FIRST-TIME HOMEBUYER TAX CREDIT

FIRST-TIME HOMEBUYER TAX CREDIT
What you need to know!

On Tuesday, February 17 President Obama signed into law “The American Recovery and Reinvestment Act” which, among other things, gives first-time homebuyers a tax-credit for up to $8,000 if they purchase a home between January 1, 2009 and November 30, 2009. Here are several things to know about the tax credit:

1. The tax credit included in the economic stimulus package applies only to first-time homebuyers and only to their principal residences. The amount of the tax credit will be 10% of the purchase price of the home up to a maximum credit of $8,000. Unlike the 2008 first-time homebuyer tax credit, this one will not have to be repaid.

2. First-time homebuyers for the purpose of this legislation refer to someone who has not owned a principal residence for the past 3 years. This restriction does not apply to second-homes or investment property

3. This new tax credit is only available for homes purchased between January 1, 2009 and November 30, 2009 – homes purchased last year are not eligible.

4. The tax credit is subject to income limitations. Single buyers who make up to $75,000 Adjusted Gross Income (AGI) and married buyers who make up to $150,000 AGI will receive the full tax refund. For incomes above that, the tax credit will be phased out.

5. This tax credit is a refundable tax credit. That means that even those with little or no tax liability will receive the entire amount of the tax credit.

6. The tax credit includes a recapture feature. This means that the buyer has to own the property for at least 36 months in order to capitalize the tax credit. If the home is sold in less than 36 months the buyers would have to repay part or all of the tax credit. There may be exceptions in some cases included death and divorce.

$75 billion to aid distressed homeowners

The White House announced today that it will use $75 billion that has already been authorized by Congress to help 'subsidize' mortgage payments for millions of people who find themselves unable to make mortgage payments.

Most of this money will go to reward banks for restructuring the loans of individuals having trouble, but some of the money will also go to homeowners who are staying current on their mortgage bills. Fannie Mae and Freddie mac will also get additional funding to acquire more loans.

“This is not a silver bullet, although I don’t think one exists,” says Mark Zandi, chief economist at Moody’s Economy.com. “This should be helpful to stem but not stop the continuing rise in foreclosures.”

Zandi estimates that $500 billion in mortgages are 'underwater' That means that the amount owed on the property is higher than the property is actually worth. Properties like that are easier to walk away from, because the homeowner realizes they are already way behind.

“Say someone bought a house for $400,000, and it’s now worth $200,000. They are just walking away from the mortgage,” says Jack McCabe of McCabe Research & Consulting in Deerfield Beach, Fla. “There is no incentive to keep making payments on houses that are continuing to decline.”

The new Homeowner Affordability and Stability Plan from the White House is designed to help responsible homeowners who are making payments on time, but cannot get refinancing because of lost home value.

In one part of the new plan, the White House wants banks to take the first step, reducing homeowners' payments to no more than 38% of their income. The government would then subsidize the monthly payment down to 31%. A fact sheet released today indicated that a family with a $200,000 income on a 30 year fixed mortgage at 6.5 percent would save about $191 a month.

We'll have to wait and see if -- and how quickly -- these new programs actually help alleviate the increasing mortgage crisis for the average homeowner. Stay tuned!

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Looking for a deal? Make an offer.

A recent article on Forbes.com included commentary from some of the top minds in investing and real estate, including the kind of real estate, Donald Trump.

Certainly we don't need to read an article to know the sobering truth about the current market - it's abysmal. But the offer some great advice for people looking to buy right now - MAKE AN OFFER.

Investors have long known that the best way to make money is to buy when things are on sale. The same goes for real estate. Some of my clients are looking to invest in foreclosures and short sales right now, making their investment dollar go a whole lot further than it did just a couple of years ago.

Real estate, like all things, is cyclical. When property values do rise again, and they will eventually, these savvy investors may find themselves more profitable on the properties they are buying now than on any other property.

Sellers are becoming more realistic, and some of them are simply upside-down on their property and will shed the responsibility for little to no profit - and sometimes at a loss. Which makes the advice of MAKE AN OFFER that much more important. You have no idea what someone will accept until you ask. As Donald Trump points out in the article, don't worry about hurting anyone's feelings. He advises, "Far too many people fear rejection, and they don't want to be insulting, but you would not believe what you can get by not being afraid to hear no. If you get a no you establish a low base to continue negotiations from, and it took you two seconds of time to ask, we all have that to spare."

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