Monday, January 4, 2010 

HomeBuyerTaxCredit.com 

Kessler’s Take:
Next week we close in on 100 days left for the Home Buyer Tax Credit that was extended and expanded in November 2009.  The program provides a tax credit for eligible buyers of 10% of their purchase price up to $8,000 for first-time home buyers or $6,500 for step-up buyers who are long-time homeowners.  The tax credit is available to buyers who earn less than $125,000 for individuals, and $225,000 for couples filing jointly, although taxpayers who earn within $20,000 of those limits are eligible for a partial tax credit.
The deadline to be in contract is April 30, 2010, a little over three months away, and you also need to be closed by June 30, 2010.  
The eligibility requirements for the program are complicated, but a new site launched this week provides an array of resources to help people find out if they are eligible to claim the credit.  HomeBuyerTaxCredit.com provides a comprehensive review of the legislation, including video tutorials, news updates, an FAQ, and an eligibility test you can take to find out if you qualify. 
The best part of a site like this is that it is the magic word “FREE”.  I am not one to plug a website nor a product but this is a confusing program where many do not understand the qualifications.  This website allows the user to see if he or she qualifies without having to pay for any service or be bothered with a million pop ups.
Give it a shot and let me know your opinion. 

Kessler’s Forecast:
I wonder about how much impact this tax credit will have. The expansion of the credit in November dramatically increased the reach of the program by raising the income limits and extending it to long-time homeowners.  Goldman Sachs estimates that virtually all first-time home buyers and over 70% of long-time homeowners are eligible under those new income guidelines.
The problem is that the first-time home buyer tax credit has been around for almost two years now, and probably flushed out most of the people who were ready to buy their first home.  And although the extension of the credit to long-time homeowners reaches a large segment of the population, I don’t know that people will have enough time to meet the deadlines.  Someone who found out about the “step-up” credit when it was passed in November, and immediately put his home on the market, will still have trouble meeting the April 30 contract deadline.  Between November and April, which encompasses the slowest part of the market, find a new home, sell his home, and then get into contract on his new home.  It’s possible, but not easy. 
So the new program might not give as much of a bump to the housing market as some people had hoped, but it will definitely move up the buying season a couple of months and give the housing market the right psychology that things are moving in the right direction. 

What a Deal! 

Kessler’s Take:
 

Kessler’s Take:
According to the National Association of Realtors approximately 38% of the existing home sales in 2009 were distressed and 12% were short sales.  The people on the buying side of these transactions got a great deal. 
Early in 2009 it was common for a short sale to be approved for 80% of current market value.  Think about that, if a house was bought in 2006 for $400,000, the buyer financed 100% and when applying for a short sale the market value was $320,000 the bank would accept a sales price of $240,000 and take a loss of $160,000.
Many will be telling the tale about how they got the deal of the century and guess what, they did.  Not every transaction went as described above but there were plenty that did.  For those who bought at those deep discounted prices my hats off to you.  For those who continue to wait for the bottom, I feel the ship is sailing away.
The short sale process is not a simple one.  It takes months to get a bank to approve the sale.  The best advice I could give is to be patient and diligent.  If someone wants to help you but wants to charge an upfront fee please avoid their services as you can do this yourself.  If you are going to use a company or person to help, the credible ones will work for a fee based on the reduction they work out which will be paid at closing.Kessler’s Forecast:
The days of the deal like these might be coming to an end. While there will be plenty of distressed properties that will be sold for years to come, the banks might not be as willing to take such low sales prices in the future.  When the short sale first burst onto the scene in the mainstream arena banks were not equipped to handle the onslaught and allowed deals that were very aggressive to the buyer.  I can not see that occurring in the future.  With the market turning to stabilization of values, the banks will be more likely to put their heels in the sand and hold out for the number they are looking for.  If you have an oppurtunity to take advantage of a good deal with the great mortgage rates and the free government tax credit, now is the time. 

Rates 

Kessler’s Take:
The 30 year fixed moved down to 5.09% nationally from 5.14% according to Freddie Mac’s Weekly Survey .  Last week I forecasted it would be down to 5.10%.  This week upcoming should see a little increase to 5.13%, rates should be moving up to 5.25% in the next 15 days. 

Kessler’s Forecast: 

Last week (1/7/2010) – 5.10%
1 week (1/14/2010) – 5.13%
 1 month (2/11/2010) – 5.35%;
3 months (4/8/2010) – 5.65%;
 6 months (7/15/2010) – 6.25%;
12 months (1/13/2010) – 6.50% 

Reports 

Previous Week: 

Tuesday, January 5 

Pending Home Sales Index
National Association of Realtors 

Upcoming Week: 

None 

As 2010 begins, both real estate professionals and home buyers can look forward to taking advantage of the Extended and Expanded Home Buyer Tax Credit.

Originally created in 2008, the home-buyer tax credit has evolved from a $7,500 credit, which had to be repaid by the home buyer over the course of 15 years, to an $8,000 tax credit with no repayment required in 2009. Now, for a limited time in 2010, the $8,000 home buyer tax credit will still be available to first-time home buyers and certain current homeowners will also be eligible for a $6,500 credit.

To help everyone better understand the extended and expanded home buyer tax credit, here are some highlights of the changes.

Who can claim the credit?

“First-time home buyers” who purchase homes between November 7, 2009 and April 30, 2010 are eligible for the credit. To qualify as a “first-time home buyer” the purchaser or his/her spouse may not have owned a residence during the three years prior to the purchase.

For current homeowners purchasing a home during the same time frame, they are also eligible for a tax credit, so long as the home being sold or vacated was their principal residence for five consecutive years within the last eight. To elaborate, it must be the same home; it is not enough that they have been homeowners for five consecutive years, they must have been in the same home for five consecutive years.

Another key point is that the existing home does not need to be sold. One must, however, occupy the new home as a principal residence and do so for three years or risk recapture of the credit. Also, the new home does not need to cost more than the old home despite the concept that it is directed at “move up” buyers.

How much is the credit and what are the income limits?

The maximum allowable credit for first-time home buyers is $8,000 or 10% of the sales price, whichever is less.

For current homeowners, it is $6,500 or 10% of the sale price, whichever is less.

Under the extended home buyer tax credit, single buyers with incomes up to $125,000 and married couples with incomes up to $225,000 may receive the maximum credit.

The credit decreases for single buyers who earn between $125,000 and $145,000 and between $225,000 and $245,000 for home buyers filing jointly. The amount of the tax credit deceases as his/her income approaches the maximum limit. Home buyers earning more than the maximum qualifying income – over $145,000 for singles and over $245,000 for couples – are not eligible for the credit.

What are the deadlines for qualifying for the credit?

Under the extended home buyer tax credit, as long as a written binding contract to purchase a home is in effect on April 30, 2010, and the deal is closed by July 1, 2010, one can claim the credit.

Will the tax credit need to be repaid?

No, the buyer does not need to repay the tax credit if he/she occupies the home for three years or more. However, if the property is sold during this three-year period, the full amount of the credit will be recouped on the sale. Another provision of the law waives the recapture provisions for service members who receive orders that require them to move.

Are there any other critical provisions?

There are three provisions people should be aware of:

-There is an $800,000 limitation on the cost of the home
-The purchaser must be at least 18 years old on the date of purchase
-For a married couple, only one spouse must meet this age requirement and dependents are not eligible to claim the credit

Finally, as an anti-fraud measure, purchasers must attach documentation of purchase to his/her tax return claiming the credit. Normally this would be a copy of the HUD-1, but could include other documents memorializing the settlement.

As with all tax matters, responsibility for complying with the tax code belongs to the taxpayer. Real estate professionals should recommend that their buyers consult their tax professionals to ensure eligibility for the credit and the proper way to claim the credit.

For more information including the required IRS forms please contact the Internal Revenue Service at 800-829-1040.

Source: Ken Trepeta, RISMedia

Share the wealth:

Don Davis Ph:360-652-9994 email:dond@htlnw.com

Home Buyers Tax Credit

The current tax of up to $8,000 for first time home buyers and up to $6,500 for repeat home buyers is scheduled to end the end of April 2010 and the loan must close before July.  It was debatable whether or not it was going to get extended last October when congress extended it six month. 

In all likelihood this will be the end of it.  The tax credit itself did very little to stimulate the housing market.  I dare say locally we probably would have sold just about as many homes without it as we did with it.  The government left the marketing of the tax credit to Realtors and most buyers did not understand how it worked or if they would qualify for it.  Personally I only had a handful of clients that even knew about the tax credit and only one person was buying a home because of the credit.  Everyone else was buying a home because they wanted to take advantage of the low prices and low interest rates; the tax credit was only a bonus and not the reason to buy.

It is quite doubtful that the credit will be extended again once it expires in April 2010.  When it’s gone, it’s gone.  And while $8,000 may not seem like a lot when you are buying a home for $250,000 for example, it could mean up to six months of mortgage payments could be put in to savings and used as a buffer should you need it.

I don’t believe that making a decision to buy a home because you get an $8,000 tax credit makes and sense.  The decision should be based on whether you want to own a home of your own and if you can comfortably afford the mortgage versus your rent.  If you are paying $1400 mo to rent a home, have a stable job with stable income and expect to live in the area for five years or more then buying a home with up to a $2,000 payment would probably make sense.  If you are renting for $800 mo and you employment prospects are uncertain, then the tax credit should not be a reason to buy a home.

However if you take all the current market elements, this is an outstanding time to buy a home.  Yes you could get up to $8,000.  Home prices are stable and very affordable.  Interest rates are currently at or very near historic lows, but won’t be for long.  All it takes is any or (gasp) all of these things to change and it could cost you a whole lot more to buy the same house.

If any of the above items change, it could have an impact on what it costs to buy a home, if several or all, which eventually will happen, change then the cost of buying a home later could be very substantial if not prohibitive. 

 We encourage you to contact us and see if this is the right time for you to consider buying a home of your own.

At what experts are now saying is the tail end of the recession it appears there could be some interesting decisions made surrounding the recent hot housing market in Canada.  It appears that this hot housing market that helped us out of the recession is now too hot and might force Ottawa to do something to cool it off.  We know we will see rate increases in 2010 but the government is hoping to keep rates low until the second quarter.  So what can they do to slow the market down besides raising interest rates?

The government is talking about two main options to cool off the housing market:

- increase the minimum down payment requirements

- shorten the maximum length of mortgages, or amortization

If these were put into action this would limit the number of potential buyers and would hurt first time home buyers the most.   The reason for the concern is that with extremely low interest rates the government is concerned for home owners when interest rates go up – will they be able to afford their homes anymore and what this could do to our economy. 

Is this a legitimate concern?  Let’s take a look.  If you are one of the lucky ones locked in at the very low 5 year fixed rate of 3.50% that we saw for a short time this summer and your mortgage balance is $275000 over 35 years, your current monthly  payment would be right around $1133.00.  So, assuming you stay in your house and don’t make any changes to your mortgage in 5 years when this term matures your balance will be around $253000.00.  Now let’s assume interest rates have now increased to 5.50%, your new payment would be approximately $1466.00 per month.  This is an increase of  $333.00 per month.  Now we can assume that you have received some sort of wage increase over the last 5 years that would help cover this increase.  But, for a moment lets say interest rates doubled in the next 5 years and were at 7%, your payment would have increased by over $600 to approximately 1738.00! 

Of course most people that have bought in the last year have rates between 3.89 and 4.49% so the increase in payment might not be so drastic for your individual situation.  I do recommend talking to a professional now to make sure you are prepared for this scenario.  There are some things you can do to be prepared, like keeping in touch with a Mortgage Professional on what rates are doing and how they affect you individually.

I encourage you to check out my website regularly where interest rates are up dated daily.  You will also find articles surrounding this and other mortgage related information.

Nicki Pike 

TMG The Mortgage Group Alberta Ltd.

403-391-2053