Hassan Nicholas

Housing Bill: What It Means for Buyers
by Hassan Nicholás

As you may or may not know a Housing bill, the Housing and Economic Recovery Act of 2008, was signed into law about a month ago, on July 30^th. We’ve received some questions about it from some of our “viewers” so we’d figure we would put together a summary of what this new bill means for first-time home buyers. Incentive for this legislation came out of the need for more foreclosure prevention measures.

The tax credit feature of the loan is the only segment of the bill specifically aimed at first-time home buyers.

• Under bill, first-time home buyers (defined as not having owned a home in the last three years) will be eligible for a tax credit of 10% of the purchase price up to a maximum of $7,500.

• Income limitations. Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 would qualify for the full $7,500 tax credit. The tax credit phases out for higher incomes.

• You are only eligible if you bought after April 8^th of this year and before July 1, 2009

• It’s only a one-time tax credit

• The money is repaid after over 15 years, in which you make $500 payments per year starting the two years after you buy the house

• If you take the full $7,500 credit your income tax bill will increase by $500 a year for 15 years.

• If you sell the house before then you pay Uncle Sam the remaining balance

Essentially, the government is giving you an interest free loan to be added to your disposable income.

Property tax deductions were modified for all homeowners.

• Single filers who pay property taxes increase their standard deduction by $500, $1,000 for couples filing jointly.

• You can’t increase the standard deduction by more than the property tax bill. Example: You’re married and filing jointly you get an $800 deduction if you pay $800 in property taxes, not a $1,000 deduction.

As current law has it, you can deduct property taxes from federal income tax only if you itemize deductions on Schedule A. The new twist will benefit those, like retirees, who own their houses outright and therefore don’t pay any mortgage interest or people who just don’t have enough deductions to itemize on Schedule A.

FHA Program Updated

• FHA loan limit increased from 95% to 110% of the median home price in the area

• The cap set at 150% of the GSE limit, currently $625,000

• Home buyers required to put minimum 3.5% down

Seller-Paid down payment assistance,prohibited.

Additional

• The new bill will require licensing and registration of all mortgage brokers.

• Mortgage lenders are now required to present home buyers and owners looking to refinance with disclosures within three (3) days of applying for some loans. Disclosures must also be required no later than seven (7) days before closing, allowing borrower to loan shop for more favorable terms. Lenders will also be required to inform borrowers of the maximum mortgage payment possible under the loan (Wow, think how that alone could have saved many homes.)

So there you have it. Remember that there is more to the Bill, as it applies to distressed homeowners primarily. As far as how it could affect potential home buyers I hope that I outlined the main points. I would also advise you do more research.

News Wire: Charitable Down Payment Assistance Programs...Gone

OK, so...remember that entry I wrote about the legitimacy of charitable down payment assistance programs? I had my suspicions and it appears I wasn’t the only one. Recently the Department of Housing and Urban Development aka HUD announced a rule intended to exclude “quid-pro-quo” down payment assistance programs. The popular program permitted FHA borrowers to receive cash gifts/contributions, directly or indirectly, from the seller. By charging a service fee popular charitable assistance programs such as Sacramento-based Nehemiah Foundation and others went around a loop hole that prohibits contributions and gifts from the seller. Now that it’s banned it has hurt the business and aspirations of many real estate agents and home buyers. Even with prices still falling in many areas, the quality (availability) and quantity (the amount) of assistance offered for first-timers has decreased substantially. All the more signs that spell out an economic slump that hasn't ran it's course yet.

Edit:

Even with the passing of the Housing Bill, charitable down payment assistance programs are not going down without a fight. Here is a statement released by AmeriDream that I stumbled upon,

OK, so what this means is that supporters of these types of programs are attempting to pass a bill that will counter the provision outlined above. And word is, it will more than likely not be voted until 2009.

News Wire: Charitable Down Payment Assistance Programs...Gone

OK, so...remember that entry I wrote about the legitimacy of charitable down payment assistance programs? I had my suspicions and it appears I wasn’t the only one. Recently the Department of Housing and Urban Development aka HUD announced a rule intended to exclude “quid-pro-quo” down payment assistance programs. The popular program permitted FHA borrowers to receive cash gifts/contributions, directly or indirectly, from the seller. By charging a service fee popular charitable assistance programs such as Sacramento-based Nehemiah Foundation and others went around a loop hole that prohibits contributions and gifts from the seller. Now that it’s banned it has hurt the business and aspirations of many real estate agents and home buyers. Even with prices still falling in many areas, the quality (availability) and quantity (the amount) of assistance offered for first-timers has decreased substantially. All the more signs that spell out an economic slump that hasn't ran it's course yet.

NeighborHoodwinked: The Fallacy Behind the American Dreamby Hassan Nicholás

We have been conditioned since birth to believe owning a home is one of the best, most secure methods of accumulating wealth. Many real estate professionals tout that owning a home is a better investment then the stock market. Though, studies have shown this is hardly the case. Homeownership is something great to experience and have, but it's not a guaranteed money maker. I was among the many that believed "real estate always appreciates". Many victims of our current real estate crisis probably repeated similar mantras, but it didn't do much to curtail the wave of price drops across the nation. The good thing about this (if anything positive can be pulled from this situation), is that I have been forced to think about homeownership in a different way. Now, feeling suddenly enlightened, I have began to explore the more realistic benefits of owning a home. And once you start thinking, you actually come up with many reasons why owning a home can be such a wonderful thing.

Just some of the reasons I came up with:

• Leverage. If you been to one of our workshops you've seen an example of how one can leverage a small amount of money to buy a significant piece of property. If that property appreciates well, you discover your gains are greatly compounded.
• The intangiblel. Cost of buying a home in El Sereno, $310,000. The feeling of buying your first home with a backyard big enough to house all three of your Irish Wolfhounds? Priceless. Emotions will definitely come into play as you decide whether buying is right for you. I feel it's very pertinent to consider the emotional outcomes, but don't let them the reason you make an irrational decision.
  
• Rent vs. Buying. Through some creative financing (and I don't mean ARMs, more like deferred loans) the costs to rent could be equal to or greater then the costs of owning a home of similar square footage.
• Ownership can help start/build generational wealth. On a social level, it helps build a "savings culture" and lift some families out of poverty.
• Etc. There are so many other benefits to homeownership that you will discover as learn more about the process and everything real estate markets entail. Have any to share? Let me know and we can continue this list.
• Prices are falling now - which makes homeownership more affordable to a larger portion of the population.

If you were counting on down payment assistance the question you should ask yourself is, will the lack of sufficient down payment assistance programs prevent my purchase or delay my purchase? If prices for your area are predicted to continue to fall, then it wouldn't exactly be advisable to buy now anyway, because you would missing out on potential savings.Your decision on whether to purchase now or later will depend on well you understand this market - specifically, your local market. If you're confused about the When you should buy, look at my list of the How should by first...