As rampant inflation gradually gets squeezed out of home prices, many first-time homebuyers are finally able to afford a house. Lower rates on purchase mortgages-including popular FHA mortgage products-also make it easier for new homebuyers to take the ownership plunge.

Since the real estate bubble burst, prices for homes across the U.S. have fallen 30 percent or more from their dizzying heights. Homes that traded in the $250,000 range-which was the median price of a typical American residence just two to three years ago-are now more apt to fetch $175,000 or less. The more modest pricing, coupled with an $8,000 first-time homebuyer tax incentive-courtesy of the Obama administration-is luring new homebuyers into the marketplace. They're also being helped by exceptionally low interest rates on loans that include many low-cost FHA mortgages.

First-time homebuyer perks

These new homebuyers are primarily flocking to homes priced well below $300,000, including many foreclosure listings. Lenders are ready to work with them, and government assistance programs and incentives to aid the ailing housing sector are being offered by agencies like HUD and its FHA subsidiary. Buy a home with an FHA mortgage, and it's possible, for instance, to pay as little as 3.5 percent down and get up to $5,000 in cash to help with needed improvements and repairs. As a result, many new homebuyers are purchasing deeply discounted properties, getting enough extra money to fix those homes up right away with no out-of-pocket expenses, and are earning a big tax benefit in the process.

The $8,000 first-time homebuyer tax deduction is based on a rather broad definition of what a "first-time" homebuyer actually means. According to the IRS, anyone who has not bought a home within the past three years is considered a first-time homebuyer. That includes many Americans who view the tax perk as a huge windfall.

Purchase mortgage perks

With those kinds of benefits, it's easy to understand why first-time homebuyers are seeing the upside of the real estate downturn and a silver lining in the economic turmoil. Banks are also offering home purchase mortgage loans at interest rates that are historically low. Safe and secure fixed-rate mortgage loans are now available at less than 5 percent interest, which is the cheapest that those kinds of loans have been in about 40 years. Lots of first-time homebuyers have the good credit necessary to get loan approval because they didn't get swept up in the borrowing frenzy that fueled the current economic fallout.

Many have been renting apartments or leasing homes for many years, because buying was too expensive. Now, however, they recognize their opportunity to become homeowners themselves. Unlike those who already own properties, these unencumbered renters don't have to worry about existing home equity loans, purchase mortgages, or the burden of having to first sell a property in order to consider buying another one.

Published on May 14, 2009