WASHINGTON – Buying a home is about to get cheaper for a whole new crop of homebuyers — $6,500 cheaper.
First-time homebuyers have been getting tax credits of up to $8,000 since January as part of the economic stimulus package enacted earlier this year. But with the program scheduled to expire at the end of November, the Senate voted Wednesday to extend and expand the tax credit to include many buyers who already own homes. The House is scheduled to vote on the bill Thursday.
Buyers who have owned their current homes at least five years would be eligible for tax credits of up to $6,500. First-time homebuyers — or anyone who hasn’t owned a home in the last three years — would still get up to $8,000. To qualify, buyers in both groups have to sign a purchase agreement by April 30, 2010, and close by June 30.
“This is probably the last extension,” said Sen. Johnny Isakson, R-Ga., a former real estate executive who championed the credits.
The homebuyers tax credit is one of two tax breaks totaling more than $21 billion that the Senate included in a bill extending unemployment benefits for those without a job for more than a year. The other would let companies now losing money recoup taxes they paid on profits earned in the previous five years.
“We are still in a world of economic hurt, and Congress must continue to act boldly and creatively,” said Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee. “With the right mix of tax breaks and investments we will get through this recession and get folks working again.”
The real estate industry has been pushing to extend and expand the housing tax credit. About 1.4 million first-time homebuyers have qualified for the credit through August. The National Association of Realtors estimates that 350,000 of them would not have purchased their homes without the credit.
Extending and expanding the tax credit for homebuyers is projected to cost the government about $10.8 billion in lost taxes. While the measure passed the Senate by a 98-0 vote, Sen. Kit Bond, R-Mo., questioned its efficiency in stimulating home sales.
“For the vast majority of cases, the homebuyer tax credit amounted to a free gift since it did not affect their decision to purchase a home,” Bond said. “And for the small minority of buyers whose decision was directly caused by the credit, this raises the question of whether we are subsidizing buyers who may not have been able to afford buying a home in the first place.”
The credit is available for the purchase of principal homes costing $800,000 or less, meaning vacation homes are ineligible. The credit would be phased out for individuals with annual incomes above $125,000 and for joint filers with incomes above $225,000.
The credit would be extended an additional year, until June 30, 2011, for members of the military serving outside the United States for at least 90 days.
Expanding the tax credit for money-losing companies is projected to cost $10.4 billion.
The business tax break would allow money-losing companies to use current losses to offset taxable profits earned in the previous five years, giving them refunds of taxes paid in those years. Under current law, businesses with annual gross receipts of more than $15 million can claim losses back only two years.
The tax break would help industries suffering losses in 2008 or 2009, including retailers, homebuilders and newspapers. Congress included a scaled-back version of the tax break — for companies with revenues of $15 million or less — in the economic recovery package enacted in February. The new tax break would be available to companies of any size, providing a quick source of cash.
The U.S Chamber of Commerce has been a big backer of the tax break for money-losing companies.
“It frees up capital that they can use to maintain jobs and potentially even hire new people as the economy returns,” said Caroline Harris, senior tax counsel for the U.S. Chamber of Commerce.
The tax breaks would be paid for largely by delaying a tax break for multinational companies that pay foreign taxes. It was passed in 2004 and originally was to have taken effect this year, but would now be delayed until 2018.
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The bill is H.R. 3548.
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On the Net:
Congress: http://thomas.loc.gov
From the category archives:
Good News About Palm Beach
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I get asked all the time, “How do I get the IRS $8000 homebuyer tax credit?” 1st, you must qualfiy by meeting a few requirements like not owning a home for the last three years and closing by November 1st, 2009. 2nd go to this link and fill out the attached IRS Form…..
www.irs.gov/pub/irs-pdf/f5405.pdf
Below is a snapshot of the form.
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MAKING HOME AFFORDABLE PROGRAM - New details released on the Obama Administration’s MHA program
Short sales are complex transactions involving careful coordination and close cooperation among a number of parties — servicers, appraisers, borrowers, purchasers, real estate brokers, title agencies, and often mortgage insurance companies and junior lien holders. A short sale usually provides a better outcome for borrowers, investors and communities, but because of the complexity and time involved, servicers have often opted to pursue foreclosure instead, even where a short sale would have provided a substantially better outcome for everyone involved. The Making Home Affordable (MHA) Program provided additional details yesterday on its plan to stabilize the US housing market and prevent avoidable foreclosures, and it is good news for short sales. The foreclosure alternatives for borrowers eligible for MHA include:
- A Short Sales/Deeds-In-Lieu Program to Facilitate Foreclosure Alternatives
- Incentives for servicers to pursue alternatives to foreclosures
- Borrower incentives to cover relocation expenses to homes that are affordable
- Streamlined process combining short sales and deed-in-lieu transactions
The Foreclosure Alternatives program will provide incentives for servicers and borrowers to pursue short sales in cases where a borrower is eligible for a MHA modification but unable to complete the modification process. It provides a standard process flow, minimum performance timeframes, and standard documentation, and offers financial incentives to servicers and borrowers. Fourteen servicers, including the five largest, have now signed contracts and begun modifications and refinancings under MHA, and including both these servicers and Fannie Mae or Freddie Mac, more than 75 percent of all loans in the country are now covered by the MHA program.Further details on short sales and the MHA
When a borrower meets the eligibility requirements for a Home Affordable Modification (HAMP) but does not qualify for a modification or cannot maintain payments during the trial period or modification, the MHA) Program recommends a short sale to avoid the foreclosure process. This helps the borrower sell a property for less than the amount owed, helps the lender avoid the costs of foreclosure, and helps you get properties at bargain basement prices. I’m going to deviate from the usual format today by posting all the details straight from a US Treasury Department News Release:How The Home Affordable Short Sale/DIL Program Works:
- Borrower Eligibility. Borrowers will be eligible for the Foreclosure Alternative Program if they meet the minimum eligibility criteria for a Home Affordable Modification but did not qualify for a modification or were unable to sustain payments under a trial period plan or a modification. Prior to proceeding to foreclosure, participating servicers must evaluate each eligible borrower to determine if a short sale is appropriate. Considerations in the determination include property condition and value, average marketing time in the community where the property is located, the condition of the title including the presence of junior liens and a determination that the net sales proceeds are expected to exceed the investor’s recovery through foreclosure Incentive Payments.
- Servicers may receive incentive compensation of up to $1,000 for successful completion of a short sale or DIL.
- Borrowers may receive incentive compensation of up to $1,500 to assist with relocation expenses.
- Treasury will also share the cost of paying junior lien holders to release their claims, matching $1 for every $2 paid by the investors, up to a total contribution of $1,000 by Treasury.
- Standardized Documentation: The program will publish streamlined and standardized documentation, including a Short Sale Agreement and an Offer Acceptance Letter. These documents will outline specific marketing terms, describe the rights and responsibilities of all parties and establish clear timeframes for performance. Creating one standard set of documents that the industry can use is expected to minimize the complexity of these transactions and significantly increase use of the short sale option.
- Property Valuation: The servicer will independently establish both property value and the minimum acceptable net return in accordance with investor guidance and will provide instruction to the borrower regarding the list price and any permissible price reductions. The price may be determined based on either: (1) an appraisal performed in accordance with USPAP and/or (2) one or more Broker Price Opinions either of which must be dated within 120 days of the Short Sale Agreement.
- Minimum and Maximum Duration: Under the program, servicers will allow borrowers at least 90 days to market and sell the property, with possibly more time based on local market conditions. The property must be listed with a licensed realtor experienced in selling properties in the neighborhood. Marketing of the property may run concurrently with the foreclosure process, however no foreclosure sale can take place during the marketing period specified in the Short Sale Agreement as long as the borrower is acting in good faith to sell the property. There will be a maximum marketing period of 1 year for the property, provided any longer period not otherwise delay foreclosure sale, to ensure diligence by servicers and borrowers in moving as quickly as possible to complete the short sale and deed-in-lieu process.
- Selling Commissions and Fees: Reasonable and customary real estate commissions and selling costs that may be deducted from the sales price will be specified in the Short Sale Agreement. The Servicer will agree not to negotiate a lower sales commission after an offer has been received.
- Fees and Charges: Servicers may not charge borrowers fees for participation in the Foreclosure Alternative Program.
- Property Eligibility: Any junior liens, mortgages or other debts against the property must be cleared for the property to be sold as a short sale or deeded to the servicer. The servicer can proceed with a short sale or deed-in-lieu if there is a reasonable belief that all liens on the property can be cleared.
- Program Expiration: Eligible borrowers will be accepted until December 31, 2012. Program payments will be made upon successful completion of a short sale or DIL.
- Deed-in-Lieu: At the servicer’s option, the Short Sale Agreement may include a condition that the borrower agrees to deed the property to the servicer in exchange for a release from the debt if the property does not sell within the time specified in the Agreement or any extension thereof. In this case the borrower would have 30 days to vacate the property and would be entitled to $1,500 to assist with relocation expenses, in addition to any other funds the servicer may provide to the borrower.
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This Money.com article talks about the potential end of the housing crisis. My real estate office is definitely experiencing an influx of buyers in the $200,000 and under range. Some of this is attributable to the $8000 1st Time Homebuyer Tax Credit and some to buyers getting off the fence because mortgage payments are approaching equalization with rent payments in the lower price ranges.
Is the housing meltdown ending?
Pending home sales rose in March for the second consecutive month and are up year over year. The Pending Home Sales Index from the National Association of Realtors showed a 3.2% gain to 84.6 from February, when it was 82. The index stands 1.6% higher than a year ago.
The consensus forecast of industry experts polled by Briefing.com had predicted no increase in the index.
It may still take a while before the market gains enough momentum to firmly state that the downturn has been reversed, according to Lawrence Yun, NAR’s chief economist. And, the upturn may have been boosted by the first-time homebuyers tax credit, a temporary measure that will lapse in December.
“We need several months of sustained growth to demonstrate a recovery in housing, which is necessary for the overall economy to turn around,” said Yun. “This increase could be the leading edge of first-time buyers responding to very favorable affordability conditions and an $8,000 tax credit, which increases buying power even more in areas where special programs allow buyers to use it as a down payment.”
The index is understood to be a forward indicator of home sales trends since it measures contracts signed, not completed sales. The up-tick may indicate that home prices have fallen low enough for buyers to get off the fence.
Feeling for the bottomYun is not calling a bottom yet, however, because the index is still at a relatively low level. Instead, he’s looking toward the summer selling season to determine what direction the market will take. Plus, he would like the number of homes on the market to drop to a more normal level of six to seven months of supply.
“If inventory goes down - it’s at just under 10 months now - to below eight months, that would mean we’re on the way to a sustainable recovery,” Yun said.
Anecdotal evidence indicates that trend may be happening. Realtors and other industry insiders are seeing rising open house attendance and multiple bids on some particularly desirable properties. Plus, pricing has become sharper, according to Sherry Chris, the CEO of Better Homes and Gardens Real Estate.
“Overpricing seems to be ending,” she said. “Properties are coming onto the market and selling quickly.”
And buyers are feeling a little more urgency, she added. In many markets, buyers have not felt any pressure to make an offer. “They said to themselves, ‘I don’t have to act immediately. It will still be on the market two weeks from now,’” she said.
Today, buyers are more likely to bid because they perceive the market as at or near its bottom. An April Gallup Poll reported that 71% of Americans thought it was a good time to buy a house.
They don’t, however, believe there will be price increases soon; three of four buyers think prices will stabilize or even decline in their areas over the next 12 months, according to Gallup.
Pat Newport, a real estate analyst for IHS Global Insight, is putting less emphasis on pending home sales than he once did for his housing market analyses. There has been a disconnect lately, he said, between the number of properties going into contract (pending home sales) and the number that actually close (existing home sales).
He speculates that this is because buyers are making offers and signing contracts but, because of financing problems, many deals are falling through.
Regional differencesThe South saw the largest gain of any region, with pending home sales jumping 8.5%. Pending sales are 7.7% higher there compared with a year ago.
The Midwest gained 3.9% from February and 1.7% year-over-year. Northeast sales fell 5.7% and are off 24.1% compared with March 2008. The West dropped 1% for the month but are up 8.2% year-over-year.
Low home prices continued to help to drive sales, although NAR’s affordability index actually fell 2.3% from February, when it hit a historic high. This index is based on family income, home prices and mortgage rates.
“Compared to a year ago, the typical family can pay much less in mortgage costs for the same home, or buy a better home without necessarily increasing their monthly payment,” said NAR President Charles McMillan, in a prepared statement. “For buyers who’ve been on the sidelines and have good jobs, the market has never looked more favorable.
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Outstanding video on who qualifies for the new $8000 home-buyer tax credit from the Federal Government. The $8000 tax credit is a fantastic incentive for short sale and foreclosure home buyers. Also, it’s not only 1st time home-buyers that qualify….
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MILLION DOLLAR SHORT SALE
MILLION DOLLAR SHORT SALE - 10747 VERSAILLES BLVD
This short sale success story began late last summer when the owners moved out of a home that had over $1,600,000 in loans on the property in the Versailles community in Wellington. The only way for them to sell in this real estate market was to work with their banks to negoatiate a short sale.
The property had a first and second loan that required a lot of finesse and negotiating to seal the deal. Second loans can be very tricky to deal with in a short sale and have been known to blow up deals if they are not happy. Typically they are wiped out in a foreclosure and receive very little in a short sale. However, something is better then nothing.
We just closed this deal last week for $630,000….a million dollar short sale. A lot of real estate agents claim to be experts in short sales….we close short sales at PalmBeachShortSales.com.
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For homeowners looking to make sense of the Obama administration’s new mortgage rescue plan, the program can be basically broken down into two sections.
One part is for homeowners facing foreclosure due to missed payments and are at risk of defaulting on their loans. For them, the government will give the lender financial incentives to “modify” the existing mortgage, reducing the monthly payments so that the homeowner can stay current on the loan and keep their home.
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The other part is for homeowners who are keeping up with their mortgage payments but can’t refinance with their lender because the value of their home has fallen below the amount of the mortgage.
For these “under water” homeowners, the rescue plan will help refinance the mortgage to lower the monthly payments. There are several restrictions, however, so relatively few homeowners in this category will actually qualify.
That’s the simple explanation. But both plans have a lot of moving parts, so here’s what you need to know if you want to take advantage of them.
If you’re facing foreclosure and want to “modify” your mortgage to keep your home, you must meet the following criteria:
- Have secured your mortgage before Jan. 1, 2009
- Have a primary mortgage of less than $729,500
- You must live on the property
- Must fully document income with tax returns and pay stubs
- Sign a financial hardship statement
- Go for counseling if your total household debt totals more than 55 percent of income.
“Homeowners must be late on their payments to qualify,” says Trish Summers, a private mortgage banker with Luxury Mortgage company in Stamford, Connecticut.
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CNBC.com
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If you meet all those qualifications, your lender will then determine how much to lower your monthly payment so it’s about 31% of your gross monthly income. The interest rate could be as low as 2%.
Homeowners pay no fees for the modification. However, homeowners could face a balloon payment at the end if your lender reduced your monthly principal payment during the modification. So if your lender reduced your total payments $20,000, you could owe that amount when paid off your loan, refinanced or sold your house.
But there is some financial benfit for the homeowner in the plan. For every month a homeowner makes a payment on time, the Treasury will pay an incentive that reduces the principal balance on a loan. Over five years the total principal reduction could add up to $5,000.
There’s also a trial period period for the modification.
“The loan servicer gets paid by Fannie (Mae) or Freddie (Mac) after three months,” says Summers. “If the homeowner pays the mortgage on time, the servicer gets $1,000 from the government each year for the next three years. If the mortgage is not paid on time in those three months, the deal is over.”
And the new loan rate can go up after 5 years. It’s only a low in the beginning to help the homeowner dig themselves out.
The plan is in effect until the end of 2012 and can only be used once.
Refinancing Option
If your current on your mortgage but your bank won’t let you refinance because your mortgage is “under water,” here’s how you qualify for the government refinancing program:
- Your home must be the primary residence
- Your loan must be owned by Fannie Mae or Freddie Mac
- You must have sufficient income to support the new mortgage debt
- You can’t take cash out of the new loan to pay other debt
There’s another big restriction, however, that will make many homeowners ineligible for the program: the value of your house can’t have fallen much below the amount of the mortgage.
“The ceiling of eligibility is 105 percent of current market value of the property—so that’s not going to help homeowners who have suffered home price declines,” says Greg McBride, senior financial analyst at Bankrate.com. “Say you bought a house for $320,000. Your mortgage balance is now $300,000 But the house is now worth only $225,000. You are stuck, you can’t refinance, even if you made your payments on time.”McBride says the loan to value ceiling should be raised. “It should be something in the neighborhood of 150 percent,” says McBride. It’s too low to help people in Florida, California, Nevada and Arizona. Those markets are at the epicenter of the foreclosure crisis.”
Still, if you do qualify, here’s what you get:
- Your mortgage will be refinanced to 30 or 15 years with a fixed interest rate.
- The rate will be based on market rates in effect at the time of the refinance and any associated points and fees quoted by the lender
- Rarely principle reductions.
ARTICLE ORIGINALLY PUPLISHED ON CNBC.COM
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Obama’s “Making Home Affordable” program is designed to work with lenders to modify the loan terms for up to 4 million homeowners and to refinance up to 5 million homeowners into more affordable fixed-rate loans.
Here are some questions and answers about the latest round of aid for homeowners.
A: How do I know if I qualify for the refinancing plan?
Q: Only homeowners in good standing whose loans are held by Fannie Mae or Freddie Mac qualify.
The property must be owner-occupied and the borrower must have enough income to make payments on the new mortgage debt.
Borrowers can’t owe more than 105 percent of their home’s current value on their first mortgage. For example, if your home is worth $200,000, your first mortgage can’t exceed $210,000. Borrowers with a second mortgage still can qualify as long as their first mortgage isn’t more than 105 percent of their home’s value.
Homeowners can’t take cash out during the refinancing to pay other debt.
Borrowers have until June 2010 to apply for the program.
Q: How do I know if my mortgage is owned by Fannie Mae or Freddie Mac?
A: Call your current lender or mortgage servicer. You can find the phone number on your monthly mortgage statement or coupon book.
You can also contact Fannie Mae at 1-800-7FANNIE and Freddie Mac at 1-800-FREDDIE from 8 a.m. to 8 p.m. EST. Or, go to http://www.fanniemae.com/homeaffordable and http://www.freddiemac.com/avoidforeclosure and fill out the online request forms.
Q: What borrowers qualify for the modification program?
A: You don’t have to be behind on your mortgage payments to qualify. Delinquent borrowers and current borrowers who are at risk of imminent default are both eligible.
The program applies to mortgages made on Jan. 1 or earlier. The mortgage payment including taxes, insurance and homeowners association dues must exceed 31 percent of the borrowers’ gross monthly income.
The property must be the homeowner’s primary residence. It can’t be investor-owned, vacant or condemned. Home loans for single-family properties that are worth more than $759,750 don’t qualify.
The program is voluntary, relying on a $75 billion subsidy to encourage mortgage companies to participate. Lenders must agree to reduce the loan payments to 38 percent of a borrower’s monthly income. After that, the government and lender split the cost of bringing the payment down to 31 percent.
Eligible borrowers will have to provide their most recent tax return and two pay stubs, as well as an “affidavit of financial hardship” to qualify for the loan modification program. In the affidavit, applicants will have to cite the reasons behind their financial woes, such as job loss or a drop in income. The government will then take steps to verify the information.
Borrowers are only allowed to have their loans modified once. The program runs through Dec. 31, 2012.
Q: What if I’m in bankruptcy or in active litigation over my mortgage?
A: That doesn’t necessarily keep you from qualifying for the modification program. And borrowers in active litigation can modify their home loans without waiving their legal rights.
Q: What do I do to get help?
A: For the modification program, call your lender or mortgage servicer to see if you’re eligible. For the refinance program, first find out if your mortgage is held by Fannie Mae or Freddie Mac. Then contact your lender, mortgage servicer or a mortgage broker for refinancing options.
Q: How soon can I get help?
A: Both the modification and refinancing programs start immediately.
Q: What if I don’t qualify for either program — is there any other way to get help with a mortgage?
A: Contact your lender or mortgage servicer regarding other modification programs or refinance options. Alternatively, contact a local housing counselor to negotiate with your lender or servicer, to help locate other local resources like rescue grants or loans, or to facilitate a short sale or deed-in-lieu of foreclosure if staying in the home isn’t possible.
A short sale is where homeowners sell houses for less than the amount owed on them, and the lender then considers the debt paid off. A deed-in-lieu of foreclosure is where the borrower gives the property to the lender to satisfy a delinquent loan and to avoid foreclosure proceedings.
Local housing counselors can be found at the U.S. Department of Housing and Urban Development’s Web site at http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm.
Q: Do FHA, VA or USDA home loans qualify for modifications under Obama’s plan?
A: Mortgages backed by the Federal Housing Administration, Veterans Administration or the U.S. Department of Agriculture are being modified under other programs. The Obama Administration and Congress are working on legislation that would allow modifications of these home loans consistent with the Making Home Affordable program.
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The $15,000 tax credit in the Senate version of the stimulus bill was reduced to $8000 and applies only to 1st time home buyers. However, the $8000 tax credit does not have to be repaid, which makes it better then the existing $7500 tax credit for Palm Beach County buyers. It is a true $8000 reduction on your next tax bill. If you don’t owe that much you get a check back from the IRS for the remainder. This credit is only available for qualifying home purchasers between January 1, 2009 to December 1, 2009.
There is an income limit to the credit that phases out the credit for single taxpayers with adjusted gross incomes exceeding $75,000 (or $150,000 for married couples filing jointly).
If you sell the home within three years you forfeit the credit or have to pay it back if you already claimed it.
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Prediction: If it survives the bailout negotiations, the new $15,000 proposed tax credit for home purchases will motivate buyers to get off the fence and buy. I am already seeing a spike in activitiy for listings that are priced correctly. Last week a buyer client lost a deal in Palm Beach County in which they offered over the asking price…just not enough over. Another buyer offered full asking price on a newly listed short sale and the next day there were four additional offers….three at full asking price. Homes are definitely selling if they are priced correctly for the market.
The proposed new tax credit for buyers would provide a tax credit of $15,000 or 10% of the purchase price, whichever is less, to the buyer. The previous tax credit applied only to 1st time home buyers (about 40% of the market) and had to be repaid over 15 years.
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