Thursday, June 11, 2009

First-Time Homebuyer Tax Credit - Can You Access the Money Sooner Than Waiting to File Your 2009 Tax Return?

By now, most of you have heard of the $8,000 tax credit available to first time homebuyers purchasing a primary residence before December 1, 2009. The question that seems to be on everyone’s mind is whether or not the money can be obtained sooner and if so, what can it be used towards? There have been many announcements and subsequent revisions that have made it all a little confusing. Here is a breakdown of some of the current policies set forth.

At the end of May 2009, HUD announced that it will allow “monetization” of the tax credit. This simply means that the anticipated tax credit can be applied towards the purchase of the home immediately rather than waiting to receive the refund. The guidelines authorize the monetization in a few different ways.

For starters, homebuyers that believe they qualify for the credit are permitted to reduce their income tax withholdings. This will allow buyers to accumulate more cash reserves for a down payment by increasing their take home pay. Individuals must be cautious because if the purchase does not occur, the IRS could impose interest and penalty charges on the repayment.

Some state housing finance agencies and other government entities have introduced programs that will provide homebuyers with short-term loans that can be used towards the FHA minimum 3.5% down payment. Longer term loans that are secured by a second lien on the property are also permitted. The National Council of State Housing Agencies (NCSHA) has compiled a list of such programs that can be found at At this time, Arizona does not have any of these programs available.

In addition, FHA approved lenders are allowed to provide bridge financing to the buyer that is secured by the anticipated tax credit. This amount is permitted to cover closing costs, prepaid expenses and down payments above the FHA minimum of 3.5%. Unfortunately, there are no lenders participating in such programs at this time. The broad consensus in the industry is that these loans are not anticipated to surface in the near future.

Tuesday, June 9, 2009

First-Time Homebuyer Tax Credit

With housing prices at an all time low, first-time homebuyers are in a prime position to maximize their opportunities in today’s real estate market, especially with the authorization of the $8,000 tax credit by the American Recovery and Reinvestment Act of 2009. The following is a brief summary of some of the key factors.

1. The tax credit is equal to 10% of the purchase price up to a maximum credit amount of $8,000.

2. Applies to “first-time homebuyers”, which is classified as a buyer that has not owned a primary residence in the last three years.

3. Residence must be purchased after January 1, 2009 and before December 1, 2009.

4. Any single family residence, including condos and townhouses are eligible.

5. The full credit amount is available to individuals with an AGI less than $75,000 ($150,000 for joint return). There is a phase out period for an AGI up to $95,000 ($170,000 for joint return).

6. The tax credit is refundable. The credit amount is used to reduce or eliminate the tax liability and the remaining balance is then refunded to the purchaser.

7. The credit does not have to be repaid unless the home is sold within three years of purchase. Then the entire credit amount is recaptured upon the sale.

At the end of May 2009, HUD authorized the tax credit to be utilized to cover closing costs and prepaid expenses through state housing authorities, FHA approved non-profit agencies and bridge financing. However, at this time there does not appear to be any lender participation in this type of loan.

Wednesday, June 3, 2009

The Price of Procrastination

Everyone Wants a Lower Price, But What About the Impact of Interest Rates?

When shopping for a home, the natural tendency of any buyer is to want to pay the lowest price possible. It's important to keep in mind, however, that the sales price is not the only factor that determines what your monthly payment will be. In fact, the impact of higher interest rates can easily nullify any benefit of waiting for a lower price.

Why Should I Rush to Buy?

While you may have heard discussions in the media about the decline of property values in Phoenix, the rate of decline appears to be stabilizing.

That being said, it would not be unreasonable for you to want to hold out for an additional decline of 10%, hoping to capture the best possible price. However, as property values have declined in many areas in Phoenix to 2003 levels or lower, waiting longer to pull the trigger could be a mistake. Phoenix, and many other areas with lower values, has been bringing out investors and the result has been multiple offers on many properties. Properties priced correctly are not declining and, in fact, are creating a lot of interest.

Interest Rate Complacency

The problem is that many home buyers have been lulled into a sense of complacency because of extremely low interest rates. Since the Federal Reserve initiated its program of buying mortgage-backed securities, which control the rates people pay for their home loans, rates had been range bound, bouncing between 4.50% to 5.00% for a 30-year fixed-rate loan.

But do not be confused by this. These rates are artificially low! Historically, interest rates have been above 6.00%. And any rate obtained below this number is a great deal, especially on homes with price tags from 2003!

Markets are Unforgiving

The last two weeks of May showed just how unforgiving the markets can be for people who choose to procrastinate. In just five days, interest rates from many lenders increased anywhere from .50% to 1.00% as fixed-income investors demanded more for their money.

For anyone who was waiting for prices to drop even more, a 1.00% increase in your interest rate would bring a higher monthly principal and interest payment on a home, even if the price of that same home had fallen an additional 10% in value.

If you're waiting for home prices to fall even lower, be aware that while holding out for a lower price may help you win the battle, you could lose the war in terms of monthly payments and overall affordability. With the Federal Reserve scheduled to end its buying of mortgage-backed securities this year, rates only stand to go higher for those that wait. In fact, interest rates are already on the rise and could go higher from here.

Clock is Ticking on Free Money

If you, or someone you know, is planning on purchasing a home this year, be aware that you must take possession before 12/01/2009 to be eligible for a tax credit of up to $8,000. In a survey conducted in March by, nearly 50% of home buyers are currently unaware that this free money exists in the marketplace. And since over 50% of all buyers are first-timers in today's market, this could impact a lot of people who aren't in the know.