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 FHA has announced that it will allow homebuyers to use the 2009 $8,000 First Time Homebuyers Tax Credit when purchasing a home, by allowing lenders to provide a short term bridge loan. The tax credit will not be able to be used for the 3.5% required down payment for FHA loans, but can be used as either an additional down payment, for closing costs, or for discount points to buy down the interest rate.

You can claim the tax credit if you are a first-time homebuyer (meaning you haven’t owned a home in the last 3 years) and you are purchasing your home before December 1, 2009.

You cannot claim the tax credit if any of the following apply:

1.    Your modified adjusted gross income is $95,000 or more ($170,000 or more if married filing jointly)

2.    You are a non-resident alien

3.    You are purchasing your home from a relative

4.    You have unsettled IRS obligations

Important points to know about using the tax credit:

1.    You may not use it for the 3.5% down payment requirement

2.    A copy of your 2008 tax return will be required, along with current pay stubs showing the same income/deductions as 2008

3.    The tax credit advance cannot be for more than the anticipated tax credit will be according to IRS Pub 5405 – First Time Homebuyer Worksheet

The next step will be for lenders to determine how and if they are going to provide the short-term bridge loans.

To be continued…..

Easy way to say thanks

To all those who have served or are currently serving - thank you.

HUD announced last week that it would allow first-time homebuyers to use the 2009 $8,000 tax credit as their down payment for FHA loans. The $8,000 credit would go a long way in helping people come up with the 3.5% down payment requirement for an FHA loan.

A few days later they rescinded their announcement.

Our Washington legislature has approved a program that would allow the state treasurer to establish a $25 million line of credit to supply homebuyers with a short-term loan against their tax credit to use as a down payment. It looks like that program won’t be of any use now, unless HUD changes it’s mind.

It’s important to remember that the $8,000 tax credit is still a great incentive to buy a home this year. With FHA, the 3.5% down payment can be a gift from a family member, money from a 401K or similar account, employee contributions from employer, government agencies, and FHA-approved non-profits.

Stay tuned…

Great news for first-time homebuyers! Home prices are low, interest rates are low, inventory is high - if all you’ve been waiting for is to save up a down payment - stop waiting! It’s time to buy your home!

The Washington state legislature has just approved a program that will allow first-time homebuyers to use the $8,000 federal tax credit (see post below on tax credit) as a down payment.

From the press release: “The program authorizes the state treasurer to deposit $25 million in a financial institution, which would then open a line of credit for the Washington State Housing Finance Commission (HFC). The HFC would use that credit line to pay for down payment loans to first-time buyers. Buyers repay the advance loan after filing for and receiving the tax credit.”

First-time homebuyers  will be able to make a loan from the Washington state HFC for the amount of their tax credit to use as their down payment, and will repay the loan from their tax return.

If you are a first-time homebuyer who needs down payment assistance, be sure to choose a real estate agent and a mortgage professional who is aware of this new program and how to use it in structuring your purchase.

That is the million dollar question.  The fact is that no one knows for sure exactly where the bottom of the market is. On any given day, you can find a variety of opinions on the subject. Although no one knows where the exact bottom is, it is clear that we are in a bottoming process right now.  Home prices and interest rates are definitely closer to the bottom than they are to the top. We still have some more economic hurdles to deal with - the credit card industry, commercial real estate, job losses…but it is unlikely that interest rates will go much lower than they are right now.  On Tuesday last week, Ben Bernanke (Chairman of the Federal Reserve) said, “the Fed needs to make sure it raises interest rates at the appropriate time, and not keep rates too low for too long.” 

According to the Mortgage Bankers Association, 78% of all mortgage loans being done right now are refinances. It is stunning that in this unique market of 40-year low interest rates and great home prices,  more people aren’t taking advantage of this incredible opportunity.

What is the fear? It’s simple. People are concerned that if they purchase a home today, it may be worth less tomorrow.  But if that were to happen, does that mean that you would lose money?

Let’s take a look and see. Here is an example of a home that was purchased for $400,000 with 20% down and an interest rate of 4.75%, along with a comparison of what it would look like if this homebuyer decided to wait and sure enough, one year later the price had dropped $50,000 to $350,000. Interest rates, however, are likely to have climbed back up. We’ll use the average interest rate over the last 24 months of 6.250% for this example.

As you can see, by waiting, even though the price of the house was $50,000 less, this homebuyer is actually going to spend $55 more per month.
Over the 30 year life of the loan, the house that was priced $50,000 less, will actually have cost $9,705 more with a higher interest rate.
Even though he put $10,000 lesss down, he will spend $19,705 more in actual payments, $59,705 more in interest.

So much for waiting for the bottom to save money. As long as you are buying a home for the long term, not just to flip it in a few months or years for profit, you may actually be better off to buy it now when the combination of interest rates and home prices is so low, than you would be to try and time the bottom of the market, which is impossible to do anyway.

First Time Homebuyers Tax Credit 2009

The American Recovery and Reinvestment Act of 2009 includes a credit designed to encourage first-time home buyers to go ahead and make the leap to purchase their first homes. Combine this tax credit with the fact that home prices and interest rates are at historical lows, and it is indeed an ideal time for many first-time homebuyers to purchase a home!

Here are some things to keep in mind:

A first time home buyer is defined as someone who has not owned a home in the last 3 years

Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit

You cannot purchase the home from a related party like a spouse, direct ancestor, or direct lineal descendent (child or grandchild); however, you can still qualify for the credit if you purchase a property from siblings, nephews, nieces, and others

If you are married, both spouses must be first-time home buyers

If more than one unmarried individual is buying the property, the credit can be split up among all the individuals who qualify. However, the total credit taken cannot exceed $8,000 

The credit amounts to 10% of the purchase price of the home not to exceed $8,000

The tax credit does not need to be paid back if you continue living in the home as your primary residence for three years without selling

How does a tax credit work?

A tax credit is a special provision that reduces income tax liability on a dollar for dollar basis. When filing a tax return, you must include income items, deduction items and the number of exemptions, among other things, to figure your total tax liability. For example, if your total tax liability for the year is $8,000, and you qualify for the full $8,000 tax credit, this credit would wipe out all of the tax due. If your employer already deducted the $8,000 from your pay checks throughout the year, you would receive a tax refund of $8,000. If you owe less than $8,000 in taxes for the year, you are still eligible for the full $8,000 credit when you file your tax returns. In that case, the IRS will write you a check for the difference between $8,000 and your actual tax bill.

It’s a great time to buy Seattle real estate.  Interest rates are at record lows, home prices have dropped dramatically, and inventory is high.  In all the years that I’ve been in the real estate business, I have never seen this combination.  When rates are low, house prices are typically high and inventory is low.  When home prices are low, interest rates are typically high.  I would like to encourage buyers to take advantage of these opportune times.

With all of the different bailout programs and rescue plans, it’s hard to keep it all straight - TARP, HLPR, TALF, H4H…. programs totalling trillions of dollars, with the intent of helping keep businesses and people afloat during this difficult economic time.  So have you wondered if any of these programs are actually working? If our hard earned tax dollars are being put to good use?

Remember last July when the “Hope for Homeowners” program was unveiled? It sounded so good - so hopeful.  The plan was designed to help people who found themselves “upside down” in their mortgages due to falling home values; people who were at risk of default and foreclosure.  The plan was that the government would modify the current mortgage, insure it through the FHA (Federal Housing Authority) and in turn, if and when the home was sold, the government would get half of the profit. 

According to HUD (Housing of Urban Development), there were a total of 865 homeowners who applied to be a part of this program. Out of that number, 51 mortgages were modified (but not by using the Hope for Homeowners program) and 1 mortgage was completed. One.  Just one.  One very lonely mortgage.

 The astonishing part of this is the other numbers in the story -
 $300 Billion has been set aside for FHA to use for this program
 An additional $20 Billion credit subsidy was made available to help fund the plan
 400,000 was the  number of mortgages the plan was estimated to benefit
 865 applications were received out of 66,000 phone inquiries (since last September)

We can only hope that the one homeowner who modified their mortgage with the H4H program got a really, really good deal.

In contrast, Hope Now, a private sector group is the alliance of mortgage market participants, mortgage servicers, and counselors that is working to help as many homeowners as possible avoid foreclosure and stay in their homes. They help facilitate either a repayment plan that allows the borrower to become current and catch up on missed payments that are appropriate to the borrower’s circumstances, or a modification which occurs any time the term of the original loan contract is permanently altered.  This can involve a reduction in the interest rate, or forgiveness of a portion of principal or extension of the maturity date of the loan.  This program has been in effect since July 2007 and has to date helped 3,675,971 homeowners stay in their homes. What has this program cost taxpayers?  Zero.  That’s right - zero.  Amazing what can be accomplished by organizations and businesses when the government stays out of the way.

In it’s defense, the government’s latest program - Making Home Affordable program, which was available as of April 6th, does seem to be on the right path. It allows homeowners to refinance their first mortgages, up to 105% of the current value of their home, without having to pay mortgage insurance.  So far, I’m finding it very easy to get people approved - quite often with no appraisals required, and only a pay stub and verification of employment needed for income documentation. The rates are quite good, especially if you have a 720 credit score and are only refinancing up to 95% of the value of your home. The government has committed another $75 billion dollars for this program which is designed to help seven 7-9 million homeowners.

We’ll have to wait and see if it fares better than their first attempt. I’ve been able to help a few people already with this program, so I know for sure, that only one week into it, they’re already ahead of the previous score of one.

I had an appointment to show a home in Bothell, WA this evening.  I arrived early at the house to turn on lights and make sure everything was in order.  There was a note on the front door requesting that we use the back door.  I collected the keys from the lock box and proceeded to the back of the house.  The key opened the dead bolt but the door knob was locked.

The only way into the house was breaking and entering.  This, however, was not an option because it’s against the law for agents too.  I had no choice but to re-schedule the appointment with my first-time home buyers.  Understandably they were disappointed.

I’m sure you remember what it was like when you purchased your first home.  You were probably a little unsure and anxious, and every little mishap caused you to second guess your decision.  This is why it’s so important to make sure things go as smoothly as possible for potential buyers and their agents.

If you’re a seller, I recommend that you make access to your home easy and inviting.  One house I showed in Snohomish, WA a couple of months ago had a plate of cookies on the table for my buyers.  That kind of neighborliness was refreshing and helped my buyers to feel welcome.  They stayed a little longer than usual.

Try not to require agents to jump through a lot of hoops to show your house.  ‘By Appointment Only’ homes are very difficult to arrange when there are several schedules to juggle.  Typically an agent will show several homes at a time, and it is a real temptation to avoid all the homes that make that requirement.

I’m grateful for all the sellers that do what they can to remove all the obstacles that would cause a buyer to second guess their decision to consider a home.

What to do?  What to do?  A seller places their home on the market and it just sits there.  How do they attract a buyer?  Are there any buyers out there?  Yes, but for a price.

The “invisible price” is the price where you are receiving the most money for your home that the market will bear. 

What is that price and how do you find it?  I’m a real estate professional and I’m supposed to know the answer to this; but I don’t.  Some agents have suggested to their seller to start at a reasonable price and drop their price weekly at even increments until a buyer comes along.  I’ve seen homes drop weekly between $10,000 and $50,000.  Incredible.

But here’s what my buyers are saying, “Hey, the longer I wait, the less I’ll have to pay.”  They’re not concerned about losing out to another offer because there’s many homes from which to choose and more are arriving on the market every day. 

One of my buyers was interested in a home that arrived on the market at $260,000 and watched the price drop weekly by $10,000 until it came down to $180,000 and settled with the seller at $175,000.  What if the seller started at $225,000?  I’m certain that they would have received much more for their home.

It’s advisable for sellers to find that “invisible price” and place their home for sale there originally.  Where is that invisible price?  Well, here’s what it’s not:

• It’s not the price of similar homes in your neighborhood that have been on the market for several months.  (Even if your home is much nicer than all your neighbor’s homes.)
• It’s not even the price of similar homes that have sold in your neighborhood in the last few months.

What is it then?  It’s the price where buyer’s are certain that they won’t regret the price of the house 1 year from now.  I have been asked by more than one buyer, “What if I buy this house and it’s worth 10% less six months from now?”  Is there something special about 10%.  Maybe.

Let’s say your market analysis comes out to $300,000 based on sold comparable homes.  I believe you will need to price your house for no more than $270,000 and figure on taking an offer for at least another 5% below that.

This may seem over the top to a seller, but if you don’t have to sell right now; don’t sell.   If you do have to sell; you’ll need to be an aggressive seller to match the mood of this market’s aggressive buyer.