First-time homebuyers are about to experience a significant increase in the cost of buying a home. According to the National Association of Realtors, first-time buyers represent a considerable part of the housing market. Last year, they represented over 40 percent of all homes sold. As a result, the housing market as a whole could be seriously impacted by how first-time buyers react to the expense of housing.

There are three reasons why first-time buyers might see the cost of housing go up within the next couple of months. They include the expiration of federal homebuyer tax credits, changes to Federal Housing Administration mortgage guarantees and trends in home prices. Let’s take a look at each of these and examine how the cumulative effect could make it much more expensive to buy a house.

Tax credits

In an effort to revitalize the anemic housing market, the federal government extended and expanded tax credits that were set to expire last November. For first-time buyers, as defined as someone who hasn’t owned a home in the last three years, you can get an $8,000 tax credit if you get a contract on a house by the end of April and go to settlement by the end of June. As with any government program, there are very specific rules and guidelines regarding your ability to take advantage of the credit. But generally, most first-time buyers will be able to take full advantage of that $8,000. So, for the next couple of months, there’s an $8,000 freebie you can put in your pocket for buying a house.

Last November, some first-time buyers didn’t move forward with buying, believing that the tax credit would be extended. Some might think that the same could happen come this April. However, the bare pockets of Uncle Sam, along with an improving economy would suggest that a second extension of this credit is unlikely. So this is probably your last shot at having the government give you $8,000 in help for buying a house.

Also, people who have previously owned a home may also qualify for a $6,500 tax credit if they get under contract by the end of April. At this time of year, we’re all looking for tax deductions. We add up the stuff we gave to Goodwill last year, hoping that those old (too tight) jeans and that unused exercise equipment might save us $50. But, buy a house by the end of April, and you could save $8,000. That kind of money would buy you a health club membership for the rest of your life. Don’t be pennywise and pound foolish if buying a new home is something you’re thinking about doing anytime soon.

FHA loan changes

The Federal Housing Administration was created way back in 1934 as a method for the federal government to insure home loans and, consequently, expand the number of people who would qualify for buying a house. The primary idea behind this program was to charge mortgage insurance (which buyers could finance along with the principle balance of their mortgage), and in doing so, lenders were protected from default by buyers who were making down payments that were far less than the traditional 20 percent. In today’s market, many cash-strapped buyers (commonly first time buyers) use FHA loans to buy a house.

Currently, the cost of this mortgage insurance is 1.75 percent of the sales price of a house. So, if you’re buying a $400,000 house, this insurance would cost you $7,000. As of April 5, 2010, mortgage insurance for FHA borrowers will increase to 2.25 percent. That means the mortgage insurance for an FHA loan on the same $400,000 house will go up by $2,000 to $9,000. You can finance the cost of this insurance over the life of the loan (30 years), meaning you don’t have to pay all the money up front. But it’s a real expense that will increase cost of buying a home by thousands of dollars.

Additionally, the FHA intends to change the amount of money a seller can contribute toward helping a buyer with closing costs. Right now, the seller can give back to the buyer 6 percent of the sales price on a home sale. On the example of a $400,000 house, that could be as much as $24,000. FHA intends to reduce that amount to 3 percent. Consequently, the new rules could reduce the seller contribution to buyers on a $400,000 home sale by $12,000.

The net result is that changes by the FHA could cost buyers a bundle. Buyers all too often focus on the sales price of a house as what defines the expense of buying a home. But when you consider tax credits, along with changes in FHA lending guidelines, the real cost of a house could change dramatically come this April.

Home prices

This part of the mix is far less certain than the other ingredients we’ve already discussed. Home prices may continue to go down, or they might start to go up. If we had the definitive answer to this one, we wouldn’t be writing this column, we’d be sitting on our yacht in Bermuda, lighting cigars with hundred dollar bills. Nevertheless, most of the economic indicators have shown that home prices are turning the corner.

As has been said, “God ain’t makin’ any more dirt.” God might be making more snow, but the land on which we can build a house is in limited supply – especially here on the east coast where so many of us live. This being so, economic cycles might periodically affect housing prices, but ultimately, rising populations and government controls on what constitutes buildable land will mean that the cost of a piece of dirt will certainly go up. Furthermore, spring is the prime time for selling houses. The subsequent increase in demand normally results in a firming of prices, as well as reduced flexibility on the part of sellers.

So, if you’re looking to buy, the spring and summer could spell higher prices for housing. Always remember that what you offer for a house is just one part of what that house will ultimately cost you. Financing and other considerations, like tax implications, can often overwhelm small changes in the purchase price. To be a smart homebuyer, take a look at the whole package. Don’t miss out on the home of your dreams over a few thousand in the sales price, especially if it means you forgo tax credits and financing advantages that are here today, but gone tomorrow.