First Time Homebuyer Tax Credit UPDATE!

Congress passed the stimulus bill late Friday night. What does this mean for the housing market?

It means we're about to see an influx of buyers. One major item of note is a revision to the First Time Homebuyer tax credit. This is GREAT news for the housing market and will really be enticing for first time buyers. Here's how it will work:

To qualify for the credit, you must be a first time homebuyer or have not owned a home in the past 3 years. If your income is over $75,000 ($150,000 for married couples filing taxes jointly), the credit starts to phase out and is completely phased out after $95,000 of income ($170,000 married filing jointly).

If you purchase a home after Dec. 31, 2008 and before Dec. 1, 2009, then when you file your taxes, you'll be entitled to claim the credit. The credit is now $8,000 (or 10% of the purchase price of the home, whichever is lower), up from the previous $7,500 credit. The best part is - YOU NO LONGER HAVE TO REPAY IT! The previous law required the $7500 tax credit to be repaid, interest free, over a 15 year period. With the new law, you won't have to repay the credit unless the home ceases to be your main residence within 3 years. This is FREE MONEY, people.

This means: if you make less than $75,000 as an individual, and purchase a home for $80,000 or more, and you continue to live in the home as your main residence for 3 years, you're entitled to the full $8,000 credit and do not have to repay it!

You can use this money any way you like - buy new furniture, pay down your mortgage, fix up your house, buy a car, start a business, go on a trip, invest it... the possibilities are endless!It's money for YOU, no strings attached!

How you claim the credit:

When you file your taxes after buying the home, you'll fill out a worksheet which you'll attach to your 1040 (tax return). If, say, you otherwise would have been getting a $1000 federal tax refund, you'll now be getting a $9000 refund (assuming you qualify for the full credit)! Or, on the flip side - if you would have owed $1000 in taxes, you now will actually be getting a $7000 refund!

Once the IRS posts guidelines, I will provide a link to the tax credit worksheet that you can use to claim the credit, so keep checking back! And as always... contact me if you have any questions at all!

Positive Signs in the Housing Market

According to Richard Bove of investment banking firm Ladenburg Thalmann, one of the country's veteran financial analysts, there is a positive dynamic taking shape in the current cycle:

• Bove said he expects “housing prices to stabilize and/or rise (in 2009) after a likely boom in mortgage refinancings as rates fall and loan applications increase.”

• Add in the expected massive economic stimulus package being put together on Capitol Hill with the incoming Obama administration – and there's a good chance we're going to see a gradual transformation of the downward cycle into a slow rebound over the coming several quarters.

• Mortgage rates continue to hover at 50-year lows – 5% and even 4.75% for 30-year mortgages, and still lower for 15- and 20-year mortgage terms.

• There are signs that housing prices are stabilizing in some parts of the country. The latest monthly Federal Housing Finance Agency index found home prices up by 0.6% in the Mountain states and by 0.2% in New England.

• We're all paying a lot less at the gas pump, and sharply discounted prices for retail goods and autos.

• Americans are actually saving again, the national savings rate took a nearly 3% jump last month. That might sound small, but it's hugely important if it is the start of a trend.

Keep your eyes open for the small positive signs that are accumulating out there … because all down cycles tail off and come to an end.

From: http://realtytimes.com/rtpages/20090106_realestateoutlook.htm by Kenneth Harney, Realty Times, Jan. 6, 2009

Market Stimulus

Part of the economic stimulus package that President Bush signed into law last week is going to positively impact the real estate market. In addition to the tax rebates many individuals can expect to receive in the springtime, there is another benefit of this package that is more directly related to real estate.

Fannie Mae and Freddie Mac are government sponsored enterprises that help keep the mortgage market liquid by purchasing mortgages from banks & lenders; they then sell those mortgages to investors. This keeps the lending institutions from "running out of money to lend" and allows them to continue to provide financing to homebuyers like you and me. Fannie & Freddie currently cap the size of the loan they will purchase at $417,000. Part of the economic stimulus package is to increase this "conforming loan" size to $729,750. These "jumbo" loans usually draw higher interest rates, but with the passage of the law, interest rates on these larger loans are expected to decrease.

NAR forecasts that the increase in the conforming loan limit will result in:

~500,000 refinanced loans and could help reduce foreclosures by as much as 210,000

~300,000 additional home sales potentially generated

~reduced housing inventory

~home price increase by 2-3 percentage points

Additionally, part of the plan is to increase the size of FHA-backed loans to the same limit of $729,750 from a previous $362,790. FHA provides insurance on various loans and is backed by the U.S. Dept of Housing & Urban Development (HUD). The insurance on these loans allows more homeowners to purchase homes with low or no downpayment due to the decreased risk to the lender. Increasing the loan size limit on these loans will make home purchases more affordable for many.