You won’t find a better time in which to buy or build a home

I’ve spent 43 years in the banking business, and I can honestly say that I have never seen a better time in which to buy or build a home. That’s equally true from the standpoint of financing or value. Let’s start with the rock-bottom level of current interest rates. Right now interest rates are at historic lows—lower than what they were in the 1960s. In fact, they may be the lowest homebuyers have seen since WW II, and that is going back some.

If, by the way, you’re under the impression that qualifying to buy a home today is more difficult than it was in “the good old days,” I must beg to differ. Let me draw on a little home-buying history to make my point. In the go-go 1960s, interest rates were low, but almost as a matter of course buyers needed a 20 percent down payment in order to secure financing. If buyers had only 10 percent down, they would often have Mom, Dad, or some other relative pledge the other 10 percent in a savings account, to be held by the financial institution until the loan was paid down. Today, with private mortgage insurance available to protect against a loan going into default, down payment requirements are much more reasonable for qualified buyers.

Fannie Mae and Freddie Mac, for example, don’t make home loans directly with consumers. But they do operate in the secondary mortgage market, which means they deal with bankers, brokers and others to help ensure they have funds to lend to homebuyers at affordable rates. They do this by insuring mortgage loans and by purchasing them from financial institutions.

Then there is the Federal Housing Administration (FHA), which provides mortgage insurance on loans made by FHA-approved lenders. FHA limits the lender’s risk by insuring mortgages. FHA-insured loans require minimal cash down payments, often as little as 3.5 percent of the purchase price.

Of course, no matter where you find financing, your credit history will affect the interest rate you pay. If you’re among the many people who have handled their credit responsibly, you’re going to qualify for a low rate of interest. That is the great news not only for first-time homebuyers, but also for move-up buyers. In the latter case, family needs and changes often mean the house has gotten too small. But the equity from its sale can be used for the purchase—or construction— of a home more suited to the family’s growing needs, at a very reasonable rate of interest.

There’s yet another reason why this is the right time to buy or build a home. Thanks to the recently passed stimulus package, first-time homebuyers can claim a tax credit worth $8,000— or 10 percent of the home’s value, whichever is less—on their 2008 or 2009 taxes. The home can either be new or a resale. And the tax credit is refundable. Keep in mind that a first-time homebuyer is defined as a buyer who has not owned a principle residence for three years prior to the purchase. But the availability of the tax credit will end this year. In order to qualify for it, the purchase of the home must have occurred on or after January 1, 2009, and before December 1, 2009. The purchase date is understood to be the date when the closing occurs and the property transfers to the buyer.

But low interest rates and tax credit incentives are only part of the story, because homebuyers also want good value for their money. Here in Pittsburgh, housing values have remained remarkably stable, especially compared to the wild swings experienced in many other markets. I can testify to that not only based on my experience, but also because some highly reputable sources have confirmed it. One of those sources is the PMI Mortgage Insurance Co.’s First Quarter 2009 Economic and Real Estate Trends Report and U.S. Market Risk Index. The U.S. Market Risk Index lists the riskiest and most stable Metropolitan Statistical Areas (MSAs) out of the 50 largest MSAs. The Pittsburgh MSA makes the grade as one of the most stable of all.

Those of us who have lived here for a time have seen firsthand how Pittsburgh has transformed itself from a steel town to a medical and educational center. However, the city, the county, and Western Pennsylvania haven’t changed in one very important respect, and that is the people’s regard for home ownership. We buy homes because we want places in which to raise our families, and because of the security those homes provide. We don’t buy houses in order to “flip” them and make a fast buck. We never have, and never will.

It’s this salt-of-the-earth approach to home ownership that, I believe, kept at bay many of the unfortunate buying and lending practices rampant in other markets in recent years. Homebuyers here take a sensible approach to borrowing money, and our financial institutions adhere to common-sense principles in lending money. Thanks to both, the bending of the rules that make for fair and honest borrowing and lending never became a way of doing business in Pittsburgh. As a result, this market didn’t suffer the repercussions that came about as a result of “innovative financing.”

Opportune as the current situation is for buying or building a home, history teaches us that the current optimum conditions won’t last forever. The stimulus package is pumping incredible amounts of money into the economy, and some very smart people are telling us that this will almost certainly lead to inflation. If that is the case, the cost of homes is going to go up, perhaps significantly. And, as in the past, you can count on interest rates climbing right alongside housing costs. I can think of no better protection against surging home prices and interest rates than locking into a fixed rate mortgage now.

To put it bluntly, my best guess is that people who put off buying or building a home now will be kicking themselves in a few years. The window of opportunity is wide open at this moment. My advice is, take advantage of it.