As a new educator or if you're starting out in a new career, owning your own home is part of the American dream. Although California has some of the highest-priced homes in the country, according to the California Association of Realtors®, median prices are down and much more affordable than when home prices were peaking several years ago.
In addition, there are many programs available to assist first-time homebuyers. They include:
- A federal tax credit of up to $8,000 for first-time homebuyers who sign a binding contract before May 1, 2010, and close before July 1, 2010. In addition, certain repeat homebuyers who sign a binding contract before May 1, 2010, and close before July 1, 2010, may be eligible for a tax credit of up to $6,500. Details are available at the IRS Web site.
- A first-time homebuyer program provided through a CTA-endorsed credit union, First Financial Credit Union (see more information below).
- Special programs to assist teachers who serve certain schools to purchase homes (see more information below).
Tips for Saving
Puttingmoney down on a home has several advantages: you may be able to securea lower loan rate, enjoy smaller monthly payments and, in some cases,avoid paying private mortgage insurance.
But accumulating asubstantial sum – say, 15% or more of the purchase price – will taketime and discipline. Here are some suggestions to make saving easier.
Formulate a plan.Once you decide how much you want to save and how quickly you want tosave it, break it down into manageable goals. For example, if you wantto save $15,000 over three years, you would need to save $400 a monthin an account earning 3% interest.
Make it automatic. Save effortlessly by requesting that a portion of your paycheck be automatically transferred to your savings account.
Spend less.Buy fewer clothes, eat out less often, hold off on buying a new car,cancel your cable service and seek out free sources of entertainment.Funnel the savings into your down payment fund.
Save more.Depositing raises; extra duty, coaching or summer pay; and tax refundsdirectly in your savings account can be a painless way to save. Whenyou pay off a loan, continue to make the payments to yourself.
Be sure to check out these valuable resources if you're in the market for your first home:
* Source: June 2009 Median Prices, California Association of Realtors, www.car.org.
Monthly Mortgage Payments With and Without PMI
Inmany cases, you will be required to purchase private mortgage insurance(PMI) if your home down payment is less than 20%. Following is anillustration of how various down-payment amounts can affect yourmonthly mortgage payment, based on a home value of $450,000 and afixed-rate, 30-year mortgage at 6%. These calculations are forillustration only; your situation will depend on the value of the homeyour purchase; the type, term and interest rate of the mortgage; andthe amount of your down payment.
| ||20% down ||10% down ||5% down|
|Down payment amount ||$90,000 ||$45,000 ||$22,500|
|PMI required ||No ||Yes ||Yes|
|Monthly payment* ||$2,158 ||$2,428 ||$2,563|
* Includes principal, interest and PMI for 10% and 5% down payment illustrations. No property taxes are included in the estimates.