Tuesday, December 22, 2009

Happy Holidays and New Year!

I want to wish you all the joys that this holiday brings, filled with the warmth of family and friends and enriched with the blessings of peace and prosperity. Have a Happy New Year.


If You Don't Buy a House Now, You're Stupid or Broke by Marc Roth

Here is an interesting article from Business Week written by Marc Roth.

Well, you may not be stupid or broke. Maybe you already have a house and you don't want to move. Or maybe you're a Trappist monk and have forsworn all earthly possessions. Or whatever. But if you want to buy a house, now is the time, and if you don't act soon, you will regret it. Here's why: historically low interest rates.

As of today, the average 30-year fixed-rate loan with no points or fees is around 5%. That, as the graph above—which you can find on Mortgage-X.com—shows, is the lowest the rate has been in nearly 40 years.

In fact, rates are so well below historic averages that it should make all current and prospective homeowners take notice of this once-in-a-lifetime opportunity.

And it is exactly that, based on what the graph shows us. Let's look at the point on the far left.

In 1970 the rate was approximately 7.25%. After hovering there for a couple of years, it began a trend upward, landing near 10% in late 1973. It settled at 8.5% to 9% from 1974 to the end of 1976. After the rise to 10%, that probably seemed O.K. to most home buyers.

But they weren't happy soon thereafter. From 1977 to 1981, a period of only 60 months, the 30-year fixed rate climbed to 18%. As I mentioned in one of my previous articles, my dad was one of those unluckily stuck needing a loan at that time.

Interest Rate Lessons

And when rates started to decline after that, they took a long time to recede to previous levels. They hit 9% for a brief time in 1986 and bounced around 10% to 11% until 1990. For the next 11 years through 2001, the rates slowly ebbed and flowed downward, ranging from 7% to 9%. We've since spent the last nine years, until very recently, at 6% to 7%. So you can see why 5% is so remarkable.

So, what can we learn from the historical trends and numbers?

First, rates have far further to move upward than downward; for more than 30 years, 7% was the low and 18% the high. The norm was 9% in the 1970s, 10% in the mid-1980s through the early 1990s, 7% to 8% for much of the 1990s, and 6% only over the last handful of years.

Second, the last time the long-term trends reversed from low to high, it took more than 20 years (1970 to 1992) for the rate to get back to where it was, and 30 years to actually start trending below the 1970 low.

Finally, the most important lesson is to understand the actual financial impact the rate has on the cost of purchasing and paying off a home.

Every quarter-point change in interest rates is equivalent to approximately $6,000 for every $100,000 borrowed over the course of a 30-year fixed. While different in each region, for the sake of simplicity, let's assume that the average person is putting $40,000 down and borrowing $200,000 to pay the price of a typical home nationwide. Thus, over the course of the life of the loan, each quarter-point move up in interest rates will cost that buyer $12,000.

Loan Costs

Stay with me now. We are at 5%. As you can see by the graph above, as the economy stabilizes, it is reasonable for us to see 30-year fixed rates climb to 6% within the foreseeable future and probably to a range of 7% to 8% when the economy is humming again. If every quarter of a point is worth $12,000 per $200,000 borrowed, then each point is worth almost $50,000.

Let's put that into perspective. You have a good stable job (yes, unemployment is at 10%, but another way of looking at that figure is that most of us have good stable jobs). You would like to own a $240,000 home. However, even though home prices have steadied, you may be thinking you can get another $5,000 or $10,000 discount if you wait (never mind the $8,500 or $6,500 tax credit due to run out next spring). Or you may be waiting for the news to tell you the economy is "more stable" and it's safe to get back in the pool. In exchange for what you may think is prudence, you will risk paying $50,000 more per point in interest rate changes between now and the time you decide you are ready to buy. And you are ignoring the fact that according to the Case-Shiller index, home prices in most regions have been trending back up for the last several months.

If you are someone who is looking to buy or upgrade in the $350,000-to-$800,000 home price range, and many people out there are, then you're borrowing $300,000 to $600,000. At 7%, the $300,000 loan will cost just under $150,000 more over the lifetime, and the $600,000 loan an additional $300,000, if rates move up just 2% before you pull the trigger.

What I'm trying to impress upon everyone is that if you are planning on being a homeowner now and/or in the foreseeable future, or if you are looking to move your family into a bigger home, then pay more attention to the interest rates than the price of the home. If you have a steady job, good credit, and the down payment, then you really are being offered the gift of a lifetime.

Marc Roth is the founder and president of Home Warranty of America, which touches just about every part of the real estate industry since it sells through builders, real estate agents, title companies, mortgage companies, and directly to consumers.

Thursday, December 17, 2009

Foreclosed homes aren’t always the best deal in town

Here are 10 reasons why foreclosures aren't always the best deal in town, offered by Vince Mastronardi, president of On-Site Specialty Cleaning & Restoration in suburban Detroit.

No heat in the winter. When a home has been left unheated, buyers run a risk of damaged pipes.

Not removed but ripped. Thieves and even angry former owners can do a lot of damage when they depart with fixtures and key systems like heaters and air conditioners.

Peeling, bubbling, and discoloration
. Water incursion isn’t always obvious, but these are signs.

Mold
. Where there is water there is mold. Look inside cabinets, behind drawers, and around built-ins.

Blocked drains and pipes
. Sewer backups can be expensive to fix.

Black cobwebs
. This is the result of a malfunctioning furnace, common in properties where there hasn’t been maintenance for a long time.

Homemade and handy
. Where renovations don’t look professional, check with the municipal authority. They may have been completed without permits and that could mean they have to be redone.

Fresh paint everywhere
. What is the seller covering up?

Check the basement
. Look for discolored subflooring, which can point to mold. And search for asbestos, common in older homes that haven’t been brought up to code.

Air quality
. Include air and surface testing in a home inspection. It’s a few hundred dollars well spent.

Source: On-Site Specialty Cleaning & Restoration (12/16/2009)

Tuesday, December 08, 2009

Raffle house winner sells house

A Colorado woman who won a $1.2 million home in Edgewater in a $50-a-ticket raffle in January has sold the property to a Severna Park church at a bargain-basement price.

"Hooray, finally!" said Karen McHale, 47, who lives in a home she built with her husband in the mountains west of Denver and never intended to move to the mid-Atlantic. "I tell you, that was a giant rock around my neck."

McHale said she bought two raffle tickets last year as a contribution to an Annapolis-based charity that was co-sponsoring the contest. The raffle venture came about when a mortgage broker teamed up with We Care and Friends, which helps at-risk youths, to sell his home.

A week after one of those tickets was chosen as the winner, McHale lost her job as a chemical engineer. Eager to sell the home before Dec. 31 to avoid paying about $300,000 in 2009 income taxes, she put it on the market in March for $799,000.

When no one bit, McHale dropped the price to $749,000 in May. A dozen prospective buyers asked after the property; no one submitted an offer.

McHale's husband, who works in construction, spent a week at the house in June, painting its 40 interior doors, hooking up a dishwasher and doing other last touches.

Two buyers made offers in September; both deals fell through.

Meanwhile, the six-bedroom, 4 1/2 -bath windfall, despite sitting empty, was accompanied by a hefty monthly bill: $600 to $800 in utilities and homeowner's insurance.

McHale finally sealed a $650,000 deal last month with Unity By the Bay, a church that has outgrown its quarters in a Severna Park strip mall. The church paid $450,000 in cash, McHale said, and she made a tax-deductible contribution of the additional $200,000 to stem the flow of her winnings to the IRS.

"We are all just so grateful to Karen McHale for her donation. The congregation is ecstatic," said board member Carol Kerr. "We have wanted to have our own building, but everything seemed so out of reach, pricewise, that we just haven't been able to make it happen."

All in all, McHale said, she will pocket about $200,000 after paying state and federal tax bills.

"It's amazing how fast you can spend it," McHale said, "but we're done now. We're back to normal."

A chunk of the profit went toward the mortgage on the McHale family's Colorado home. They also spent some of the money on a greenhouse to grow vegetables in a part of the country where winter lasts much of the year and a new Dodge truck to replace one that was falling apart.

One son, a budding chef, got a set of knives; another got help with his August wedding and honeymoon to Italy. At a recent lunch to celebrate the sale of the 6,000-square-foot Maryland home, McHale passed out $50 bills to a couple of dozen family members and friends.

Her original windfall was accompanied by enough stress and tax-code headaches that McHale said she's done gambling on faraway real estate.

"The Elks [Lodge] was raffling off a pig recently, and I bought tickets for that because I wanted the meat," she said, laughing. "But I'm not buying raffle tickets for any more homes in strange states.

Source: Washington Post written by Emma Brown on Tuesday, December 8, 2009

Monday, December 07, 2009

IRS Sets New Rules for Tax Credit

The IRS has spelled out guidelines for eligibility for the home buyer credit when co-borrowers purchase a property.

When a home-owning parent of an adult child co-signs for a mortgage and both names appear on the note, the IRS says that under some circumstances, the first-time home buyer can qualify for the whole amount.

The IRS says the parent doesn’t qualify for any portion of the credit, but if the child hasn’t owned a home during the three years preceding the current purchase and can qualify based on income, he or she can be allocated the entire $8,000 credit.

When unmarried individuals co-purchase a home and only one of them is eligible for the credit, then the full $8,000 can be allocated to the eligible buyer.

Source: Washington Post Writers Group, Kenneth R. Harney (12/04/2009)

Sunday, December 06, 2009

Fannie Mae Announces "Deed for Lease" Program

WASHINGTON, DC -- Fannie Mae (FNM/NYSE) is implementing the Deed for Lease™ Program under which qualifying homeowners facing foreclosure will be able to remain in their homes by signing a lease in connection with the voluntary transfer of the property deed back to the lender.

"The Deed for Lease Program provides an additional option for qualifying homeowners who are facing foreclosure and are not eligible for modifications," said Jay Ryan, Vice President of Fannie Mae. "This new program helps eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities."

The new program is designed for borrowers who do not qualify for or have not been able to sustain other loan-workout solutions, such as a modification. Under Deed for Lease, borrowers transfer their property to the lender by completing a deed in lieu of foreclosure, and then lease back the house at a market rate.

To participate in the program, borrowers must live in the home as their primary residence and must be released from any subordinate liens on the property. Tenants of borrowers in this circumstance may also be eligible for leases under the program. Borrowers or tenants interested in a lease must be able to document that the new market rental rate is no more than 31% of their gross income.

Leases under the new program may be up to 12 months, with the possibility of term renewal or month-to-month extensions after that period. A Deed for Lease property that is subsequently sold includes an assignment of the lease to the buyer.

For additional information about the Deed for Lease Program, including full details on program eligibility, please review the Guide Announcement on www.efanniemae.com.

Wednesday, November 25, 2009

Fannie Mae: New Affordable Housing Options

For those of you who have been bidding on property and losing out to investor groups, it looks like Fannie Mae has come to the rescue.

Fannie Mae announced Tuesday that it has launched several initiatives designed to stabilize neighborhoods and promote purchases by owner occupants and low-income buyers.

Fannie Mae’s “First Look” initiative offers buyers who intend to live in the home, particularly low-income buyers, an opportunity to make an offer during the first 15 days the property is on the market. Investors can only make an offer after the first 15 days have passed.

Other programs aimed at stabilizing neighborhoods include:
  • Deposit Waivers. Fannie Mae will waive the earnest money/deposit requirement for public entities using public funds to purchase a Fannie Mae-owned property. Individual home buyers who have qualified for public funds and want to purchase a Fannie Mae-owned property do not have to meet the usual earnest money/deposit requirement either. Deposits for these buyers can be as low as $500.
  • Reserved Contract Period. Upon receipt of an acceptable offer, buyers have the ability to renegotiate their offer after obtaining an appraisal.
  • Extra Time for Closing. Buyers receive up to 45 days to close – 15 days more than is usually permitted for purchases of Fannie Mae-owned properties.
So, keep your eyes out and ask your Realtor if the property is Fannie Mae owned. Who knows, it may be the difference between you getting or not getting that future home!

Source: Fannie Mae (11/24/2009)
The complexity of new home buyer tax credits leaves potential buyers with many questions. Here are answers to some of the most confusing:

How does a current home owner qualify for the $6,500 credit?
Buyers must have lived in their homes for at least five out of the last eight years. The home they buy must become their primary residence, but buyers don’t have to sell their previous home. They can use the previous home as a rental or a second home and still claim the credit.

Does the new home have to be more expensive than the one the buyer currently owns?
No. It is fine to use it to downsize. If the property sells for more than $800,000, the buyers don’t qualify.

Can buyers who are building a new home claim the credit?
Yes, although the contract must be in place by April 30 and the buyer must move in by July 1.

Can buyers claim the credit if they purchase a home from a relative?
No. The legislation prohibits taxpayers from claiming the credit if the sale is between “related parties,” including parent, grandparent, child, or grandchild.

Source: USA Today, Sandra Block (11/24/2009)

Friday, October 23, 2009

Whether to Buy a Condo or Not...

These days it's not easy owning a condo, or any house located in a community that requires homeowners to pay fees. As more owners in these communities feel financially pinched, many aren't paying dues. That means residents who keep up with the bills have to pay a bigger share of the burden—and if there aren't enough reserves to pay to replace worn-out roofs or fix a cracked sidewalk, they face the possibility of bumped-up dues or an unexpected special assessment.

On the flipside, prices are low. And for the brave home buyer, there are bargains out there. The trick is looking closely at the homeowner association's health. Buyers need to question the association board about dues payments, and have their inspectors examine common elements before committing to a purchase. It's also important to review the financial documents that every buyer has a right to inspect before closing.

But what should you be looking for? We asked Leonard Baron, professor of finance at San Diego State University, for some tips:

  • Make sure you get all the documents, and have sufficient time to look them over. Buyers are supposed to get all financial documents relating to the association during their inspection period, but often they arrive, incomplete, just a day or two before closing. That's not enough time to review documents that may be many pages long. So Prof. Baron advises that you bug your agent for them the minute your home goes into escrow, and demand at least three days to review them.
  • Check the financial statement. About two-thirds of the association's budget should be operating expenses such as water, lights, elevator maintenance and landscaping; the rest should be set aside in a reserve fund for long-term maintenance and repairs. See if expenses exceed revenues due to foreclosures, unpaid dues or other reasons. If they do, ask the association what their plans are to make up the shortfall, and whether you should expect an assessment or higher dues. Ask also if there are plans to save costs by cutting pool hours, or the number of mowings or clubhouse cleanings. This could affect not only your comfort, but also the future marketability of your home.
  • Review the reserve study. Not every state requires these, but they are becoming more common. For such a study, the association will hire an outside firm that will look at all long-term anticipated repairs and replacements over a period of 30 years, add up the costs, and put together a payment and maintenance schedule. The monthly dues you're charged should reflect the amount of money that needs to be put away to pay for these necessities, but you shouldn't simply assume that's happening. "Many times the boards, under pressure by the owners, will hold the line on raising fees, to the long-term detriment of the property," he says.
  • See what percentage of reserve funds has been raised. In an ideal world, associations would save enough money over time to pay for every contingency. So if the roofs on 100 condo units will need to be repaired in 12 years at a cost of $240,000, for the reserve to be 100% funded after six years, half of that sum would need to have been put away for that purpose. But in the real world, associations often rob their own reserve funds to pay for operating and other expenses; Prof. Baron estimates that most are only funded 50% or less. Although the percentage of funding necessary varies by the age and size of a complex, (for instance a skyscraper with a complex mechanical system is much higher maintenance than a small townhouse community) in general, you should be wary if funding is below 40%. "You could be hit with thousands of dollars in assessments if something expensive fails," he says.

Source: WSJ, October 11, 2009, written by: June Fletcher

Wednesday, October 07, 2009

Why You Should Buy a Home Now...

Here is a great article from Duane Gomer on "Why You Should Buy a Home Now"

Let’s discuss two California families and the real estate market. We’ll call them Able and Baker.

Able sold a home at the top of the real estate market for $500,000 and bought a new home for $800,000, paying 10% down and getting a new adjustable rate mortgage for the remainder. Baker stayed in their existing $500,000 home and we all applauded Able for selling at the top of the market.

There are many different opinions on the amount of the drop in prices but we can all agree prices have dropped, more in some areas than others. For our example, we will use a simplified 35% drop on all homes.

Today, Able is in their home with a loan still around $720,000 and can’t refinance because their value is $520,000. Their property taxes are still hovering around $8,000 per year. This is called being underwater, and they could be facing tax problems because of forgiveness of debt, etc.

Baker decides to sell today and finally move up to a bigger home. Their home has dropped in value and they think they have suffered a loss of $175,000 as the home is worth only $325,000. They sell and buy the former $800,000 home for $520,000. They get a loan for $468,000 at the current rate of under 5% and their taxes will be about $5,200 per year.

They might also qualify for a $8,000 tax credit and other inducements in today’s market. Also, there could be appreciation as the market recovers and would you rather have appreciation start now on a $325,000 home or a $520,000 home? Plus they’re living in their move-up home and the family is happy. So, who is better off now. Able or Baker?

Remember the old real estate advantage. Sell when everyone is greedy and buy when everyone is needy. Yes, I know the really smart thing to do would have been to sell three years ago and rent until now. Did many people do that? I don’t think so.

We can go back in time only in the movies and it’s too late for could’ve, should’ve or would’ve. Hey, we all misread the economy then so let’s move now and not misread it again. If you want to move up to a better home and can afford it, consider doing it now. Remember the $8,000 tax credit sunsets December 1st.


Source: Duane Gomer

Renting vs. Buying

Here is a great article I received from Duane Gomer on Renting vs. Buying. I think he does a great job of breaking down the cost/benefit of each...

Yes, buying real estate is a big commitment but many times not buying real estate is a bigger mistake. Let’s compare the costs of renting a property in today’s market versus buying the same property today.

First to establish an example. My figures will work with any example, but let’s use a home that would rent for $2,000 a month or would sell for $400,000 at 3% down.

What would your cost per year be to buy when compared to the $24,000 you would pay in rent?


Let’s use very oversimplified figures:

Interest: 5% on $388,000 = $19,400
Property Taxes = $ 4,000
Insurance = $ 1,000
$24,400

There are other factors to consider. For example, IRS tax relief for the deductible items above. Let’s use a 25% IRS tax rate and an 8% California tax rate. Interest and property tax payments are deductible so 33% of the $23,400 would result in a tax savings of $7,722. That brings the outlay each year to $16,678. That is less than renting.

Yes, there are other variables such as the interest deduction in later years will drop plus property taxes and insurance will increase, but rents will also rise. There will be expenses such as repairs to be paid by the owner but this could be offset by appreciation as real estate markets return to normal.

The major point of this posting is that the tax benefits of ownership are important when budgeting for yearly housing costs, as are future appreciation plus your pride of ownership so consider buying now not later.

Source: Duane Gomer www.DuaneGomer.com

Monday, October 05, 2009

Bathroom Upgrades Pay Off

More than 80 percent of new single-family homes have at least two bathrooms, which occupy an average of 300 square feet of floor space, or 12 percent of the total area, according to a study by the National Association of Home Builders.

The home builder’s study reports a major return on value for extra bathrooms: "When the number of bathrooms is approximately equal to the number of bedrooms, an additional half-bath adds about 10 percent to the home's value, and one additional bath adds about 19 percent."

A mid-range bathroom remodel, which costs $10,500 on average nationwide, repays a home buyer at least 100 percent of the outlay when the property is sold, the home buyer study concludes.

Source: Chicago Tribune, Mike McClintock (09/21/2009)

Wednesday, September 30, 2009

WSJ Article: Want the Home Buyer Tax Credit? Don’t Shop for Furniture

Here is a great WSJ article written by: Dawn Wotapka.

With the deadline on the first-time home buyer tax credit looming, plenty of buyers are under contract and looking to close before Nov. 30.

Excited to move into a new home, some of these first-timers start hitting the stores shopping for new furniture, appliances or curtains.

Big mistake.

Real estate agents are reminding buyers to wait until the close to start buying stuff.

The reason: Lenders are occasionally running credit reports on closing day, and they might not like to see an increase in credit card debt or indications that debt could soon increase, says Lew Reich, a Realtor with Keller Williams Realty in Plano, Texas.

Buying is off the table, but so is serious looking: Don’t even think about checking out that new car or boat because even an inquiry on a credit report might raise red flags. Too many inquiries, Mr. Reich adds, might be detrimental, particularly for those who just met the lender’s minimum requirements.

“If someone’s squeaking by and, all of a sudden, they may be looking at increasing debt, the lenders will have a keener eye in looking at your loan,” he says. “Don’t look until you’ve closed is basically what it comes down to. That’s the safest way. Stay out of the stores.”

While such measures have been used over the years, lenders, still dealing with the fallout from the boom’s lax lending standards, are being especially particular these days. Even buyers with great credit scores face scrutiny.

Agents also advise not moving money between accounts, so don’t join two savings accounts, transfer large sums out of savings or add more funding to checking. Emptying out an account could look like money’s being spent, and lenders might request a paper trail for the money flow, Mr. Reich explains. That could delay the closing or, in rare cases, terminate the loan. That wouldn’t necessarily free the buyer from the obligation to buy the home, he warns.

Dan Rider, a broker with Dickson Realty in Reno, Nev., says one of his recent closings was delayed by five days when lenders spotted a $500 deposit in a buyer’s checking account. It wasn’t a gift – it was a repaid loan from her mother – but it sparked concerns that the buyer needed help to close the deal. Though the buyer had a healthy checking balance, the lender wanted canceled checks and bank statements and both parties had to write an explanatory letter.

“The simplest things can create fairly major delays,” Mr. Rider says, adding buyers could face financial penalties for late closings. And of course, with the clock ticking on that tax credit, there’s also the penalty of missing out on eight grand. Although, delayed buyers could still get lucky: A Senate bill introduced Thursday seeks to extend the credit for another six months.

Source: WSJ; September 18th, 2009

Tuesday, September 29, 2009

First Time Homebuyer Tax Credit

Here is an informative video from the IRS on the $8,000 First Time Homebuyer Tax Credit...



Remember, this tax credit ends Nov. 30th (unless Congress extends it).

Monday, September 14, 2009

Seven Tips for First-TIme Homebuyers

A year after the financial collapse of 2008, the housing market is very different than it was before the foreclosure crisis. Here are seven bits of wisdom from economists and financial planners for anyone contemplating a home purchase today:
  • Old-fashioned basics are more important than ever. The safest way to purchase a home is to put down 20 percent on a fixed-rate, 30-year (or less) mortgage.
  • Don’t become overconfident about income growth. Even though buyers in their 20s and 30s will likely see their incomes grow more quickly than previous generations, it is important to act sensibly when borrowing.
  • Anyone contemplating adding children to the family should calculate whether they could live on one income because having both halves of a couple work may turn out to be impractical.
  • Include a maintenance budget. Even new homes need upkeep and repairs.
  • Buyers who can't afford their dream home now should opt for a starter home where they can save money each month for what they really want.
  • Consider a property that can be expanded and improved down the road when money is available.
  • No two buyers are the same, but they should all feel confident with the loan they enter into, no matter the size of the mortgage.
Source: The New York Times, Ron Lieber (09/12/2009)

Tuesday, September 08, 2009

Condo Purchases Require Extra Steps

Homebuyers contemplating purchasing a condominium should review a long list of documents and other information to make sure that the property they are considering is a solid buy in this challenging market.

The following information is a the top of the must-consider list:
  • Budget. Examine the current budget, a year-to-date statement of income and expenses, and a couple of previous years’ budgets to see how they’ve changed.
  • Reserve study. Understand the plan for maintenance and how it will be paid for.
  • Special assessments. Ask if there have been any and whether more are planned.
  • Delinquencies. How many owners are behind in their payments? Many lenders say no more than 15 percent of owners can be in arrears or they won’t write mortgages in the complex.

Source: Chicago Tribune, Lew Sichelman (08/23/2009)

Monday, August 24, 2009

First-Time Buyer Tax Credit Ends Nov. 30th, but Extension is Possible

Bills to extend the maximum $8,000 tax credit for first-time home buyers, which expires Nov. 30, are pending in both the U.S. House and the Senate.

Sen. Christopher J. Dodd, a Connecticut Democrat and chairman of the Senate Banking, Housing, and Urban Affairs Committee, is co-sponsor of a bill with Georgia Republican Sen. Johnny Isakson that would raise the credit amount to a maximum of $15,000.

Senate Majority Leader Harry M. Reid of Nevada favors an extension of the current credit. He was quoted by the Las Vegas Sun saying, "It's something we can get done."

Odds are that the credit will be extended and broadened to cover all buyers next year, but the chances of the amount increasing aren’t as good, observers say.

Source: Washington Post Writers Group, Kenneth R. Harney (08/22/2009)

Thursday, August 20, 2009

Start house-hunting now to qualify for tax credit for first-time home buyers -- LAtimes.com

First-time home buyers had better get a move on if they hope to take advantage of the $8,000 federal tax credit. The window of opportunity is closing rapidly.

To qualify for the credit, any transaction involving a first-time buyer must close before midnight Nov. 30, when the valuable tax benefit expires. And because the buying and lending processes can be slow, you're going to need every bit of that time to close escrow.

Although the end of November might seem a long way off, Diane Dilzell, president of the New Jersey Assn. of Realtors, rightly points out that it takes weeks, if not months, to manage the logistics involved in a real estate transaction. It's also important to realize that any of a number of things can go haywire along the way.

"Unique circumstances can be encountered in any transaction, so it is important to account for those factors," said Dilzell, a broker at Pinnacle Realtors in Bedminster, N.J. "Since numerous third parties are involved, delays can be expected no matter how swiftly you act."

Another complicating factor: closed offices during the Thanksgiving holiday. With Thanksgiving this year falling on Nov. 26, that removes four days right before the deadline.

Undoubtedly, some escrow agents will scrap vacation plans to handle what is expected to be a crush of settlements. But that highlights yet another potential pitfall: There may be so many buyers trying to close at the last minute that there might not be enough room for them all.

Moreover, if you're banking on Congress to extend the tax credit or possibly even expand it, the odds are against you, at least right now.

Even though there's always a chance that lawmakers will do the unexpected, House and Senate leaders have said they will not take up any expiring provisions until they have completed work on healthcare-reform legislation. Moreover, with many signs indicating that the moribund market is starting to awaken, many legislators might decide that housing no longer needs a shot in the arm.

And don't expect to sneak a Dec. 1 closing past the Internal Revenue Service either. That's fraud, and the nation's tax collector has any number of sophisticated screening tools to quickly identify returns that may contain fraudulent claims.

What's more, the IRS has vowed to go after taxpayers who try to pull a fast one. "We will vigorously pursue anyone who falsely tries to claim this or any other tax credit or deduction," says Eileen Mayer, the agency's chief criminal investigator.

Buyers with specific questions about the tax credit should consult with a qualified tax advisor. But here's a brief rundown of the rules.

A first-timer is defined as anyone who has not owned a principal residence during the three years immediately before the purchase. The house doesn't qualify for the credit, though, if the buyer sells it before the end of the year.

Vacation homes and investment properties do not qualify; only main residences, new or resale, which can be a single-family house, town house, condominium, manufactured (or mobile) home or even a houseboat. If you hire a contractor to build the house rather than buy from a builder, the house is still treated as having been purchased.

Purchases must be arm's-length transactions. The seller cannot be a parent, grandparent, child, grandchild or spouse. Legal residents who file U.S. tax returns qualify for the credit, but those who are undocumented immigrants or nonresidents do not.

Married people filing as such cannot claim the credit if either spouse has owned a main residence within the last three years, but unmarried joint purchasers -- say, a parent and his son -- may allocate the credit in any way they see fit as long as it does not exceed the $8,000 maximum.

Speaking of maximum, the tax credit is equal to 10% of the purchase price up to $8,000. But there are income limits. For single taxpayers, the ceiling is $75,000; for married taxpayers filing jointly, it is $150,000. For those with modified adjusted gross incomes above those limits, the tax credit is reduced on a sliding-scale basis to zero when the income exceeds $95,000 for single payers and $170,000 for married payers.

To assist would-be buyers who need help with down-payment and closing costs, the government will allow those who finance their purchases with a federally insured loan to apply their anticipated credit immediately toward the transaction rather than waiting until they file their 2009 taxes to receive a refund.

Under guidelines announced by the Federal Housing Administration, nonprofits and FHA-approved lenders are permitted to make short-term loans to qualified borrowers in the amount they would otherwise receive as a refund.

The law permits taxpayers to treat purchases that take place this year as though they occurred on Dec. 31, 2008. You can apply the tax credit against your 2008 return if that will bring you the largest credit amount (depending on your modified adjusted gross income). To do so, you must file an amended return for 2008.

Distributed by United Feature Syndicate Inc.

Article written August 16, 2009 in the LAtimes, by Lew Sichelman

Tuesday, August 11, 2009

Thursday, August 06, 2009

Buyers Shouldn't Wait on Falling Prices

Fear of overpaying for property is common these days, especially in places like New York where prices continue to be unstable.

If you are one of the many potential buyers who are frozen because you are concerned that you will pay too much, here are some factors to consider:

* Waiting for the right time can be expensive. Some buyers would have more equity today, despite falling prices, if they had bought when they were first considering it, instead of continuing to pay rent.

* Financing is fickle. Some people who were highly qualified last year can’t find financing this year because the credit market has tightened or their personal financial situation now makes them an undesirable borrower.

* Interest rates are headed up. If prices decline by another 10 percent, but interest rates increase by 1 percentage point, the monthly payment will be the same.

These are just things to take into consideration as you sit on the sideline contemplating whether to buy or not.

Source: The Wall Street Journal, Douglas Heddings (07/27/2009)

FHA Drops Lender on Suspicion of Fraud

The FHA's third-biggest lender, Taylor, Bean and Whitaker Mortgage Corp., has been dropped from the agency's loan program due to possible fraud.

An independent auditor found "irregular transactions that raised concerns of fraud," but FHA said the Florida-based firm failed to file a mandatory annual financial report and indicated that there were no outstanding issues related to the audit.

Experts say it could fold as a result; and with less competition in the industry, mortgage rates could rise.

"It's just a question of demand and supply," stated Equity Now Inc. President Michael Moskowitz. "If Taylor Bean goes down, it's a pretty big deal."

Source: Bloomberg David Mildenberg and Jody Shenn (08/05/09)

Thursday, July 16, 2009

Tips for Parents Buying Homes for Children

With home prices low, now could be a good time for parents to give their children a home or even an investment property.

Here are some suggestions for managing the tax consequences from Mark Luscombe, tax analyst with Wolters Kluwer.

Give a cash gift. Individuals are allowed to gift up to $13,000 per person in a given year without incurring gift tax. That means a couple could give their offspring and spouse $52,000 in a single year to go toward a down payment.

Lend money. The government requires that family members meet or exceed minimum loan rates to avoid having the loan be considered a gift. The rates are currently low. One way to handle this is for parent to use the $52,000 gift exclusion to forgive both interest and principal.

Use a trust. Set up a qualified personal residence trust, or QPRT. You’ll need an attorney to handle this transaction, but in a nutshell, parents put the home they want to give their children into a trust. At the end of a pre-set term, the home passes to the children with no taxes due.

Source: The Wall Street Journal, Shelly Banjo (06/25/2009)

Friday, April 03, 2009

C.A.R. launches mortgage protection plan for first-time home buyers

Interesting program rolled out by the California Association of Realtors (C.A.R.). I think it will ease some of the uneasiness within buyers, but I guess time will only tell. See the details below.

The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) today launched the C.A.R. Housing Affordability Fund Mortgage Protection Program (C.A.R.H.A.F. MPP), for first-time home buyers.Through the Housing Affordability Fund Mortgage Protection Program, first-time home buyers who lose their jobs due to layoffs may be eligible to receive $1,500 per month, for six months, to help make their mortgage payments. A qualified co-buyer also can participate in the program, and receive a monthly benefit of $750 per month for up to six months. Program benefits also include coverage for accidental disability and a $10,000 death benefit. C.A.R.’s Housing Affordability Fund is dedicating $1 million toward its Mortgage Protection Program, and estimates that as many as 3,000 families will benefit from the program this year.

To qualify for the Mortgage Protection Program, applicants must:
· Be a first-time home buyer – someone who has not owned a home in three
or more years
· Open escrow April 2, 2009, or later, and close on or before Dec. 31, 2009
· Use a California REALTOR® in the transaction
· Purchase the property in California
· Be a W-2 employee (cannot be self-employed)

To apply for the program, home buyers must request an application for the H.A.F. Mortgage Protection Program from their REALTOR® or visit:
www.car.org/aboutus/hafmainpage/carhafmortgageprotection/

Wednesday, March 04, 2009

"Making Home Affordable" - New Proposed Housing Bill

If you home a property and you are struggling to make "ends meat" you should consider contacting your lender. Keep in mind, you have to meet the requirements listed below and the lender will most likely ask you for pay stubs, bank statements and copies of your current debt. I have a feeling that they will be treating this like a refinance.

Well, I provided a copy of a recent article talking about Obama's plan for the Loan Modification. If you have any further questions, feel free to contact me or I suggest you talk to your mortgage broker to find out more info.

WASHINGTON – The Obama administration kicked off a new program Wednesday that's designed to help up to 9 million borrowers stay in their homes through refinanced mortgages or loans that are modified to lower monthly payments.


The Treasury Department released detailed guidelines designed to let the lending industry know how to enroll borrowers in the program announced last month.

"It is imperative that we continue to move with speed to help make housing more affordable and help arrest the damaging spiral in our housing markets," Treasury Secretary Timothy Geithner said in a statement.

The administration, launching what it calls the "Making Home Affordable" initiative, said that borrowers will have to provide their most recent tax return and two pay stubs, as well as an "affidavit of financial hardship" to qualify for the $75 billion loan modification program, which runs through 2012.


Borrowers are only allowed to have their loans modified once, and the program only applies for loans made on Jan. 1 2009 or earlier. Up to 4 million borrowers are expected to qualify. Mortgages for single-family properties that are worth more than $729,750 are excluded.
Separately, up to 5 million borrowers who have mortgages held by government controlled mortgage finance giants Fannie Mae and Freddie Mac should be eligible to refinance through June 2010.


Meanwhile action to put in place another part of Obama's housing plan is expected soon on Capitol Hill.


House Democrats, under pressure from a group of moderates in their ranks and the banking lobby, agreed Tuesday to narrow legislation that gives bankruptcy judges the power to force lenders to lower the mortgage interest rate or principal balance.


Under the terms of the agreement, judges would have to consider whether a homeowner had been offered a reasonable deal by the bank to rework his or her home loan before seeking help in bankruptcy court. Borrowers also would have a responsibility to prove that they tried to modify their mortgages.


The compromise legislation was expected to come to a vote in the House as early as Thursday.
___
Source:
http://us.rd.yahoo.com/dailynews/ap/ap_on_bi_ge/storytext/obama_housing/31179270/SIG=113gn88v9/*http://www.FinancialStability.gov.

Wednesday, February 18, 2009

Fannie and Freddie Plan Big Fee Increases

Fannie Mae and Freddie Mac are both toughening their credit score and down-payment rules as of April 1. In response, major lenders are already factoring in the higher fees, which reduces the effectiveness of the stimulus efforts.Under the new guidelines, buyers with down payments of less than 25 percent will be charged a three-quarter point add-on penalty, no matter how high their credit score. Buyers of duplexes, where one unit is owner-occupied and the other is rented, will be charged a 1 percent add-on.Refinancers who take cash out will be charged as much as three points if they have a low to moderate equity stake.Freddie spokesman Brad German says the loan categories and credit risk combinations targeted by these fees "default at four to eight times" the rate of other mortgages backed by Freddie. "We have to manage these risks appropriately," he says.

Source: Washington Writers Group, Kenneth R. Harney (02/15/2009)