I’m writing this post on Friday morning, anticipating that President Obama will sign into law the extension of the $8,000 first time home buyer credit. This new legislation is really not new, but a modification and extension of the tax credit set to expire November 30, 2009. A new feature added to this bill that provides a $6,500 tax credit for current home owners who sell their home and purchase a new home.
Here are the details. (Please remember, as of this writing, the President has yet to sign the legislation into law.)
Continuation of $8,000 first-time home buyer credit. With a few distinctions, the old tax credit becomes the new tax credit. What is the same is the definition of First-time home buyer: not having owned in a home for the previous 36 months. What is different is that the contract for the home purchase must be signed on or before April 30, 2010 and closing must take place on or before June 30, 2010.
Current legislation requires that closing on the property take place on or before November 30, 2009. This has created a rush to close some transactions in an unreasonably short time frame. The new legislation provides a pressure release allowing them to close after the end of November deadline and still claim the tax credit.
The new April 30, 2010 deadline for signed contracts and the extended June 30, 2010 deadline for closing provides a more flexible window for home buyers to find the right home, agree to a purchase price all the way up to the end of next April and still have 60 days to close and claim the tax credit.
Clarification of Tax Credit. Current legislation requires the use of IRS form 5405 (found at http://www.irs.gov/pub/irs-pdf/f5405.pdf). This is the only form available at this time, but it is certain that a new/amended form will be released to include new tax credit guidelines. If you have already purchased a home or are planning to take advantage of this tax credit, make certain to use the correct form.
Existing Home Owners are Now Included. Under the new legislation current home owners are eligible for a $6,500 tax credit when selling their home and purchasing a new home. The catch is the tax credit is available only to those homeowners who have lived in their current home for at least five years. The home must be sold and a new contract must be signed on or before April 30, 2010 and closing must transpire on or before June 30, 2010.
New Income Limitation for Qualifying Home Buyers. Under the legislation set to expire November 30, 2009, maximum adjusted gross income limits are $75,000 for singles and $150,000 for those married filing jointly. The new legislation increases these limits to $125,000 single and $250,000 married filing jointly. This increase should make the tax credit available to more middle class Americans.
Something for Nothing? The recent “Cash for Clunker’s” tax credit program was touted a success because over 600,000 new vehicles were purchased under the program. The surprise for many of these new car owners is that they will be required to count the $4,500 tax credit as income on subsequent tax years. If you are in the 33% tax bracket, this would mean a sizeable increase in your tax liability.
It has yet to be finally determined if those who have taken advantage of the existing $8,000 tax credit or those who will take advantage of the new legislation will be required to claim the amount of their tax credit as income in subsequent years tax returns. It would be wise to consult your CPA and get all the information before making your final decision regarding the existing and the new home buyer stimulus tax credit.
Friday, November 6, 2009
Friday, October 30, 2009
Trick-R-Treat Transactions
Tonight is the night thousands of Edmond children look forward to for nearly an entire year. It’s the night when most Edmond homes will have the porch light on welcoming the masquerading mob to “come by our house for Trick-R-Treat”. The Trick-R-Treating goes both ways. Children dress up to receive the treats, but it’s the adults who enjoy seeing the children who receive the best treat of all. It is also an unfortunate fact that there will be some Edmond residents who will become the target of some youth’s “trick” instead of “treat”.
The day of closing on a new home is equally exciting for the new home buyer. Unfortunately some of these transactions are much like Halloween night; closing is promised to be a treat, but instead it turns out to be filled with infuriating tricks.
George Carlton is a veteran real estate professional with Keller William Edmond, who has seen just about everything that can go wrong with a closing. But still even he is sometimes shocked at the changes that are passed down from some lenders even after the buyers have been pre-approved. Carlton relates this story. “The day before closing our seller loaded up the contents of their house in a moving van and started out for their new home in Atlanta. That same day the underwriter for the lender discovered something in the borrower’s application that caused them to deny the mortgage. Now our sellers are forced to live out the nightmare of finding a way to make two mortgage payments and deal with the stress of moving the family half-way across the country.”
Short sales are becoming a regular part of the real estate landscape. A short sale is a housing transaction where the amount owed against the property exceeds the market value. The lender must decide whether or not they will agree to settle the mortgage for less than it actually owed by the borrower. Without question, this type of transaction holds some of the greatest opportunity or surprise.
“Short sales are terrifying because most sellers don’t know what they are doing”, says Morrie Shepherd, Owner/Broker of Metro First Realty, OKC. Sellers in this “short” position typically wait too long before contacting a real estate professional experienced in short sales. Shepherd says the best advice for sellers in this position is to, “start early; don’t wait for the notice of the Sherriff sale to contact a short sale specialist.”
The short sale transaction is filled with more potential traps and surprises than are found in an Indiana Jones movie. Shepherd says, “One of the most terrifying aspects of these transactions is the seller find themselves held captive by the lender”. Because the lender holds the note they control any negotiation for a short sale. If you find yourself in this situation, who are you going to call? Ghostbusters can’t help, Shepherd recommends, “Call a real estate professional experienced in short sales.”
First time home buyers have found a great incentive in the $8,000 tax credit offered by Uncle Sam. This program is scheduled to end November 31, 2009 but it appears that congress will extend a modified version of this program until April 30, 2010. More to come when congress makes their final decision and announces the details of the program.
Eric Rognas is a real estate professional also with Keller Williams Edmond. He recently represented a young couple buying a home wanting to take advantage of the $8,000 tax credit as well as the monies available from the City of Edmond Community Development Block Grant (CDBG). When using down payment assistance funds the borrower’s file must pass underwriting from the lender as well as a battery of tests from the CDBG. In this couple’s example, their file passed the lender’s underwriting but failed one of the CDBG tests the day of closing.
The wife’s mother had co-signed with the couple and when her income was calculated together with the couple’s income, it exceeded the allowable limits established by the CDBG. Everyone scrambled, new documents were signed, the closing was delayed by a day and the couple closed on the house. But due to the changes, the funds for the transaction were not distributed for an additional three days. What a horror story for everyone involved.
The day of closing on a new home is equally exciting for the new home buyer. Unfortunately some of these transactions are much like Halloween night; closing is promised to be a treat, but instead it turns out to be filled with infuriating tricks.
George Carlton is a veteran real estate professional with Keller William Edmond, who has seen just about everything that can go wrong with a closing. But still even he is sometimes shocked at the changes that are passed down from some lenders even after the buyers have been pre-approved. Carlton relates this story. “The day before closing our seller loaded up the contents of their house in a moving van and started out for their new home in Atlanta. That same day the underwriter for the lender discovered something in the borrower’s application that caused them to deny the mortgage. Now our sellers are forced to live out the nightmare of finding a way to make two mortgage payments and deal with the stress of moving the family half-way across the country.”
Short sales are becoming a regular part of the real estate landscape. A short sale is a housing transaction where the amount owed against the property exceeds the market value. The lender must decide whether or not they will agree to settle the mortgage for less than it actually owed by the borrower. Without question, this type of transaction holds some of the greatest opportunity or surprise.
“Short sales are terrifying because most sellers don’t know what they are doing”, says Morrie Shepherd, Owner/Broker of Metro First Realty, OKC. Sellers in this “short” position typically wait too long before contacting a real estate professional experienced in short sales. Shepherd says the best advice for sellers in this position is to, “start early; don’t wait for the notice of the Sherriff sale to contact a short sale specialist.”
The short sale transaction is filled with more potential traps and surprises than are found in an Indiana Jones movie. Shepherd says, “One of the most terrifying aspects of these transactions is the seller find themselves held captive by the lender”. Because the lender holds the note they control any negotiation for a short sale. If you find yourself in this situation, who are you going to call? Ghostbusters can’t help, Shepherd recommends, “Call a real estate professional experienced in short sales.”
First time home buyers have found a great incentive in the $8,000 tax credit offered by Uncle Sam. This program is scheduled to end November 31, 2009 but it appears that congress will extend a modified version of this program until April 30, 2010. More to come when congress makes their final decision and announces the details of the program.
Eric Rognas is a real estate professional also with Keller Williams Edmond. He recently represented a young couple buying a home wanting to take advantage of the $8,000 tax credit as well as the monies available from the City of Edmond Community Development Block Grant (CDBG). When using down payment assistance funds the borrower’s file must pass underwriting from the lender as well as a battery of tests from the CDBG. In this couple’s example, their file passed the lender’s underwriting but failed one of the CDBG tests the day of closing.
The wife’s mother had co-signed with the couple and when her income was calculated together with the couple’s income, it exceeded the allowable limits established by the CDBG. Everyone scrambled, new documents were signed, the closing was delayed by a day and the couple closed on the house. But due to the changes, the funds for the transaction were not distributed for an additional three days. What a horror story for everyone involved.
Wednesday, October 21, 2009
Rookie Mistakes of First Time Home Buyers
There’s still time for first time home buyers to close on a home and take advantage of the $8,000 tax credit. There’s even talk on the hill of expanding and extending the tax credit. This is good news for all first-time home buyers (anyone who has not owned a home within the past 36 months).
Imagine having an $8,000 tax credit on your 2009 taxes. That’s a great incentive to buy a home. So if you’re thinking of rushing out to buy a home you might want to take a moment to learn from the mistakes others have made when purchasing your first house.
Not knowing how much home they can reasonably afford. This truly is the first step toward successful and happy home ownership. Before spending hours scouring free real estate magazines and Internet sites, and before you get in your vehicle and burn gasoline, find out how much home you can reasonably afford. It’s a simple process, really. Contact a mortgage provider who comes recommended to you and ask them to pre-qualify you for a home purchase.
Some lenders charge a small fee (usually less than $150) for this process, and usually will waive this fee when you secure your financing through their shop. You will be asked questions about employment and income and be required to provide your social security number and birth date. A credit report will be pulled and all of this information compiled to generate a figure called the “debt to income” ratio. Even though some lenders still allow these ratios as high as 41% and greater, it is advisable for first time home buyers to keep these ratios at a more comfortable 36% or lower.
Presuming foreclosures offer the best deals. We’ve all heard stories of the couple who found foreclosed property that had four bedrooms, two living areas and a three car garage and their house payment is under $750 a month. So we assume those kind of deals are available for anyone who will spend a bit of time home shopping. Truth is while a foreclosure may provide you with a good deal, it’s best to get the expert advice from an experienced real estate agent before taking the jump into a proverbial money pit.
Not showing a poker face. When negotiating a poker face is a must. Even though, in most cases you won’t be negotiating face to face with the seller, your offer and response to their counter offer can prove just as effective (or ineffective) as a poker player’s ability to keep a straight face. The best advice is to keep emotions away from the negotiating table.
Choosing the wrong buyers agent. Even though he is licensed to buy and sell real estate, your football buddy may not necessarily be the best professional to negotiate your home purchase. When it comes to negotiating a price on a home, the real estate professional you choose needs to be skillful in negotiating not only the price, but also other concessions you want. Choose the wrong professional, and you could end up paying too much for the house you want.
Miscalculating the true costs of home ownership. Many first time home buyers forget that once they own the home, they are responsible for all the upkeep and maintenance. Whether it’s a leaky faucet or a cracked foundation, the cost of home ownership exceeds the monthly payment. It’s a good idea to set aside at least 1% of the home’s purchase price each year for potential repairs and upkeep.
Passing up the home inspection. The costs associated with purchasing a home add up quickly. It seems that everyone has a hand extended looking to be paid. So naturally the hundred or so dollars required for a thorough home inspection can be easily dismissed. After all, both you and your agent have looked the property over. You’ve even taken several of your friends over to see the house, and they’ve bought their own homes. Surely if anything were wrong, it would be evident by now. Don’t be so sure. The few hundred dollars it costs to get a good home inspection can save you thousands in future repairs and may even keep you from buying the wrong house.
Imagine having an $8,000 tax credit on your 2009 taxes. That’s a great incentive to buy a home. So if you’re thinking of rushing out to buy a home you might want to take a moment to learn from the mistakes others have made when purchasing your first house.
Not knowing how much home they can reasonably afford. This truly is the first step toward successful and happy home ownership. Before spending hours scouring free real estate magazines and Internet sites, and before you get in your vehicle and burn gasoline, find out how much home you can reasonably afford. It’s a simple process, really. Contact a mortgage provider who comes recommended to you and ask them to pre-qualify you for a home purchase.
Some lenders charge a small fee (usually less than $150) for this process, and usually will waive this fee when you secure your financing through their shop. You will be asked questions about employment and income and be required to provide your social security number and birth date. A credit report will be pulled and all of this information compiled to generate a figure called the “debt to income” ratio. Even though some lenders still allow these ratios as high as 41% and greater, it is advisable for first time home buyers to keep these ratios at a more comfortable 36% or lower.
Presuming foreclosures offer the best deals. We’ve all heard stories of the couple who found foreclosed property that had four bedrooms, two living areas and a three car garage and their house payment is under $750 a month. So we assume those kind of deals are available for anyone who will spend a bit of time home shopping. Truth is while a foreclosure may provide you with a good deal, it’s best to get the expert advice from an experienced real estate agent before taking the jump into a proverbial money pit.
Not showing a poker face. When negotiating a poker face is a must. Even though, in most cases you won’t be negotiating face to face with the seller, your offer and response to their counter offer can prove just as effective (or ineffective) as a poker player’s ability to keep a straight face. The best advice is to keep emotions away from the negotiating table.
Choosing the wrong buyers agent. Even though he is licensed to buy and sell real estate, your football buddy may not necessarily be the best professional to negotiate your home purchase. When it comes to negotiating a price on a home, the real estate professional you choose needs to be skillful in negotiating not only the price, but also other concessions you want. Choose the wrong professional, and you could end up paying too much for the house you want.
Miscalculating the true costs of home ownership. Many first time home buyers forget that once they own the home, they are responsible for all the upkeep and maintenance. Whether it’s a leaky faucet or a cracked foundation, the cost of home ownership exceeds the monthly payment. It’s a good idea to set aside at least 1% of the home’s purchase price each year for potential repairs and upkeep.
Passing up the home inspection. The costs associated with purchasing a home add up quickly. It seems that everyone has a hand extended looking to be paid. So naturally the hundred or so dollars required for a thorough home inspection can be easily dismissed. After all, both you and your agent have looked the property over. You’ve even taken several of your friends over to see the house, and they’ve bought their own homes. Surely if anything were wrong, it would be evident by now. Don’t be so sure. The few hundred dollars it costs to get a good home inspection can save you thousands in future repairs and may even keep you from buying the wrong house.
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