Bonnie Milstead, CDPE, CRS, GRI, LTG

Home Buyers Tax Credits Expansion & Extension - What Does It Mean?

Recent legislation not only extended the popular home-buyer tax credit - it expanded it.
"The Worker, Homeownership, and Business Assistance Act of 2009," signed by President Barack Obama, will allow certain, select existing homeowners to take advantage of the credit. Under previous rules, the homebuyers' tax credit had been only for prospective homebuyers who had not owned a principal residence during a three-year period prior to purchase.

Eligibility Defined:
A first-time home buyer is defined as an individual who has not owned a principal residence during the three year period prior to the purchase. For married taxpayers, the law tests 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, consumers should note that 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.
A qualified homeowner is defined as someone who has owned and resided in a home for at least five consecutive years within the last eight.

Credit Amounts:
The maximum credit amount for first-time home buyers is $8,000; the maximum credit amount for current homeowners is $6,500. The federal tax credit amounts to 10 percent of the cost of the home, up to a maximum credit of $8,000 for first-time homebuyers and $6,500 for current homeowners. Under the new legislation, a tax credit may only be awarded on homes purchased for $800,000 or less.
For example, if a home costs $60,000, the allowable credit for both a first-time homebuyer and a current homeowner would be $6,000. If a home costs between $80,000 and $800,000, then the allowable credit for a first-time homebuyer would be $8,000 and for a current homeowner, $6,500.
Single taxpayers with incomes up to $125,000 and married couples with a joint income up to $225,000 qualify for the full tax credit. Individuals whose Form 1040 filing status is "single" are eligible for the tax credit if their income is no more than $125,000. Individuals who file a joint return are eligible if they have no more than $225,000 in income.
Single taxpayers who earn between $125,000 and $145,000, and married couples who earn between $225,000 and $245,000 are eligible to receive a partial credit. Individuals with incomes greater than $145,000 (single) and $245,000 (joint return) are not eligible for this tax credit at all.

Dates:
The credit is available for homes purchased on or after November 7, 2009 and before May 1, 2010. The federal income credit can be claimed on one's individual or joint tax return for the purchase of any single-family home (newly-constructed or resale, single-family detached, townhomes or condominiums) between the dates of November 7, 2009 and April 30, 2010. Home purchases subject to a binding sales contract signed before May 1, 2010 will also qualify for the tax credit provided closing occurs prior to July 1, 2010.

How It Works:
The tax credit is refundable. A refundable credit means that if the amount of income taxes a home buyer owes is less than the credit amount he / she qualifies for, the government will send a check for the difference. In essence, the credit is a dollar-for-dollar reduction in what taxpayers owe for the calendar year following the year they close on their home.
A first-time home buyer who qualifies for the full $8,000 tax credit and owes $5,000 in federal income taxes would owe nothing to the IRS and receive a $3,000 payment from the government. A current homeowner who qualifies for the full $6,500 tax credit and owes $5,000 would pay nothing to the IRS and receive $1,500 back from the government. If the move-up buyer is due to get a $1,000 refund, he / she would get $7,500 ($1,000 plus the $6,500 move-up buyer tax credit).
The tax credit is a true credit. It does not have to be repaid unless the homeowner sells or stops using the home as their principal residence within 3 years after the purchase. In that case, the full credit amount will be recouped on the sale.
For further understanding of how the extended tax credit differs from the previous version and how it can benefit first-time homebuyers and select homeowners call or e-mail me anytime.

This is based on information available as of November 2009 and is not meant to be tax or legal advice. As with any tax law change, consumers should check with a tax advisor regarding availability, eligibility and possible timing of any tax credit.

A short sale can be an excellent alternative for homeowners who owe more on their homes than they are currently worth and NEED to sell.

Due to overwhelming market changs lenders have become much more negtiable when it comes to short sales. Recent changes in policy within many organizations have made the chances of getting a short sale approved much higher.


So what is a short sale anyway, and how could it possibly help the lender, a homeowner and a buyer at the same time?

THE BANK DOES NOT WANT YOUR HOUSE!

A short sale occurs when:

A negotiation is entered into with the homeowner's mortgge company or companies to accept less than the full balance of the loan at closing. A buyer closes on the property and the property is "sold short."

Sounds easy enough, doesn't it? However, it is an involved process that takes time, patience good communication skills, organization on your part AND the cooperation of the seller.

What A Short Sale Is NOT:

Homeowners need to be clear that a short sale is a way to avoid foreclosure. It is not a "get out of my mortgage free card." A seller has to have a valid financial hardship for why they cannot pay their mortgage. A seller without a financial hardship that is upside down on their mortgage and wants to sell is NOT A POTENTIAL SHORT SALE. Some situations that may qualify a seller for a short sale are; loss of job, divorce, payment increase or mortgage interest rate adjustment, death of a spouse, severe illness, incarceration, etc.

Three Choices for Homeowners

Generally speaking, a homeowner facing foreclosure can take one of three paths. They can either...Get caught up on the mortgage payments and keep the home

1. Get caught up on their mortgage payments.
2. Find a way to sell the home before they go into foreclosure
3. Allow the bank to foreclose on the home

Obviously, getting the mortgage caught up is the most desirable. If possible, the homeowner should try to get caught up in order to keep the home. Real estate is still one of the best investments you can have, so you shouldn't let it slip away without making every effort to keep the property.

The third option is obviously the least desirable. Nobody wants a foreclosure to go on their credit history, because it will make future home purchases / mortgage approvals more difficult.

The Real Estate Short Sale Option

The second option - the short sale , is a way for the homeowner to sell the home quickly in order to avoid a complete foreclosure. With this approach, the lender gets some of their money back, the homeowner avoids foreclosure, and somebody gets a good deal on a home.

How does a buyer in a short sale typically get a good deal? Because of the very nature of the short sale. Through this process, the lender agrees to let the homeowner sell the home for less than the amount the homeowner still owes to the lender. Sometimes in order to move the property quickly it is priced VERY competetively. While most lenders want some idea of the market value of the property via a Broker Price Opinion they realize that in today's market the property MUST be very competivily priced in order for it to sell. This often means that the home will be sold for less than market value.

Why would the lender do such a thing? Because they want to sell the home as quickly as possible and avoid losing any more money from the nonperforming loan. The lender also wants to avoid foreclosing on the home, because that means they will have to manage and sell the property (or pay somebody to do that for them). So the real estate short sale is a way to get the loan off their books quickly, without having to go through the extensive process of foreclosure, real estate auction, etc.

SELLER BEWARE! There are people out there who take advantage of homeowners in financial distress.

The short sale process can help certain types of homebuyers in certain situations -- such as those who are facing foreclosure with no hope of getting caught up on their mortgage payments. But this type of process also attracts some sharks, so you need to be a smart consumer ... and that means doing plenty of research.

Work with a real estate professional experienced in short sales. An excellent designation is the "Certified Distressed Property Expert" credential. We have extensive training in foreclosure avoidance and short sales.

It's a new day, a New Year and a new administration in Washington! It's time for renewed hope in our Country. And hopefully, with a new administration in Washington the media will start talking about positive news for a change! We need some GOOD NEWS!

That said, there is GOOD NEWS for savvy real estate buyers and many ARE taking advantage of the current buyers market. There were over 2,400 hundred properties sold in the Panama City and Panama City Beach, Bay County areas in 2008. Not bad for our quiet, little town! Okay, that it is a buyers market has been said and said again BUT as real estate professionals I don't think we can emphasize enough the current opportunites. The media needs to stand corrected! You don't have to have a crystal ball to predict the future of the real estate market. After a turndown, an UPWARD TREND FOLLOWS. Make no mistake - that upward trend IS coming. When? Who knows for sure. The Spring-Summer home-buying season, will soon be here and that usually means sales pick up which can cause prices to firm up or solidify. Currently with a large inventory of properties on the market, desperate sellers, seller paid closing costs, desperate sellers, super low interest rates, desperate sellers, drastically reduced listing prices on inventory, desperate sellers, and new tax incentives it's a win-win for buyers. Oh, and did I mention desperate sellers?!?!

Next, don't let anyone tell you there are no mortgages to be had. That is simly not true. Yes, the qualifying critera has changed, as it should have but there are good loan packages available at excellent interest rates to qualified buyers. And in some cases where Rural Development Housing guidelines apply there is 100% financing available with no down payment to qualified buyers.

I am optimistic and excited about our future here in Bay County, the brand New Year, and the opportunity for our nation to move forward on a positive note. With the World's Most Beautiful Beaches, incredible weather, our new Pier Park with upscale shopping and numerous restaurants, the new Seabreeze Jazz Festival venue each Spring bringing world renowned musicians, a new International Airport coming in 2010, a friendly, small town environment AND incredible opportunies for savvy real estate buyers we have much to offer here in Panama City and Panama City Beach.

Here's to the future and savvy real estate purchases!