Buying a Home in Time to Get Credit

House hunting usually slows down this time of year, as people put their searches on hold during the holidays.

This winter could be different, however, thanks to the extension — and expansion — of the first-time home-buyer tax credit.

“We’re going to see far more interest in the fourth quarter than we generally do because of the tax credit,” says Heather Fernandez, vice president of Trulia.com, a real-estate search engine. Traffic surged on the site on Nov. 5, the day Congress approved the credit extension, she says.

The new law extends the tax credit for first-time home buyers and opens it up to some existing homeowners as well: The credit is now up to $8,000 for first-time buyers and up to $6,500 for repeat buyers.

All buyers must have a binding contract on a house in place on or before April 30. The purchase must be for a principal residence and must close on or before June 30.

To be considered a first-time home buyer, an individual must not have owned a home in the past three years. And to be eligible, existing homeowners need to have lived in the same principal residence for five consecutive years during the eight-year period that ends when the new home is purchased.

Income limits have risen as well. According to the Internal Revenue Service’s Web site, http://www.irs.gov, the home-buyer tax credit phases out for individuals with modified adjusted gross incomes between $125,000 and $145,000, and between $225,000 and $245,000 for people filing joint returns.

The inclusion of move-up buyers might inspire homeowners to take action and list their house if they’ve been putting it off, says Carolyn Warren, a Seattle mortgage broker.

“If people love their home, it’s not going to entice them to sell,” Ms. Warren says. “If they’ve had it in the back of their minds and really would like to move up, it might push them into doing it sooner than later.”

If you’re thinking of purchasing a home, here are five tips:

Don’t procrastinate
Start your house search now. Getting an early start will give you a better chance of finding the right house before the credit deadline.

When first-time buyers thought that the credit would expire Nov. 30, people scrambled to find properties in September and October, says Pat Lashinsky, chief executive of ZipRealty, a residential real-estate brokerage firm. In some cases, “there wasn’t inventory that fit people’s needs,” he says. In some markets, including Phoenix, Chicago and parts of California, for example, properties had multiple bidders, Mr. Lashinsky adds.

Before you start house hunting, get preapproved for a mortgage, says Eddie Fadel, a Miami-based mortgage banker. And do a realistic assessment of what you can afford.

Buyers who have to sell an existing home should price it aggressively from the beginning to drum up interest and get a buyer as soon as possible, Ms. Fernandez says.

Don’t count on another extension
The credit won’t be available forever, Mr. Fadel says.

“This is a medication for the housing crisis,” he says, “Once the patient — which is the housing market — is cured, there will be no medication needed.”

Be mindful of interest rates
Interest rates are low right now, but will likely rise next year, Ms. Warren says. Higher rates will affect your monthly mortgage payments, thus the affordability of the house you are buying.

“It’s pretty universally accepted that rates will be higher next year,” she says. “What is unknown is how fast and by how much.”

Average rates on 30-year fixed-rate mortgages have been hovering around 5%. But when the Federal Reserve stops buying large amounts of mortgage-backed securities next year, interest rates could rise, Ms. Warren points out. The Fed plans to end its purchase program in March.

Communicate with your lender
Make sure you’re speaking with your lender regularly to avoid any delays. If the lender asks for any additional documentation, turn it in as soon as possible, says Doug Heddings, a New York-based real-estate agent with Charles Rutenberg Realty.

And think twice before pursuing a short sale. That’s where someone sells a home for less than what he or she owes on a mortgage, with permission of the lender. The process can be lengthy and unpredictable because the homeowner’s lender has to approve any deal, Ms. Warren says, and it can get complicated when there is a second mortgage associated with the property.

Don’t take shortcuts
Don’t forgo any of the steps you would normally take just to make the tax-credit deadline. That means making sure the house is a good fit and is in the right location and getting a home inspection, Mr. Lashinsky says. Skipping steps could cost you in the long run.

“Don’t let the tax credit get you to make a decision to buy a house that you wouldn’t otherwise want to buy,” he says. “Don’t shortcut the process to get the tax credit.”

Source: Wall Street Journal,  AMY HOAK (11/15/2009)

Are There Any Foreclosures Left?

For the eighth straight consecutive month, national foreclosure activity in the U.S. was dominated by a small set of states.

As reported by RealtyTrac.com, more than half of October’s foreclosure-related activity came from just 4 states:

  1. California
  2. Florida
  3. Illinois
  4. Michigan

The remaining Top 10 states in terms of total foreclosure activity included Arizona, Georgia, Texas, Ohio, New Jersey, and Maryland.

Foreclosures are up 19 percent from last October, but a deeper look at the RealtyTrac report revealed two positive developments for the housing market.

  1. Foreclosure activity is down 3 percent from last month
  2. Foreclosures per Household decreased in 9 of the 10 most heavily concentrated states

Furthermore, Nevada‘s foreclosure pace is down 4% from last year.  This is a big deal because Nevada has long led the nation in foreclosure-related activity. Until last month, Nevada’s year-to-year foreclosure rate hadn’t fallen in more than 4 years.

It’s too soon to say that the foreclosure market is drying up, but bargains are getting harder to come by.  First-time buyers and bona fide investors alike have been snapping up property at a furious pace.

According to an industry trade group, distressed homes account for nearly one-third of home resale activity.

That said, buying foreclosures isn’t for everyone.

For one, properties are often sold as-is and may be defective.  The cost of repairs may negate “the deal” or “the steal” — depending on the cost of the home.

Secondly, closing on a foreclosed home can be a 3-month long process. This is because banks rarely process home sale paperwork as fast as a “person” would. A 3-month timeframe may not fit your schedule.

In the end, fundamentally, buying a foreclosed home is the same as buying a “regular” home — there’s a contract and a closing.  Most of the steps in the middle, however, are different.

Read the complete foreclosure report and take a peek at the foreclosure heat maps on the RealtyTrac website.  If you like what you see, talk to your real estate agent about what to do next.

There’s still good deals in the foreclosure market, but based on October’s data, they may not last through the winter.

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Low Prices Draw Investors Back to Market

Real estate investors are moving back into the market, according to a new survey from Move.com.

According to the Move.com survey, 12.1 percent of home buyers today plan to buy a home as an investment property, compared to 5.6 percent in March 2009. The survey found that 15.8 percent of those interested in investment property were men and 8.1 percent were women and 52.6 percent of the investment buyers were between ages 35 to 49.

Of the 25.3 percent of buyers who are focusing on foreclosure properties, 42 percent regard the purchase they are considering an investment and don’t plan to live in the property themselves; 13.2 percent plan to rent out the property; 11.3 percent are going to fix up the property and resell it; and 17.4 percent plan to house a family member until the property can be sold profitably.

Of the 9.8 percent of buyers who say that they plan to purchase and live in a property in the next two years, 5.4 percent plan to purchase in the next 12 months; 48.3 percent are first-time buyers; 52.8 percent are women, and 44.1 percent are men.

Buyers of investment and personal property say they are motivated by these factors:

Prices are as low as they will go, 23.6 percent
Foreclosure prices are a bargain, 18.7 percent
Great selection of homes for sale in their target community, 21.2 percent
Concerned interest rates will rise, 14.2 percent

Source: Move.com (11/11/2009)

Seattle is Positioned to Bounce Back

According to CNNMoney.com Seattle is ranked second for best recovery bets. Our Real Estate has fallen only 15% through the economic decline, which is about half of the national average. With our fortune 500 companies still surviving, our unemployment still below the national average we are poised to make a nice comeback over the next two years.

Median home price: $371,000

Value lost since 2006: 15.2%

Forecast gain by 2011*: 3.8%

Seattle has become a world-class city with a diverse, vibrant economy. As a home to manufacturers such as Boeing and software providers such as Microsoft, the job market has held up better than average, with a current unemployment rate of 8.8%.

Home prices had a softer landing as well, dropping just 15.2% over the past three years, about half the national average. However, prices do tend to be volatile, according to Mark Fleming, chief economist for First American CoreLogic. The lack of available land for development is one reason for that volatility, as are political restrictions on growth.

After another modest price decline of 2.3% in the next eight months, the market should begin to turn up. Between June 2010 and June 2011, the city should see a gain of 6.2%. Averaged out, that means a 3.8% gain over the next two years*.

And while that may not sound all that robust for those jaded by the annual double-digit returns recorded during the boom, that performance will be one of the best of any large city during that period.

Source: CNNMoney.com

First-Time Home Buyer Tax Credit It’s Official

Obama signed the First-Time Home Buyer Tax Credit today.

Congress both extended and expanded the First-Time Home Buyer Tax Credit program Thursday.

The up-to-$8000 tax credit’s expiration date has been pushed forward to spring, requiring homebuyers to be under contract by April 30, 2010, and to be closed by June 30, 2010.

The program’s basic eligibility requirements remain the same:

  • Buyers can’t purchase the home from a parent, spouse, or child
  • Buyers can’t purchase the home from an entity in which they’re a majority owner
  • Buyers can’t acquire the home by gift or inheritance
  • All parties to the purchase must meet eligibility requirements

The new law includes some notable updates, however.

For one, the definition of “first-time home buyer” has been expanded to include most homeowners with at least 5 years in their current home.  “Move-up” buyers like these are now eligible for IRS tax credits, but with a cap at $6,500.

This means that you don’t have to be a true first-time home buyer to claim the “first-time home buyer tax credit”.

Other eligibility changes include:

  • The subject property’s sales price may not exceed $800,000
  • The subject property must be a primary residence
  • Income thresholds raised to $125,000 for single-filers and $225,500 for joint-filer

And remember, the First-Time Home Buyer program grants a tax credit as opposed to a deduction.  This means that a tax filer would receive a cash payment of $2,000 from the U.S. Treasury if his “normal” tax liability totals $6,000 and he was eligible for all $8,000 available under the new law.

The complete list of qualifying criteria is posted on the IRS website.  Be sure to review it with a tax professional to determine your eligibility.  Then mark your calendar for April 30, 2010.

It’s 5 months away.

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Higher Home Prices Ahead, Says The Pending Home Sales Index

The housing market continues to steam forward.

As reported by the National Association of Realtors®, the Pending Home Sales Index posted its 8th consecutive pending-home-sa_1257196692monthly gain in September.

It’s the longest winning streak in the history of the index and Pending Home Sales are now at their highest levels since December 2006.

A Pending Home Sale is a home under contract to sell, but not yet closed. It’s the precursor to an Existing Home Sale.

Trade group data shows that nearly 80 percent of “pending” homes close within 2 months. The majority of those remaining close within months 3 and 4.

When the Pending Home Sales Index rises, it tells us that market activity has picked up. September’s data confirms what we’ve been noticing since February — the Buyers Market is ending.

With more homes under contract in the marketplace, homebuyers typically face one or more of the following:

1. Competitive, multiple-offer situations
2. Reduced purchase price leverage over sellers
3. Fewer seller concessions

Therefore, if you’re buying a home in the next several months, know that the 8-month run in Pending Sales will lead to a run in closed sales. It should result in higher home prices, too

Indeed, we’re already seeing it.

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