COLUMBIA — The parents of twenty-month-old Kolton Carmichael say he likes to watch the construction workers and machinery build the house on the adjoining lot while he plays in his new backyard. Kris and Heather Carmichael like that their son has a backyard with a fence to play in and a newly built home of his own.
It took the Carmichaels only two weeks to find the three-bedroom, two-bath ranch-style home in northeast Columbia that would take the place of the duplex they were renting in Joplin. The house was still under construction during Kris and Heather's first walk through in August. But even without carpet and lights, the couple fell in love with its structure, its quiet and safe neighborhood, and its backyard, which sits on a hill. One side overlooks the nearly built-out development and the other a small, green forested area.
Here are some of the tips that Joan Smith and other speakers offer to those who attend Home Buying 101.
- Have at least three to six months of home payments in savings. This "pot of gold" could be a lifeline to help deal with an unexpected layoff or an emergency home repair.
- Hazard insurance is a bigger deal than it used to be. Know exactly what incidents your home insurance includes, and invest in pertinent additional coverage. For example, Columbia is within the New Madrid earthquake zone, and earthquake insurance is not automatically included in all coverage plans.
- Credit reports can make omissions and mistakes, so get and pool three different sources when determining your credit score. AnnualCreditReport.com is a good starting point.
- It may be emotionally satisfying to completely pay off your home loan when you have the means to do so, but don’t neglect your retirement fund. It might be more beneficial in the long-term to continue monthly payments and put any extra cash away to use for retirement.
- Know your future neighborhood before buying the house. Drive through during rush hour, after a big rain and at night. Contact local law enforcement to learn about crime in the area. You might discover you don’t want the area to be your future neighborhood after all.
IF YOU GO
Home Buying 101 will be held from 9 a.m. to 1 p.m. Oct. 17, Nov. 14 and Dec. 12 at the Columbia Public Library, 100 W. Broadway. There is a $10 charge. To register, call 443-3161 or e-mail email@example.com.
The federal government’s first time home-buyers tax credit is the reason the Carmichaels decided this summer was the right time to become homeowners and the reason they were able to buy a new house, Kris Carmichael said. Part of the American Recovery and Reinvestment Act of 2009, the program gives first-time home-buyers an $8,000 credit on their income taxes if they buy and close on a house before the program expires Dec. 1.
"We probably wouldn't have bought a home this year; we would've waited,” Heather Carmichael said of the program's impact on the decision she and her husband made to move. “But we wanted to take advantage of the program."
CASH FOR GRABS
The stimulus money isn’t the only government help available for local homebuyers. The city of Columbia’s Home Ownership Assistance Program gives $5,000, or 5 percent, of a home's purchase price, whichever is less, to first-time homebuyers who meet income eligibility and location requirements. Participants can use the money for down payments and closing costs.
The city receives the money through the Department of Housing and Urban Development’s HOME program.
There is also the state's Neighborhood Stabilization Down Payment Assistance Program. The program gave people who buy foreclosed residences up to $15,000 in down-payment assistance. It proved so popular that all of the $4.2 million Missouri received from the federal government was used up in just slightly over three months. Funds are no longer available.
Joan Smith teaches Home Buying 101 at Columbia Public Library. She encourages people who attend the course and have the means to seize the moment.“Buying a home is one of the most exciting times. It’s American, you know, owning your own house,” Smith told a recent class. “So I say if you’re ready for it, go for it.”
Still, no matter what money is available, she reminds people that right now might not be the best time for them to purchase a home.
“A lot of people feel pressured. This tax credit is here, interest rates are low,” Smith said.
The city of Columbia, local lenders and the Enterprise Development Corp., a nonprofit organization that works to promote economic development in central Missouri, underwrote Smith’s four-hour crash course in home buying. For more than six years the class has educated attendees about all facets of the purchasing process while at the same time fulfilling one of the requirements needed to participate in the city’s Home Ownership Assistance Program.
The educational environment of Home Buying 101 creates a neutral environment in which buyers can ask questions about the home-purchasing process that they may not feel comfortable asking their lenders or real estate agents, whose answers could have a vested interest.
Smith and her two guest speakers — a real estate agent and a lender who comes from different local businesses each month to maintain the class’s no-pressure atmosphere — also make attendees aware of the questions they should be asking and help them determine whether they are fiscally ready to buy a house. People who come to Home Buying 101 show up with wide ranges in base knowledge, but all share one question, Smith said: They want to know where the free money is.
Eleven people attended the September program, which was the smallest class she's taught this year, Smith said.
“A few months ago we had 50 people; it’s because of the federal $8,000."
As of Sept. 29, 320 first-time homebuyers in Columbia had bought homes with the tax credit, according to the Columbia Board of Realtors.
The federal tax credit and low interest rates' synergy is not only attracting people to Smith’s class, it’s also creating momentum for the city's Home Ownership Assistance Program. In place since the early 1990s, the City Council budgets a portion of the money it receives from the federal formula grant for the HOME program to the Home Ownership Assistance Program each year, using community demand as its benchmark. And the numbers in recent months show demand has skyrocketed.
The City Council budgeted $79,800 for the Home Ownership Assistance Program in 2008. Sixteen homes were bought with that money during the 2008 calendar year, leaving enough left over to carry the program into 2009.
"We were still spending '08 money in May, this June and into July," said Tom Lata, the city's community development coordinator. "We had to start spending our 2009 money in July."
And since mid-July, the program has used up nearly two-thirds of its $142,500 for this year. Lata attributes the sudden increase in demand to the combination of the $8,000 federal tax credit and low interest rates. Forty-six people have used the program this calendar year, and that number could reach 50 by year's end, he said.
"We have $51,488 left now," Lata said. "That has to last us until next spring, at least. My guess is that it won't."
Brandy Minor, a Home Buyers 101 attendee, is receiving Home Ownership Assistance Program money for the purchase of a home for her and her 5-year-old son, Brandon. When she decided to buy a home in June, she was unaware of the first-time home-buyers tax credit. But because her real estate agent told her about the stimulus money, she is trying to expedite the purchase of the home off Garth Avenue that she’s fallen in love with. If she can seal the deal before the Dec. 1 deadline, she’ll get the tax credit as well. Together, the programs would knock $13,000 off Minor's out-of-pocket costs.
“I’m tired of renting,” Minor said. “I’m ready to paint, decorate — freedom to do what you want.”
The older home appealed to her because it is spacious, has a railed-in front porch and also has a backyard, the latter of which she feels are often missing from newer homes that are often built closer together.
“I’m very excited, I drive by it every morning,” Minor said.
RUSH ON FORECLOSURES
The Missouri Housing Development Commission began making up to $15,000 available to buyers of foreclosed homes in the state on May 26. All of the $4.2 million the state received under the Housing and Economic Recovery Act of 2008 in forgivable grants were reserved by Sept. 2, said Greg Spurgeon, the single-family homeownership administrator for the Missouri Housing Development Commission. People tapped the program to buy about 290 foreclosed homes throughout the state, he said.
"We hoped that it was going to go quickly, but we weren't sure," Spurgeon said. "We were pleasantly surprised."
Spurgeon said the program's success speaks not only to the attractiveness of the deal but also to the large number of foreclosures in the state. He also said that, combined with the federal tax credit, before the commission's program ended there was a $23,000 incentive for first-time homebuyers to buy a foreclosed home.
The government is giving 21-year-old Casey Small, who bought a foreclosed home in Warrensburg this summer, a total of $16,000 for buying the house. The first-time homebuyer had been planning to purchase a home for about six months before his mother discovered the commission's offer.
"I was shocked that I could get that much money from the government just for buying a house," said Small, who qualifies for both the federal tax credit and the money that was earmarked for moving foreclosures.
Small said he would have bought a foreclosed home even without the Neighborhood Stabilization Down Payment Assistance Program because the price ranges of those properties appealed to him. But the government help frees more of Small's savings for buying the appliances that come along with starting a household and for home repairs. And his new home in the southern part of the city needs quite a few repairs.
Small is working with a contractor to fix a crack in his cinder-block foundation and brace the concrete on the other side. He's handling the bathrooms on his own.
"Both the bathrooms needed to be remodeled. They're halfway remodeled and then they just stopped," Small said of the previous owners' upkeep. "I'd say they're in fair to poor condition."
He's already finished ripping out the hardwood floor and replacing it with tile in one of the bathrooms, and he's about to do the same in the other one. Every room in the house has received a fresh coat of paint, and new windows and siding are in the works.
The first night he spent as a homeowner was exciting, Small said.
"Just knowing that I owned a house and put money towards a mortgage," he said. "Knowing that I can put that money back instead of losing it on rent."
Despite all of the incentives, a sense of uneasiness continues to loom over the housing market. Smith, the counselor for new homebuyers, said people have asked how Home Buying 101 has changed in recent years amid all of the foreclosures. She tells them that it hasn’t.
Marilyn McLeod, a public service librarian at Columbia Public Library who helps organize the class, said she wishes it had been around when she first bought a house.
"All these years she has talked about budgeting and making sure you're buying a house you can really afford because it's a wise thing to do," McLeod said."That's a nice thing, it's nothing new here."