My Real Estate Blog

Before you file your taxes this year, don't forget about the $7500 tax credit for first-time homebuyers. Designed to help stimulate the housing market, this temporary provision provides a first-time homebuyer (someone who hasn't owned a home in the last three years), a tax credit of up to $7500 for homes purchased between April 8, 2008 and July 1, 2009. The tax credit, which must be repaid over 15 years, is an interest-free loan from the government to help home buyers offset the costs of home ownership.

Here's the best part. The law allows qualified taxpayers to take the credit against either their 2008 or 2009 taxes. This means, if you qualify, you can buy a house this year before July 1 and receive the credit on the 2008 tax returns you're filling out right now. Imagine having an extra $7500 in cash to pay bills or credit cards or even pay for renovations on your new home!   Call me at 707-864-4800 for more information.

Be sure to consult your tax professional!

Great news for the mortgage industry!  The Federal Reserve recently announced that they would purchase up to $600 billion in mortgage related debt and securities.  This move should increase the availability of credit to home buyers.

If you have been on the fence about buying a home, now is the time to act!  Interest rates are extremely low and home prices in some areas are at 2003-2004 levels.

Daylight-Saving Time is ending. This means most Americans will be setting their clocks back one hour and returning to Standard Time on Sunday, November 2nd at 2 a.m.

If it seems like we're a little later than usual in setting back the clocks, you're right. Daylight-Saving Time was extended by an entire month this year as a result of the 2005 Energy Policy Act. This law extended daylight-saving time by four weeks; beginning three weeks earlier and ending one week later.

This is a good time to perform important tasks around the house, including:

• Resetting automatic lights and sprinklers to standard time operation.
• Checking fire extinguishers and testing smoke detectors.
• Restocking first-aid kits and emergency supplies.
• Changing important passwords and personal identification numbers (PINs).
• Rotating tires and inspecting the spare.

Most importantly, take advantage of your "extra" hour this weekend to think about your financial goals for 2009!

The following are a few ways your CPA or Tax Preparer can help you save:

Take an interest in your mortgage interest – Statistics show that only about half of homeowners claim this valuable deduction. Make sure you're one of them. On average, qualified homeowners save about $2,000 per return by deducting mortgage interest. Renters don’t get this huge break! So take advantage of it.

Property Taxes - The annual taxes based on the assessed value of your home are tax deductible.

Don't forget about the points – It's important to note that buyers can also deduct mortgage points that are paid by the seller, as long as the cost basis of the property is reduced by the amount of the seller-paid points. Points paid to refinance your home are also fully deductible throughout the life of the loan.

Sell Your House –You can exclude as much as $250,000 in gain ($500,000 on a joint return), when you sell your primary home (your principal residence for two of the last five years). If you don't qualify for the two-year rule, you can get a partial exclusion if the sale of your home is the result of either qualifying changes of employment, health reasons, or other unforeseen circumstances.

Casualty deductions – Floods, forest fires, hurricanes, earthquakes and other natural disasters can be devastating, especially to homeowners. Ask your CPA how you can take deductions on casualty losses, even if you collected insurance. In addition, if the President declares your area a disaster area, you have even more options.

New $7,500 tax credit for first–timers – The government has created a temporary monetary incentive, a tax credit for first time homebuyers (that's anyone who hasn't owned a home in the last three years), as a tool to stimulate the housing market. The tax credit (not a tax deduction), will be 10% of the purchase price of a home, up to a maximum of $7,500. In other words, the government is providing first time homebuyers an interest-free loan to help them buy a home! There are income limits to qualify for this incentive.

This should not serve as tax advice. Always consult with a qualified CPA or Tax Preparer before making any tax decisions. If you need a referral, give me a call.

Uncertainty in Financial Markets Could Cause Dramatic Rise in Existing ARMs at Next Adjustment

If you or anyone you know has an Adjustable Rate Mortgage, this is an important point to consider.  Many ARM loans are tied to the London Interbank Offered Rate (LIBOR). In fact, there are six million loans in the United States that use LIBOR to determine the interest rate and as the name suggests, many banks use this rate to lend money to each other.

Today, banks lack confidence that the money they lend will be paid back. In light of what has happened with Lehman Brothers, IndyMac Bank and others, as well as AIG, banks are requiring higher rates on LIBOR to offset the added risk.

The Federal Reserve Left Rates Unchanged however...

The Federal Reserve met last week leaving the target rate unchanged at 2.00% but just like LIBOR the actual rate being charged by banks to each other is closer to 6.00%. This again suggests that those with ARM loans should consider a refinance into historically low fixed rates.

What Happened?

Financial companies have been under attack. IndyMac was the largest bank to falter in twenty years. What brought IndyMac down was their exposure to defaulting loans. This sapped investor confidence and drove down the stock price until they filed for bankruptcy.

Following IndyMac, we saw Fannie Mae, Freddie Mac, Lehman Brothers and Merrill Lynch succumb and were either forced into conservatorship, to close their doors, or to sell. AIG, the world's largest insurance company was also impacted, forced to make a deal with the U.S. government to stay in business.

What You Can Do Now?

Call me to explore you financing options… now just might be the time to convert your ARM into a stable 30 Year Fixed loan.

Improving your credit scores can get you one step closer to owning your own home!  Even if you have stellar credit, you can enhance your scores by following the steps below:

Payment History (35% impact) Late payments, collections, charge offs will lower your score as much as 100 points. Pay all debts on time.

Outstanding Credit Balances (30% impact) Keep your credit card balance under 30% of your limit. For example, if your limit is $1000, keep your balance under $300.

Credit History (15% impact) Make sure you have active credit. 4-5 accounts established for at least 3 years is preferred.

If you do not have current active credit, it is difficult to raise a score even when removing negative credit. If you don’t have any established credit , you should apply for 2 cards at the same time. Your score will initially drop for approx 6-12 months but may be worth it.

If you have credit cards with a zero balance that you have not charged on for more than 6 months, charge a small amount, then pay it off the following month. Any credit card that is inactive will lower your score.

Be careful when closing credit card accounts. Especially on accounts you have had for many years. When you close an account, you are loosing that credit history which will lower your score substantially.

Type of Credit (10% impact) A mix of credit cards, installment accounts, mortgages will have a more positive effect than a concentration of debt from credit cards only. Be careful though, if you are thinking of purchasing a home do not make any major purchases until your home loan has closed because a large monthly payment could affect your home purchase

Inquiries (10% impact) Each time someone pulls your credit report, your score will drop for 3 to 6 months. Do not open any new accounts unless you need to establish a credit history. Remember, new accounts will lower your score for 6-12 months.

First-time buyers and those who have not owned a home in the past three years will receive a $7,500 tax credit if they purchased a home on or after April 9, 2008 or if they purchase one before July 1, 2009.

Income limitations are:

Married couples with incomes less than $150,000 qualify for the entire tax credit. The tax credit phases out for married couples with incomes between $150,000 and $170,000. Couples with incomes exceeding $170,000 do not qualify for the tax credit.

Singles with an income less than $75,000 qualify for the entire tax credit. The tax credit phases out for singles with incomes between $75,000 and $95,000. Singles with incomes exceeding $95,000 do not qualify for the tax credit.

• The tax credit is really an interest free loan from the government that must be paid back over fifteen years, in increments of $500 a year.
• If you die, your heirs do not have to pay back the remaining balance.
• If you sell your home before fifteen years have passed and your home’s appreciation is less than the amount you have to pay back, the loan is forgiven.
• If you convert your home into a rental property, you must pay back the balance due.

FHA will help homeowners who owe more than their homes are currently worth.  This program will provide relief for owner occupants only.  Investors or borrowers who own second homes cannot participate in this program.  This program will begin October 1, 2008 and end September 2011.

Mortgages must have been originated prior to January 1, 2008.

Borrowers must meet these requirements:

• Their mortgage must have originated on or before January 1, 2008
• Their mortgage debt-to-income must be at least 31 percent
• They cannot afford their current loan
• They did not intentionally miss mortgage payments
• They do not own second homes.

Loan Features:

• 30-year, fixed rate mortgage
• Maximum 90 percent loan-to-value ratio
• No prepayment penalties
• Extinguishment of any subordinate liens
• New home appraisal required by FHA-approved appraisers

Current Lien Holder's Participation:

The lien holder will be encouraged to work with the borrower to write down the mortgage to no more than 90% of the current appraised value.  For example, if a borrower owes $300,000 but the home is worth $250,000, the qualified borrower will receive a new loan for 90% of the appraised value or $250,000, which equals $225,000. The $75,000 difference would be forgiven.

FHA will share equity in the property going forward, on a sliding scale.

The Housing and Economic Recovery Act of 2008 was recently passed into law. While there is a lot of information to share, here are a few things that could impact you or someone you know right away.

The first thing that stands to impact many home buyers is the elimination of what is known as seller down payment assistance programs for FHA loans. Seller down payment assistance is where a seller contributes money to a down payment assistance company (i.e. Nehemiah), who in turn provides a legal grant to the home buyer.  Seller DPA has helped over 900,000 families obtain homeownership since 2000.

Seller down payment assistance will be eliminated effective October 1, 2008.  To use Seller DPA final underwriting must be completed by September 30, 2008.  Two out of every three FHA loans are currently using Seller DPA so it is important to act now!

That said, if you or someone you know needs Seller Funded Down Payment Assistance in order to buy a home, act quickly! 

The other important piece included in this legislation is it provides first-time home buyers with a tax credit of up to 7,500!  The tax credit will be 10% of the purchase price of a home, up to a maximum of the full $7500 credit. The tax credit is really an interest free loan since will have to be paid back over a period of 15 years but this will certainly help many first time home buyers.