$8000 Tax Credit category archives

You don’t have to be a first time homeowner to receive the new tax credit.  Great news for everyone looking to purchase a home now! 

• First Time Homeowners can now receive the $8,000 tax credit up until April 30, 2010
• Current Homeowners can qualify now for up to $6,500 tax credit up until April 30, 2010

This is a gift for all wishing to purchase a new or existing home - it doesn’t have to be repaid back.  So for those who are sitting on the fence…no need to wait now!  Prices are low and rates are great!

The $8000 tax credit for first-time home buyers has been extended through April 30, 2010.  It was previously due to expire November 30, 2009.  Not only has it been extended, but it has also been expanded to include more buyers.

Details

• The $8000 tax credit for first-time homebuyers is extended for those who sign a contract by April 30, 2010 and close by June 30, 2010.
• Homebuyers who have lived in their current residence at least five years are now eligible for a new $6500 tax credit on their primary residence.
• Couples earning as much as $225,000 a year and individuals earning up to $125,000 qualify.  This is an increase from $75,000 for individuals and $150,000 for couples.
• Tax credit is limited to homes worth $800,000 or less.
• Those who sell their new home or stop using it as their main residence within three years would have to repay the credit.
• Members of the military who have served outside the U.S. for at least 90 days from Jan. 1, 2009, to May 1, 2010, have an extended deadline of April 30, 2011.

How to get the credit

• Buyers can claim the credit on their federal income tax returns. If the credit exceeds their tax bill, the government will issue a payment.
• Those who want immediate refunds can amend their tax returns for 2008 to claim the credit.

Added bonus

Mortgage rates are at historically-low levels.  Combined with the tax credit, now is a great time to secure a super-low rate on a purchase loan.  Find out what rate you qualify for…anonymously…on Zillow Mortgage Marketplace.

Well, the results are in! 403-12, to be exact…yesterday, the House of Representatives voted to approve an extension of the historic first-time homebuyer tax credit through Summer 2010. According to the National Association of Home Builders (NAHB), the credit is expected to generate 180,000 additional home sales. Here’s a rundown of the most recent developments:

The deadline has been extended
Many news outlets are referring to the credit as being extended through May, others are referencing June as the deadline. Specifically: to be eligible, binding purchase agreements must be signed by April 30, 2010 and deals must be closed by June 30, 2010.

Not just for first-timers anymore
Existing homeowners (or “repeat buyers”) who have lived in their principal homes for 5 consecutive years (out of the past 8 years) and are purchasing a new principal residence may be now eligible for a credit of up to $6,500.

You can make a higher salary
Buyers filing as single or head-of-household taxpayers can claim the full credit if their modified adjusted gross income is less than $125,000. Married couples filing joint returns are eligible if their combined income is less than $225,000.  Single or head-of-household taxpayers who earn between $125,000 and $145,000, and married couples who earn between $225,000 and $245,000 are eligible to receive a partial credit.

More homes will qualify
All homes with a purchase price of less than $800,000 qualify. Vacation home and rental property purchases are not eligible.

The credit can be a part of your refund
If the amount of income taxes you owe is less than the credit amount you qualify for, the government will send you a check for the difference.  For example: a first-time buyer qualifying for the full $8,000 credit who owes $5,000 in federal income taxes would receive a $3,000 refund. Qualified home buyers can take the tax credit on their 2009 or 2010 income tax return.

You can keep the cash
The tax credit does not have to be repaid unless the owner sells, or stops using the home as their principal residence, within three years after the date of purchase.

Stay current
Keep up-to-date with tax credit developments: follow the credit on Twitter (@FTHBtaxcredit) and on Facebook (become a fan of $8,000 Home Buyer Tax Credit).

Lots of news happening today:

• Gross Domestic Product for the 3rd quarter came in on a preliminary reading at 3.6% up.   That’s great news, right?  Well, it’s good news, but look at the temporary stimulus measures that propped that up.   The cash for clunkers auto stimulus program is supposed to have added 1.7% to the overall number.   So we’d be at 1.9% without that.    What do you suppose the housing market would look like without it’s $8,000 version of cash for clunkers?   Yeah, that’s right.    So, besides for the temporary stimulus measures, which are exactly that, temporary, we’re not looking all that good.   Temporary euphoria going on in the stock markets and on CNBC right now though.
• Speaking of temporary euphoria - the markets are happy because initial jobless claims fell by 1000.   That’s right ONLY 530,000 people got laid off last week.   Whew, that feels better.    NOT.
• Exxon Mobil’s earnings fell - but remember what oil prices were like a year ago?   No big surprise there.
• The talk continues in Washington about whether there really is a too big to fail and what to do with the likes of Citibank, AIG, GMAC and the like.   
• The talk continues about an “extend and pretend” home buyer tax credit designed to push the housing troubles down the road.   Lots of talk, lots of people saying that it’s passed.   It hasn’t yet.    Passed a couple of committees, yes, but a true up or down vote in front of the House and Senate and signed by the President, nope.    When we do have a solid plan, I’ll tell you what I know and what I like or don’t like about it.   Until then, it’s all rumor and innuendo.

So what are mortgage rates doing with all of this news?   Really nothing.   Rates have remained stable today.

My recommendation remains to lock all loans because the potential for an increase in rates is greater than a potential for a decrease.

Stay tuned, it could be an interesting week with the jobs claim next Friday, the Fed meeting soon and just a lot of stuff going on.

“I want my $8000 NOW!”

Great news on the $8,000 first-time home buyer tax credit! If you bought your first home this year — or are in the process of closing on or before November 30th, 2009 — you won’t have to wait until April 2010 to get your tax credit. You can file an amended 2008 return and claim your 2009 tax credit on your 2008 return. In other words, you can get paid much sooner than you thought.

Here is a summary of how to qualify for the credit:

• You must buy the home between 1/1/09 and 11/30/09
• The purchase must close by 11/30/09
• If you are building a house, you must be living in the house by 11/30/09
• The home must be a primary residence - the credit does not cover second homes, vacation homes, or investment properties
• Your adjusted gross income must be less than $75,000, or $150,000 for married filing jointly, to obtain any credit
• If you cease to use the residence as your primary anytime in the next 36 months, you will have to give back the credit

Get the complete overview of how to claim the $8,000 first-time home buyer tax credit, and get an overview of other things you need to consider before amending your 2008 tax return. And please remember to consult your tax accountant before actually filing an amended 2008 tax return.

The current $8,000 tax credit for first time home buyers is set to expire in approximately a month. Since then, there has been a rush for buyers to find a home and close before the December 1st, 2009 deadline.

In a related CNBC interview, several industry experts discuss whether extending the tax credit is a good idea and some details of some of the bills currently in Congress.

Read the rest of this entry »

Here’s what I wrote about item #1 on the list last time:

6 months ago is ancient history. What your neighbor sold his house for 6 months ago doesn’t matter.   What the seller was asking for the house 6 months ago doesn’t matter.   What matters is what the market will support today.

So, how are things the same and how are they different?   A couple of things that need to be discussed:

How are things the same?

• What happened 6 months ago is still ancient history.   Since I wrote the first piece, Fannie, Freddie and FHA have tightened up their appraisal guidelines and they will no longer allow an appraiser to use a sale that is more than 90 days old unless they have no other comparables and can write a 5 page essay of why they need to use that one.
• I can’t tell you how many times over the last 12 months, I’ve heard people say, “3 years ago, the seller bought the house for $100,000 more than what I’m paying the bank for it.   I’m getting an awesome deal!”    My first response is, “Maybe.”   Maybe you are getting a deal.   But maybe the seller bought it at the peak of a bubble in the market and paid way too much and now things are just adjusting down to the market.    Maybe it’s not down to what the market will really absorb for the house and if you tried to sell it next year, you’d end up selling it for less than you paid for it.
• “They just dropped the price by $50,000!”   This is a great deal!    Maybe, but then again, I can put my house on the market for $650,000 and then offer to give you $100,000 off the asking price.   Is that a good deal for my house?  (Hint - my house is still WAY overpriced at $550,000 - but I’ll sell it to you for that.)

So what is different?   A couple of things are a bit different from last year:

• The First Time Home Buyer Tax Credit/Buyer Frenzy - If you are any where near the radio/newspaper/any mortgage lender or Realtor, you’re probably getting sick of hearing about the $8,000 first time buyer tax credit.   I’ve written about it before and I’m not going to discuss it here other than to discuss it’s impact on property values.  
• As the number of first time buyers has skyrocketed in virtually all areas (got to get that free money), it has stablized and in some areas has turned around the property values in the lower end of housing prices in many areas.  
• So that can actually show prices now being higher than what they were 6 months ago (for certain segments of the market - but certainly not all of them).  Does that mean that the market has turned around?   Do you rush to buy now because houses are going to be more expensive next year?
• Or is real estate going to follow the same route that automobiles did with the “Cash for Clunkers” program?   You know, the one where sales spiked during the first few weeks of the plan, then slowed down and after the program was over, they dropped quite dramatically?   If that happens to real estate, then how does that play into the plans of  first time home buyer?    If they can’t make it to the November 30 deadline (and time is almost up), do they buy now any way thinking prices are going up or wait because prices are going to come down?

In summary, 6 months ago is ancient history in real estate even today.   However the government’s initiatives that have been attempting to prop up the housing market and encourage first time home buyers have made the calculations and prognostications of what is and what might happen with housing prices much more challenging.

Next we’re going to look at the question of whether what you paid for your house matters or not and the negative equity situation.

Every week there are new articles published about housing affordability going up or down.  What does that mean and how can it help you decide whether it is a good time to buy?

Housing affordability describes how affordable it is to buy, own, or rent housing.  It is measured by the percentage of your household income you have to spend on housing each month.   According to government standards, anything over 30% of your household income is considered unaffordable.  The National Association of Realtors (NAR) recommends an average of 25%.  This means that no more than 25% of your pre-tax income is spent on mortgage payments, taxes, insurance, and utilities.

Based on this definition, there are three things that affect housing affordability:
•    Home prices
•    Mortgage rates
•    Household income

If home prices or mortgage rates go down, you can afford more house for the same payment, so affordability goes up.   Household income is more personal and has an opposite effect.  If your income decreases, affordability goes down since you can afford less home. It is important to take all three factors into consideration.

You can track home values through Zillow’s Local Info pages and mortgage rates in Zillow Mortgage Marketplace, but you are on your own for your personal income.  Right now home values are down, mortgage rates are down, and average household incomes are down.   The drop in home values and mortgage rates make it a great time to buy if you still have a strong income.   This is especially true for first-time home buyers who can take advantage of $8,000 first-time home buyer tax credit.

However, a recent USA Today report based on 2008 census data said housing affordability overall is down because of lower incomes and people being stuck in underwater mortgages.  These homeowners can’t take advantage of the lower home prices and mortgage rates like new home buyers.

September 25, 2009

Market: So the economy is roaring back, eh? Weeeeellllll…. Some are beginning to wonder.  Mortgage-backed securities (these are the bonds issued by FNMA, etc. that directly link to mortgage interest rates - also abbreviated “mbs” in this space) are not reacting the way one would expect if everything was rosy going forward.  As the economy heats up, money should be flowing into stocks (it is) and out of bonds (it isn’t).  The benchmark 4.5% FNMA bond today is up 25bps (bps are “basis points”; 100 basis points = 1%) because existing home sales data was worse than expected.  As bond rates rise, mortgage rates fall.  A move of 25bps on the bond translates to less than .125% move in mortgages, but it’s something.

Analysis: strong economic growth is supposed to mean bad things for bonds, because investors take money from fixed-return investments - bonds being chief among them - and put it in stocks.  As bond rates fall, mortgage rates rise, all else being equal.  There are other factors, of course, like inflation, but in the main, good economic news is generally considered bad for mortgage interest rates.  So with rates sitting in the low 5% range on fixed 30-year mortgages and in the low 4% range on 5/1 ARMs and the like, why is the end of the recession not causing a move higher?

Answer: we don’t know.  But the suspicion is that the recession’s end might be oversold just a tad.  Remember, in the last giant downturn, we had a fool’s rally in 1930 that almost got us back to the level before the 1929 crash.  Then the bottom fell out, and we didn’t see those highs again for 20 years.  Not saying here that history is repeating itself, by any means.  But the possibility that history will repeat itself is in the back of every trader’s mind, I assure you.  Caution is warranted.  Therefore I fairly confidently predict that the thing you should worry about, if you’re buying a house, is getting it done before the $8000 federal tax credit vanishes on December 1, rather than the interest rate you’ll get.

My recommendation is that you have your house under contract by Hallowe’en, if you want to have a chance to be closed by Thanksgiving.  And not every mortgage guy can get you done that fast.  Please understand and remember this.