Q. I would like to buy my first home this year, but I?m worried that prices are going to keep dropping. Should I buy now or keep waiting?
A. There?s certainly no reason to rush out and make a purchase today, but you should at least start getting ready by getting preapproved for a loan to see how much you can borrow as the prime spring homebuying season approaches.
Although sales and prices have dropped in most parts of the country in the past several years, there are recent signs that the nationwide market might be coming back to life.
Resales in January and February hit their highest levels since 2007, according to the National Association of Realtors, while permits for new construction ? a barometer of future activity and a bellwether of developers? confidence in the economy ? rose to their highest point in more than three years. Average prices for both new and resale homes have climbed modestly.
It?s also worth noting that mortgage-interest rates recently have been climbing as the economy shows signs of improvement. The average rate on 30-year, fixed-payment loans in late March rose above 4 percent for the first time in six months, according to economists at the Federal Home Loan Mortgage Corp.
Traditionally, rising rates tend to push sales lower. But some experts say the recent increase could actually boost activity and prices by prompting more people to jump off the homebuying fence and finally make a purchase.
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Q. My wife and I are both 60 years old, and we hope to retire in about three years. We visited a retirement community in another state last month and really liked it. With prices so low, we are thinking about buying a place there now, then renting it to tenants until we are ready to move into it ourselves. What do you think of our plan?
A. Frankly, not much.
Owning an out-of-state rental property is rarely a good idea, regardless of a person?s age. Managing a far-away rental home can be difficult, but few small investors have the financial wherewithal to pay the stiff fees that professional management companies charge while still turning a profit.
Equally important, your letter states that you and your wife plan to retire ?in about three years.? That?s a pretty fuzzy timeframe, and a lot can happen between now and then. Your retirement-housing choices might change dramatically if you or your spouse become ill, decide to work longer than expected or one of you passes away.
Coping with such issues would only be more difficult if the two of you had purchased a retirement home that you no longer needed. It?s true that house values are low today, but you shouldn?t purchase a property ? especially in another state ? with plans to lease it out until both you and your spouse pick a firm retirement date that?s only six months or a year away.
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Q. We purchased a home last year and had to pay for a private mortgage insurance policy because our down payment was very small. Can we deduct the monthly cost of the insurance on the tax return that we are completing now?
A. Yes, provided that you don?t have an above-average income.
Private mortgage insurance, commonly referred to as PMI, is usually required when a borrower makes a down payment that?s smaller than 20 percent of the home?s purchase price. Although the buyer must pay for the coverage, the policy essentially benefits the lender because it will reimburse the bank for some or all of its losses if the loan eventually goes into default.
The deduction was created through the federal Tax Relief and Health Care Act of 2006. It?s gradually phased out for married joint tax filers whose adjusted gross income tops $100,000, and disappears for those who earn more than $109,000.
There are a handful of other minor requirements. For details, get a copy of Internal Revenue Service Publication 936, Home Mortgage Insurance, by calling the agency at 800-829-3676 or by downloading the document it from the www.irs.gov website.
The deduction will expire this year, unless our bickering Congress extends it.
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Send questions to David Myers, P.O. Box 4405, Culver City, CA 90231-2960, and we?ll try to respond in a future column.
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