Clarifying the Tax Credit

It’s no secret that I’m a big college basketball fan, and for me March Madness is the best sporting event, period.

The NCAA college basketball tournament draws many viewers and listeners making it ripe for advertising. This year the National Association of REALTORS® is running an advertising campaign pushing the merits of the Home buyer tax credit. Unfortunately there seems to be some confusion about the credit and the ads.

1) “Extended” does not mean another extension, it refers to the extension to April 30th for contracts that are closed by June 30th.
2) “Expanded” is referring to the expansion to people that have owned their home and lived in it for at least 5 consecutive years, who are now eligible for a tax credit of $6,500.
3) “Expansion” also is referring to the fact that there are more homebuyers eligible since the income limits were raised to incomes up to $125,000 for single tax payer and for married couples with incomes up to $225,000.
4) The $8,000 tax credit is for first-time home buyers only. For the tax credit program, the IRS defines a first-time home buyer as someone who has not owned a principal residence during the three-year period prior to the purchase.
5) The tax credit does not have to be repaid unless the home is sold or ceases to be used as the buyer’s principal residence within three years after the initial purchase.

These have come up as questions in the last couple of days, and I do advise that you consult a tax professional if you have questions or if they are on how to get the money from the IRS go to their site.

Comments, questions, experiences are always encouraged.

Borrowing gets a little tougher

I’m not claiming the world is about to end. Nevertheless, news from lenders in the past week may be indications of some important trends in mortgage lending.

First, came word that the money allocated for rural housing, from USDA, was running out and new loans may not get funded. This is not unusual lately as it is one of the few 100% loans available. It is a red flag, to some because it comes earlier in the year than expected.

Next FHA announced that the FHA upfront mortgage insurance will be changing to 2.25% from 1.75% for all FHA loans where an FHA case number has not been assigned by April 2, 2010. This had been announced earlier without a definite time for implementation. The long and short of this requirement is that costs go up slightly, so if you can find a home between now and April, save a few bucks.

Bigger concern comes as the Fed winds down the purchase of mortgage backed securities, which may cause mortgage interest rates to go up. On the other hand, some good news; rates have come back down according to Bankrate.com and Freddie Mac.

Final analysis, the trends point to higher rates, more rules, less money available, so if you were thinking you may want to buy a home, now may be a better time than later.

The right house is the “deal”

Everyone wants a “deal.” There are ads out there that make it seem easy to get a “deal.” Unfortunately, “deals” are hard work. You have to sift through a lot of homes and look for one that fits you, qualifies for a mortgage that you can obtain, and be ready to make quick decisions.

Consider the following:

Everyone would like to see a person that is handy and going to live in the home for a while, be able to purchase one and do just that. However, the banks risk is obviously greater, and they won’t make loans on homes that need more than minor work. There is, of course, the renovation loan (203K as an example) that is designed to help in this situation, but because of the extra risk involved to the bank, the credit score usually needs to be higher and the reserves greater in order to get this loan.

In addition to the credit issues, the bank also wants to make sure that the work is done meeting relatively high standards so that the “handy” home buyer can’t do the work themselves, but has to hire a contractor that will be paid on a draw. Often the very person that has the ability to renovate the home as a home owner, and theoretically get a “deal” is the last person that will.

Of course there are other ways to get “deals,” such as HUD homes, bank foreclosures, “short sales” and others. I’ll examine some of the issues with these later. In the meantime, know that the right real estate agent can guide you through the maze and that the “deal” is in finding a home that satisfies your needs at a price that is acceptable to you.

Comments and questions are always welcome,

John

$8,000 tax credits & Home Purchases

Some facts about timing your home purchase.

1) The $8,000/$6,500 tax credit requires qualifying contracts to be ratified by April 30, 2010.
2) Not only must the buyer qualify for financing, the house must qualify for the mortgage as well.
3) Many homes currently in inventory in the Richmond area do not qualify for financing.
4) Currently in the Richmond area many homes are being offered as short sales.
5) Short sales are taking 45 days or more to get bank approval. 45 days from now will leave about a week to make an offer if the short sale is not approved.
6) Some of the best homes in our area are already getting multiple offers, costing time for those making insufficient offers.

The facts would seem to indicate that the sooner you start seriously looking for your new home, the more likely you are to be able to receive the tax credit. It’s available, you may as well get your share.