Gina Miller

Daily Real Estate News May 29, 2009

FHA-approved lenders received the go-ahead to develop bridge-loan products that enable first-time buyers to use the benefits of the federal tax credit upfront, according to eagerly awaited guidance from the U.S. Department of Housing and Urban Development on so-called home buyer tax credit loans that was released today. Under the guidance, FHA-approved lenders can develop bridge loans that home buyers can use to help cover their closing costs, buy down their interest rate, or put down more than the minimum 3.5 percent. The loans can't be used to cover the minimum 3.5 percent, senior HUD officials told reporters on a conference call Friday morning. Thus, buyers applying for FHA-backed financing with an FHA-approved lender that offers a bridge-loan program can get a bridge loan to bring down the upfront costs of buying a home significantly but would still have to come up with the minimum 3.5 percent downpayment. There remain many sources of assistance for buyers needing help with the 3.5 percent downpayment, including many state and local government instrumentalities and nonprofit lenders. In addition, some state housing finance agencies have developed their own tax credit bridge loan programs, so buyers in states whose HFAs offer such programs can monetize the tax credit upfront to cover all or part of their downpayment. These programs are separate from what HUD announced today. The first-time homebuyer tax credit was enacted last year--and improved upon earlier this year--to help encourage households to enter the housing market while interest rates are low and affordability is high. The credit is worth up to $8,000 and is available to households that haven't owned a home in at least three years. The credit does not have to be repaid, and is fully reimbursable, so households can get their credit returned to them in the form of a payment. Learn more about the credit, including how to apply for it this year even if you've already filed your taxes, at REALTOR.org.

Source: Robert Freedman, REALTOR® Magazine Online

Raleigh, North Carolina was named the #1 Fastest-Growing Metro Area in the country and the #1 City Where Americans are Relocating. Despite the economic downturn, the Raleigh area grew by more than 4%. Raleigh was also named the #1 Best Places for Business and Careers according to Forbes magazine.

The Raleigh area has consistently been in the top rankings for over a decade. In 2008, we were also named as #1 Best Place to Live in the US by MSNBC and the #2 Best City to Live, Work & Play by Kiplinger.

Attaining these top accolades has attracted a lot of people to our area from all over the country. As a local Realtor in the area, I have had people tell me that they decided to move here because of the Forbes or MSNBC articles. After reading these articles and doing their research, they found that the area's cost of living is low in comparison to their hometown and they started packing their bags! I have even had people move to our area without jobs! They knew that our Research Triangle Park is known as the Silicon Valley of the East and they felt that they would be able to get a job in their industry.

Another great selling point for the Raleigh area is its close proximity to 3 major universities: Duke University, University of North Carolina and North Carolina State. We also have a low tax base and a great quality of life. People are so friendly here that you can't drive through a neighborhood without people waving to you!

Our area never saw a run up in housing prices and therefore we never experienced the balloon market and the bust like other places. Don't get me wrong; our market has been affected because of other markets, but we have not seen price drops anywhere close to what others have experienced. The Wall Street Journal reported that over a year's period of time in 2008 that our pricing was down only 2.5%. Additionally, the foreclosure rates are very low at 4.5% and is considered a niche segment of the market in this area.

With these great selling points, it isn't hard to see why Raleigh continually receives accolades and attention from buyers all over the country! A low cost of living, ample jobs, amazing educational opportunities, and an affordable housing market makes Raleigh's appeal hard to beat!

When the President signed into law the $787 billion economic-recovery package in February, certain tax breaks were scaled back from the proposal. It was our hope that the new tax credit would apply to all home purchasers and would be up to $15,000. What ended up being signed into law was an $8,000 tax credit for first-time home buyers that is not required to be paid back. This new credit will be available to eligible home purchasers beginning January 1, 2009 and ending December 1, 2009.

Some Quick Facts about the New Tax Credit

• All principal residences are eligible.
  
• You must be a first-time homebuyer as well as your spouse. The rule states that if you owned a principle residence in the last 3 years before your new purchase, you are not eligible.
  
• Maximum credit amount increased last year from $7,500 to $8,000 this year.
  
• The full amount of credit is available for individuals with adjusted gross income of no more than $75,000 ($150,000 on a joint return). The amount of the credit begins to phase out for taxpayers whose adjusted gross income is over these limits.
  
• No repayment of purchases on or after January 1, 2009 and before December 1, 2009. This is a true tax credit and not a deduction. The 2008 tax credit of $7,500 had to be paid back.
  
• Any unused amount of tax credit will be refunded to the purchaser when tax returns are filed.
  
• A taxpayer doesn't have to repay the credit provided the home remains their personal residence for 36 months after the purchase date. A taxpayer can claim 10% of the purchase price up to $8,000 or $4,000 for married individuals filing separately.

Q&A
(Information below taken from www.savingtoinvest.com)

Question: Will home buyers who made purchases last year between April 9th and December 31, 2008 be eligible for the new credit?
Answer: No. They will continue to be covered by the $7,500 tax credit that was enacted last year. They will also have to repay this amount unlike 2009.

Question: Can I claim the $8,000 home buyer tax credit on my 2008 returns?
Answer: Yes. You can include it in your 2008 returns by using form 5405. If you have already filed your 2008 taxes, you can file an amendment or adjust your paycheck withholding for the credit amount so that your take home pay for the rest of the 2009 is higher. (For example, $8,000 over 8 months is an extra $1,000 in your monthly paycheck).

Question: If we bought in July of 2008, but have not used the credit, can we use the new 2009 credit instead? If not, can I claim the difference between the old credit and new credit?
Answer: No. The 2009 tax credit is only for homes purchased this year. You can only claim the old $7,500 credit. However, if you bought your house in January or February of 2009 and had already filed your returns under the old credit, you would be eligible to file an amendment for claiming the additional $500 under the new credit.

Question: If I co-buy a house with someone who is not a first-time home buyer, can I claim the whole credit?
Answer: If two or more unmarried individuals buy a principal residence, they can allocate the credit among the individual owners using any reasonable method such as 50/50 or whatever is agreed upon. The total amount allocated cannot exceed the $7,500 ($8,000 if purchased in 2009) or 10% of the purchase price.

Question: I am interested to know if the credit will be available to those putting down 3.5% as per FHA loans or if a 5% down payment is still required?
Answer: No concrete word on the down payment requirement, but since the Senate proposal for a 15k housing credit was dropped; I assume their 5% requirement was also dropped and that the current 3.5% FHA limit would stay in place. Also, remember the FHA loan has certain other criteria to meet which all borrowers may not qualify for. If you do get a loan through your bank or broker, most likely you will need a 10-20% down payment in any case.

For the revised Form 5405, "First-Time Homebuyer Credit", go to www.IRS.gov.

Banks are lending money to creditworthy buyers. They are also only requiring 5% down for a conventional loan and 3.5% down for an FHA loan. The news media is either giving buyers the impression or actually telling the public that banks are not lending or that they are requiring 20% down. This is just not true. What is true is that they have tightened their lending practices that were once out of control. They have also eliminated the 80/20 loan that was designed to cover the private mortgage insurance. Now, in order to avoid paying this monthly insurance, you need to put down 20%. This is where the confusion may lie.

Before the downturn, a buyer could purchase a house without even having a job, as long as they had good credit! That is not the case anymore. Those days are gone. Banks are now scrutinizing each and every loan to make sure they don't make a mistake by taking on a buyer who cannot pay. You may have to provide more paperwork than ever before to the lender but they are still lending!

The problem I see in our marketplace in the Triangle area is that more times than not, the news media is reporting on the national, rather than local, real estate news. People in our area may get the impression that we are in the same boat as the rest of the country and that our prices are going to drop to the levels of California or Florida. Many are sitting on the sidelines waiting for the bottom and will miss out on some great deals. The reason our prices will not drop like these other areas is because the Raleigh area has never been in a balloon market. Our prices were never over inflated. When other markets had crazy out of control prices, our appreciation stayed fairly consistent over a long period of time.

The reason our area has been affected is because there is such a high volume of people from all over the country that cannot sell their homes and move to North Carolina as they intended. This has caused the Raleigh area to temporarily lose buyers and have higher inventory levels. We were the last to come to this down marketplace and I understand by our local economists that they predict we will be the first to come out of it.

In the Wall Street Journal on Tuesday, January 27^th, the article, "Price Cuts Spur Homes Sales" said that U.S. Home sales registered their biggest monthly jump in nearly seven years in December, a rise of 6.5% from November. It also showed a map of the U.S. and the percentage decrease in home prices over the last year. The Raleigh area only registered a mere -2.5% drop in prices while other major markets such as Las Vegas (-26.8%), Miami (-23.5%), Phoenix (-22.3%) and Los Angeles (-21%) were substantially down. As you can see, the Raleigh area is considered one of the best markets in the country and has been the least affected in the down market next to Dallas (-1.8%). That says a lot about our area!

With this information, it is clear why the news media should not talk about the real estate market as a whole, implying that all of the markets in the country are the same. Our market is clearly different than these other markets in this recession. I understand that once home buyers in other parts of the country are able to sell their homes and relocate, they are picking areas with strong rebound potential.

The Raleigh/Durham area is being eyed by people who want a better quality of life, affordable housing and lower taxes. As soon as they sell their homes, they say they are off to North Carolina! In 2008 we were named as the #1 Best Place to Live in the US by MSNBC!