It’s official; President Obama has extended the home buyer tax credit through April 30, 2010. This legislation translates into an $8,000 tax credit for first time home buyers and $6,500 for subsequent home buyers. It also means an increase in activity on real estate transactions.
Because of the deadline, everyone should anticipate that the market will be a bit more crowded than it has been of late. The more crowded the market gets, the easier it becomes for home buyers to commit one of the 7 deadly home buying mistakes.
Demand Advocate Accountability: Every home purchase involves several key players. These participants include the realtor, the home inspector, the pest inspection, the appraiser, and the lender. Because most of us don’t buy a home every year, it’s easy to get lost in industry specific speech shuffle. Words and terms that the average consumer doesn’t understand can easily lead the buyers to unnecessary confusion. Here’s the bottom line. Everyone involved in your home transaction works for you. They are providing a service you need to purchase a home. They are spending your money. That makes you the boss. If something isn’t clear, call a time-out and demand a clear definition. In short, question without fear.
Don’t be a house hog: This is a very simply mistake that many home buyers make; buying more house than they need or buying a home that they are barely able to afford. Life has a funny way of handing surprises to us. If you buy a home you are barely able to afford, you are setting yourself up for trouble the next time life surprises you with an unexpected change.
Flatten Financing Fees: When signing the paperwork for a new mortgage, always remember that you are actually purchasing financing. There will always be some fees associated with all financing; and this is not the concern. It is the excessive charges that cause home buyers to pay too much to get into a home. When it comes to financing, be smart and ask questions about the fees you are being charged. It’s your money, make it work for you.
Credit Roulette: Once you’ve been approved for financing, don’t do anything that could negatively impact your credit report and scores. One home buyer I know didn’t think that quitting his job three days prior to closing would impact his ability to buy a home. He was in for a surprise when the underwriter called his workplace to verify employment the day before closing. He lost his financing and the house. Another home buyer decided that their new home required a house full of new furniture. So right after being approved for financing; they opened a large account at a local furniture store and maxed it out. Their credit scores took a dive and when the underwriter pulled their credit just before signing off on their loan, she discovered that their new scores fell below the minimum approvable scores for home financing. They too lost their financing and couldn’t buy the house.
Know the Neighborhood: Simply because you like a house and the neighborhood, remember that the wise home buyer takes the time to get to know the area just a bit better. Drive through the sub-division at various times of the day. What is traffic like entering and exiting the neighborhood? Are there a lot of cars parked on the street at night? Stop and ask some of your potential new neighbors the things they like and dislike about living in the sub-division. If the neighborhood has a pool, give it a quick look. And don’t forget to read the neighborhood association by-laws. Make sure you can live with these guidelines.
Ready, Set, Think: You’re ready to buy a home. You have the down payment and closing costs and you have your financing arranged. Before signing the contract take a step back and think. Does this home do more than meet our present needs? Will it meet our needs for the foreseeable future? What are the projected values of this home for the next 5, 10 and 15 year? If we have to stay her longer than we anticipate, will we be happy here? Buying a home involves emotions, but don’t let the emotions rule the decision.
Paralysis of Analysis: On the other side of the spectrum is the tendency of some home buyers to delay making a decision because they are still thinking about it. Great home buys have been lost by home buyers who sit on the fence too long after gathering all the necessary data. Every real estate transaction has a point when it’s yes or no. When it’s time to paint, get out your brush, or get off the ladder.
Friday, November 13, 2009
Friday, November 6, 2009
Something Old, Something New in Tax Credits
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.
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, 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.
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