Tri-City Area and Real Estate Blog

With additions and extensions to the homebuyer tax credit laws until April 30, 2010, you should take a look at this video to learn more about how the credit works and how much you’ll receive!

Lenders who have had to take back a home, do have the right to try and collect defaulted funds from the people taking out that loan. Recently, a Florida man found that even after his foreclosure was completed, he was being pursued by collectors for tens of thousands of dollars! Lenders are able collect through several means, i.e., wages, bank accounts, and setting liens of on other assets. In this case, Florida laws permit mortage holders are allowed to obtain a judgment within 5 years of the foreclosure and have up to 20 years to collect on it.

Pres. Obama hopes to make foreclosures a thing of the past by presenting the Home Affordable Modification Program, thus cutting a mortgagee’s payment to 1/3 of the household income.

Include Real Estate ! With rates this low, and availability still good, prices still flexible… There is no better time…

Mortgage Rates

2009 Ends With Mortgage Rates Just Over 5 Percent
Slightly Higher Rate Still Remains Very Affordable by Historical Standards
McLean, VA – Freddie Mac (NYSE:FRE) today released the results of its Primary Mortgage Market Survey® (PMMS®) in which the 30-year fixed-rate mortgage (FRM) averaged 5.14 percent with an average 0.7 point for the week ending December 31, 2009, up from last week when it averaged 5.05 percent. Last year at this time, the 30-year FRM averaged 5.10 percent.

The 15-year FRM this week averaged 4.54 percent with an average 0.7 point, up from last week when it averaged 4.45 percent. A year ago at this time, the 15-year FRM averaged 4.83 percent.

The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.44 percent this week, with an average 0.6 point, up from last week when it averaged 4.40 percent. A year ago, the 5-year ARM averaged 5.57 percent.

The 1-year Treasury-indexed ARM averaged 4.33 percent this week with an average 0.6 point, down from last week when it averaged 4.38 percent. At this time last year, the 1-year ARM averaged 4.85 percent.

Making homes affordable… Do you qualify for one of the  incentives to buy a home? Here is a link that may help you determine if you qualify.

http://www.makinghomeaffordable.gov/

Frequently asked questions about the Home Buyer Tax Credit

The American Recovery and Reinvestment Act of 2009 authorizes a tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence on or after January 1, 2009 and before December 1, 2009.

The following questions and answers provide basic information about the tax credit. If you have more specific questions, we strongly encourage you to consult a qualified tax advisor or legal professional about your unique situation.

1. Who is eligible to claim the tax credit?  First-time home buyers purchasing any kind of home – new or resale – are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and before December 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner.

2. What is the definition of a first-time home buyer? The law defines “first-time home buyer” as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law test the homeownership history of both the home buyer and his/her spouse.

For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. However, unmarried joint purchasers may allocate the credit amount to any buyer who qualifies as a first-time buyer, such as may occur if a parent jointly purchases a home with a son or daughter. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.

3. How is the amount if the tax credit determined? The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.

4. Are there any income limits for claiming the tax credit? The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The tax credit amount is reduced to zero for taxpayers with MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.

5. What is ‘modified adjusted gross income”? Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine “adjusted gross income” or AGI. AGI is total income for a year minus certain deductions (known as “Adjustments” or “above-the-line deductions”), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on  Line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.

To determine modified adjusted gross income (MAGI), add to AGI certain amounts such as foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions and deductions for higher-education costs.

6. If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit? Possibly. It depends on your income. Partial credits of less than $8,000 are available for some taxpayers whose MAGI exceeds the phaseout limits.

7. Can you give me an example of how the partial tax credit is determined? Just as an example, assume that a married couple has a modified adjusted gross income of $160,000. The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000.

Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.

Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances.

8. How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008? The most significant difference is that this tax credit does not have to be repaid. Because it had to be repaid, the previous ‘credit’ was essentially an interest-free loan. This tax incentive is a true tax credit. However, home buyers must use the residence as a principal residence for at last three years or face recapture of the tax credit amount. Certain exceptions apply.

9. How do I claim a tax credit? Do I need to complete a form or application? Participating in the tax credit program is easy. You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on Line 69 of their 1040 income tax return. No other applications or forms are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and first-time home buyers tests.

10. What types of homes will qualify for the tax credit? Any home that will be used as a principal residence will qualify for the credit. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000/$500,000 capital gain tax exclusion for principal residences.

11. I read the that the tax credit is “refundable”. What does that mean? The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involved the government sending that taxpayer a check for a portion or even all of the amount of the refundable tax credit.

For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would received a check for $7,000 ($8,000 minus the $1,000 owed).

12. I purchased a home in early 2009 and have already filed to receive the $7,500 tax credit on my 2008 tax returns. How can I claim the new $8,000 tax credit instead? Home buyers in this situation may file an amended 2008 tax return with a 1040X form. You should consult with a tax advisor to ensure you file this return properly.

13. Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit? Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been “purchased” on the date the owner first occupies the house. In this situation, the date of first occupancy must be on or after January 1, 2009 and before December 1, 2009.

In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.

14. Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program? Yes. The tax credit can be combined with the MRB home buyer program. Note that first-time home buyers who purchase a home in 2008 may not claim the tax credit if they are participating in an MRB program.

15. I live in the District of Columbia. Can I claim both the Washington, D.C. first-time home buyer credit and this new credit? No. You can claim only one.

16. I am not a U.S. citizen. Can I claim the tax credit? Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of “nonresident alien” in IRS Publication 519.

17. Is a tax credit the same as a tax deduction? No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes, That means that a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS.

A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $8,000 in income taxes. If the taxpayer receives an $8,000 deduction, the taxpayer’s tax liability would be reduced by $1,200 (15 percent of $8,000), or lowered from $8,000 to $6,800.

18. I bought a home in 2008. Do I qualify for this credit? No, but if you purchased your first home between April 9, 2008 and January 1, 2009, you may qualify for a different tax credit.

19. Is there any way for a home buyer to access the money allocatable to the credit sooner than waiting to file their 2009 tax return?  Yes. prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the down payment.

Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.

Further, rule changes made as part of the economic stimulus legislation allow home buyers to claim the tax credit and participate in a program financed by tax-exempt bonds. Some state housing finance agencies, such as the Missouri Housing Development Commission, have introduced programs that provide short-term credit acceleration loans that may be used to fund a down payment. Prospective home buyers should inquire with their state housing finance agency to determine the availability of such a program in their community.

20. If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return? Yes. The law allows taxpayers to choose (“elect”) to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the  election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.

Taxpayers buying a home who wish to claim it in their 2008 tax return, but who have already submitted their 2008 return to the IRS, may file an amended 2008 return claiming the tax credit. You should consult with a tax professional to determine how to arrange this.

21. For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest? Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount.

By Amelia Veneziano

The national news says the sky is falling. Home foreclosures, plummeting property values and moving vans are at the top of the broadcast. But Chicken Little can keep his hat on.

“Right now, where the Tri-Cities is affected is that consumers are hearing and reading that there’s no good news.” said Jeffrey Losey, executive director of the Home Builders Association of the Tri-Cities. “People are buying into that, although employment here is holding fairly steady and our market is still doing well.”

Nationally, building of new, single-family homes is off 47 percent for all of 2008. In the Tri-Cities, it’s dropped only 21 percent, said Losey. “Obviously we pale in comparison to the rest of the country,” he said.

November showed a significant decrease in the number of homes sold in the Tri-Cities, according to the Tri-Cities Association of Realtors. In November, 132 homes were sold, with another 83 pending sale, compared to 267 sold and 144 pending during the same time period in 2007. Sales decreased by more than 50 percent. “November was kind of a shock,” said Bill Prussing, president of the Tri-City Association of Realtors. “That was a big move down.”

December improved slightly, to 91 homes were under contract, compared to 107 in the previous year, a drop of almost 15 percent.  “We had a ton of bad news in November. There was presidential election, which creates a lot of uncertainty. There was one financial disaster after another. The stock market was on a roller coaster…..I think people were afraid. You don’t make major decisions when you’re afraid,” he said.

House sales decreased 27 percent in the Tri-Cities in 2008. A total of 2,694 homes were sold in 2008. In 2007, 3,695 were sold for the year. In comparison to the rest of the state, the stable number of homes available, even with fewer units closing, means that values are steady, said Prussing.

“Our market hasn’t rocketed up and down (in value), he said. “We’ve been very steady….We’ve been slow, steady growth without a lot of variation.” The median home price in the Tri-Cities in 2008 was $166,000, compared to $167,000 the previous year – a drop of less than one percent. And 2008 prices were still higher than in 2006, when the median price was $160,900.

Washington’s median home price fell 10.4 percent during the third quarter to $281,500. Even though the Tri-Cities market has held solid, it’s affected by turmoil in other regions, local real estate professionals said.

The factor having the greatest impact on real estate business is the ability of people to sell homes in other parts of the country before coming to the Tri-Cities, and since they can’t sell that home, they’re not buying here. With that logjam in effect, employers who want to bring new people in are having to wait until they can sell their homes elsewhere. Much of that jam is caused by foreclosures in other parts of the country, which saturate the market with homes sold under value. The Tri-Cities has not been heavily hit by the trend, but the impact is is widespread.

“That makes it harder for the guy who’s paying his mortgage and has a reasonable asking price to sell his house,” Prussing said. Lending policies and a rush to satisfy the ‘American Dream’ of homeownership have allowed zero-down and flexible interest rate plans. But with the current crises, old policies are coming back. “You used to have to put down a sizable down payment before you were able to get a loan,” Prussing said, “We’ve gotten away from all that. We’re now moving back toward (significant down payments).”

Since the Tri-Cities has seen relatively few foreclosures compared to much of the nation, the main impact of that problem has been delaying many people from moving here. People without homes to unload – that lucky group of first-time buyers – will have a golden opportunity. Interest rates have been steadily dropping and were at 4.5 percent in December, as low as they’ve been 30 years. A first-time buyer tax credit of $7,500 is a congressional incentive to go out and buy.

“That’s tremendous,” Prussing said of the rebate. “That’s available for people to take advantage of.” The home must be purchased by July 2009 for that tax credit, but there are indications that a similar credit will materialize for 2010. First-time buyers aren’t the only ones who will find a deal, although they are the only ones who can receive that tax credit. Interest rates apply to all buyers.

In 2008, all home markets were a buyers market; the closest things to a sellers market were homes in the $175,000 to $199,000 range. Even though this is a buyers market, sellers can still benefit. Waiting to sell a house could bring a modest gain in the value, but most sellers will turn around and buy a new home — which has also increased in value, Prussing said. There’s no big savings in that. When prices are down, the buying is better.  “Even though they might sell low in this market, they can turn around and buy low,” he said.

It’s still a challenge for homeowners to stomach a huge loss in property values. “It’s pretty devastating if your home is the largest single purchase you ever make and it loses 20, 30, 40 percent of its value over a year,” Losey said. “Most people can’t eat that kind of loss.” Some owners are opting to hold on to their current homes, but still spend a little money in our market.

“We’re seeing a lot more remodels.” Losey said. “People are opting to remodel a kitchen or add a bathroom, rather than buy a new house.” Central air conditioning units, sheds, pools and other additions have been popular items in 2008, he said.

Building is also down. According to the Benton-Franklin Title Company, single-family building permits dropped 31 percent in Benton and Franklin counties since 2007 when 1,594 new single-family home permits were issued. In 2008, 1,235 were issued by through the first two weeks of December. Building permits peaked in 2004, when 2,391 new home permits were issued for the year.

Some buyers are just waiting to see what happens. “A lot of people have been delaying buying houses with all this bad news.” Prussing said. “They’re looking at their 401(k)’s, which have dropped maybe 40 percent. That puts fear into people. They’ve still got to buy groceries, heat, gas, utilities – they’re putting the big-ticket items off until next year. They want to see if they’re employed first.”

With unemployment rates holding steady, the Tri-Cities should hold on. “As long as the employment picture in the Tri-Cities stays positive, with interest rates low and no other major disasters, I think people will take advantage of the low rates, provided they’ve got a decent job and good credit,” said Prussing.

In a recent HBA survey, the Tri-Cities was the only metropolitan area in the Pacific Northwest that wasn’t overvalued, Losey said.  “That’s why we’re poised to be the first community in the region to benefit from any good news,” he said. “Just give us something.”