Stock Market - increased to $7,026 after 5 years

Home - increased to $17,078 after 5 years

How can that be, when we calculated that homes will

appreciate zero percent in the next five years?

Even though there was no appreciation on the home, the principal

reduction achieved by paying house payments increased the owner’s equity by about 27% per year over that five year period.

Since a similar amount of money would have been paid in rent, and this

amount would have increased your landlord’s investment but not your own, this is a valid way to look at your financial return.

Note: The last line in the results column shows how our investment

profits are taxed. CD’s are taxed as ordinary income according to your tax

bracket, and stocks are taxed as long term capital gains (most commonly 15%).

The home is excluded from tax because it is

your principal residence. Cool, huh?

Now let’s run our calculation on our three investments:

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When you work with a Residential Financial Consultant like

me to purchase your home, you will have access to lots of cool

buying strategies that the typical real estate agent is not aware of.

One quick idea I’d like to share with you is the

2-1 Buy Down Comparison

Let’s say you’re about to write a purchase agreement on that

$150,000 house we’ve been discussing. You’d like to ask the

seller to accept a lower offer—let’s say a 2% reduction, or about

$3000 off the asking price.

Instead, I’d like you to consider

the advantages of negotiating a

2-1 Buy Down Comparison with the seller.

Note: This is not an ARM or Adjustable Rate Mortgage. It is a 30 year Fixed Rate Mortgage.

Instead of convincing the seller to lower the price, we negotiate with them

to spend roughly the same amount of money, $3,033, to buy down your

mortgage interest rate for the first two years of your mortgage.

Instead of a lower monthly payment of $761.34 for the 30 year life of the

loan, notice the break you’ll be getting on your monthly payment during

Year 1 and Year 2, when, as a brand new home owner, you may want some

extra money to buy window treatments, paint or buy furniture.

Your 1st year, you’ll

be paying only 3%

interest, or $166.78 less per month than

during years 3-30.

The 2nd year, you’ll be paying only 4%

interest, or $85.99

less per month.

Years 3-30, you’ll

pay 5% interest. 13

As you can see, the 2—1 Buy Down Comparison is a neat tool that can help you structure your finances to your advantage during the early years of your mortgage loan.

In addition, I can show you the

3-2-1 Buy Down Comparison,

80-10-10 Comparison

Equity Accelerator How Interest Affects The Price

Cost of Waiting To Buy

These are all Financial Calculators that assist me in putting

together the best possible financing package for you, making

your home purchase more affordable, and yielding returns on

your investment to your highest advantage.

Let’s get started . . .

Now that you know what a complete No-Brainer it is to purchase a home before April 30th, let’s you and I sit down for coffee and a consultation, and see if this makes sense for you.

It may . . . or it may not. But at least you’ll be making your decision with all the facts. Don’t let this once in a lifetime opportunity pass you by.

Call Cheryl Kilvington 651-771-6328

or email: Cheryl@HappyHomeHunting.com

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