Wednesday, May 20, 2009
This morning a client called and was having trouble with their dishwasher. This client bought a home a couple of months ago and finally moved in and used the dishwasher for the first time. When my client turned on the dishwasher, it started to leak water and foam onto the kitchen floor. Luckily, the previous owner provided my clients with a one-year home warranty at settlement. This may not have been lucky for them. It seems as if this warranty company, does not want to pay to fix the problem with the dishwasher. The warranty company is saying that this was a pre-existing condition. I will tell you that my clients had their new home professionally inspected and during the walk-through I personally ran the dishwasher and had no problems.
What is the point to this story? I have spent the last few hours on the phone with various people with no resolution as of this moment. I always like to have my buyers and sellers buy home warranties. They can and should protect both parties from the problems that may arise from home systems and appliances. I have many clients who have been very staisfied with their home warranty service; but, this denial just seems ridiculous.
My advice, is to use a home warranty company that your Realtor has had personal experience with. I generally use a particular warranty company and I can tell you that this warranty company wants me and all of the agents at my company to be happy. If we have a problem with this particular warranty company, I have a local sales manager to call to get the problem resolved. Let me tell you this works! In the future when a home warranty is offered by the Seller- check out the policy and ask if your Realtor if they have had any personal experience with the particular warranty company. Buyer beware!
Wednesday, March 25, 2009
Tax Credits -- The Basics
1. What’s this new homebuyer tax incentive for 2009?
The 2008 $7500, repayable credit is increased to $8000 and the repayment feature is eliminated for 2009 purchasers. Any home that is purchased for $80,000 or more qualifies for the full $8000 amount. If the house costs less than $80,000, the credit will be 10% of the cost. Thus, if an individual purchased a home for $75,000, the credit would be $7500. It is available for the purchase of a principal residence on or after January 1, 2009 and before December 1, 2009.
2. Who is eligible?
Only first-time homebuyers are eligible. A person is considered a first-time buyer if he/she has not had any ownership interest in a home in the three years previous to the day of the 2009 purchase.
3. How does a tax credit work?
Every dollar of a tax credit reduces income taxes by a dollar. Credits are claimed on an individual’s income tax return. Thus, a qualified purchaser would figure out all the income items and exemptions and make all the calculations required to figure out his/her total tax due. Then, once the total tax owed has been computed, tax credits are applied to reduce the total tax bill. So, if before taking any credits on a tax return a person has total tax liability of $9500, an $8000 credit would wipe out all but $1500 of the tax due. ($9,500 - $8000 = $1500)
4. So what happens if the purchaser is eligible for an $8000 credit but their entire income tax liability for the year is only $6000?
This tax credit is what’s called "refundable" credit. Thus, if the eligible purchaser’s total tax liability was $6000, the IRS would send the purchaser a check for $2000. The refundable amount is the difference
between $8000 credit amount and the amount of tax liability. ($8000 - $6000 = $2000) Most taxpayers determine their tax liability by referring to tables that the IRS prepares each year.
5. How does withholding affect my tax credit and my refund?
A few examples are provided at the end of this document. There are several steps in this calculation, but most income tax software programs are equipped to make that determination.
6. Is there an income restriction?
Yes. The income restriction is based on the tax filing status the purchaser claims when filing his/her income tax return. Individuals filing Form 1040 as Single (or Head of Household) are eligible for the credit if their income is no more than $75,000. Married couples who file a Joint return may have income of no more than $150,000.
7. How is my "income" determined?
For most individuals, income is defined and calculated in the same manner as their Adjusted Gross Income (AGI) on their 1040 income tax return. AGI includes items like wages, salaries, interest and dividends, pension and retirement earnings, rental income and a host of other elements. AGI is the final number that appears on the bottom line of the front page of an IRS Form 1040.
8. What if I worked abroad for part of the year?
Some individuals have earned income and/or receive housing allowances while working outside the US. Their income will be adjusted to reflect those items to measure Modified Adjusted Gross Income (MAGI). Their eligibility for the credit will be based on their MAGI.
9. Do individuals with incomes higher than the $75,000 or $150,000 limits lose all the benefit of the credit?
Not always. The credit phases-out between $75,000 - $95,000 for singles and $150,000 - $170,000 for married filing joint. The closer a buyer comes to the maximum phase-out amount, the smaller the credit will be. The law provides a formula to gradually withdraw the credit. Thus, the credit will disappear after an individual’s income reaches $95,000 (single return) or $170,000 (joint return).
For example, if a married couple had income of $165,000, their credit would be reduced by 75% as shown: Couple’s income $165,000 Income limit 150,000 Excess income $15,000 The excess income amount ($15,000 in this example) is used to form a fraction. The numerator of the fraction is the excess income amount ($15,000). The denominator is $20,000 (specified by the statute). In this example, the disallowed portion of the credit is 75% of $8000, or $6000 ($15,000/$20,000 = 75% x $8000 = $6000) Stated another way, only 25% of the credit amount would be allowed. In this example, the allowable credit would be $2000 (25% x $8000 = $2000)
10. What’s the definition of "principal residence?"
Generally, a principal residence is the home where an individual spends most of his/her time (generally defined as more than 50%). It is also defined as "owner-occupied" housing. The term includes single-family detached housing, condos or co-ops, townhouses or any similar type of new or existing dwelling. Even some houseboats or manufactured homes count as principal residences.
11. Are there restrictions on the location of the property?
Yes. The home must be located in the United States. Property located outside the US is not eligible for the credit.
12. Are there restrictions related to the financing for the mortgage on the property?
In 2009, most financing arrangements are acceptable and will not affect eligibility for the credit. Congress eliminated the financing restriction that applied in 2008. (In 2008, purchasers were ineligible for the $7500 credit if the financing was obtained by means of mortgage revenue bonds.) Now, mortgage-revenue bond financing will not disqualify an otherwise-eligible purchaser. (Mortgage revenue bonds are tax-exempt bonds issued by a state housing agency. Proceeds from the bonds must be used for below market loans to qualified buyers.)
13. Do I have to repay the 2009 tax credit?
NO. There is no repayment for 2009 tax credits.
14. Do 2008 purchasers still have to repay their tax credit?
YES. The $7500 credit in 2008 was more like an interest-free loan. All eligible purchasers who claimed the 2008 credit will still be required to repay it over 15 years, starting with their 2010 tax return. Some Practical Questions
15. How do I apply for the credit?
There is no pre-purchase authorization, application or similar approval process. All eligible purchasers simply claim the credit on their IRS Form 1040 tax return. The credit will be reflected on a new Form 5405 that will be attached to the 1040. Form 5405 can be found at www.irs.gov.
16. So I can’t use the credit amount as part of my downpayment?
No. Congress tried hard to devise a mechanism that would make the funds available for closing costs, but found that pre-funding would require cumbersome processes that would, in effect, bring the IRS into the purchase and settlement phase of the transaction.
17. So there’s no way to get any cash flow benefits before I file my tax return?
Yes, there is. Any first-time homebuyers who believe they are eligible for all or part of the credit can modify their income tax withholding (through their employers) or adjust their quarterly estimated tax payments. Individuals subject to income tax withholding would get an IRS Form W-4 from their employer, follow the instructions on the schedules provided and give the completed Form W-4 back to the employer. In many cases their withholding would decrease and their take-home pay would increase. Those who make estimated tax payments would make similar adjustments. Some "Real World" Examples
18. What if I purchase later this year but can’t get to settlement before December 1?
The credit is available for purchases before December 1, 2009. A home is considered as "purchased" when all events have occurred that transfer the title from the seller to the new purchaser. Thus, closings must occur before December 1, 2009 for purchases to be eligible for the credit.
19. I haven’t even filed my 2008 tax return yet. If I buy in 2009, do I have to wait until next year to get the benefit of the credit?
You’ll have a helpful choice that might speed up the process. Eligible homebuyers who make their purchase between January 1, 2009 and December 1, 2009 can treat the purchase as if it had occurred on December 31, 2008. Thus, they can claim the credit on their 2008 tax return that is due on April 15, 2009. They actually have three filing options.
If they purchase between January 1, 2009 and April 15, 2009, they can claim the $8000 credit on the 2008 return due on April 15.
They can extend their 2008 income-tax filing until as late as October 15, 2009. (The IRS grants automatic extensions, but the taxpayer must file for the extension. See www.irs.gov for instructions on how to obtain an extension.)
If they have filed their 2008 return before they purchase the home, they may file an amended 2008 tax return on Form 1040X. (Form 1040X is available at www.irs.gov)
Of course, 2009 purchasers will always have the option of claiming the credit for the 2009 purchase on their 2009 return. Their 2009 tax return is due on April 15, 2010.
20. I purchased my home in early 2009 before the stimulus bill was enacted. I claimed a $7500 tax credit on my 2008 return as prior law had permitted. Am I restricted to just a $7500 credit?
No, you would qualify for the $8000 credit. Eligible purchasers who have already claimed the $7500 credit on a 2008 return for a 2009 purchase may file an amended return (IRS Form 1040X) for the 2008 tax year. This amended return will enable them to obtain the additional $500 credit amount.
21. If I claim my 2009 $8000 credit on my 2008 tax return, will I have to repay the credit just as the 2008 credits are repaid?
No. Congress anticipated this confusion and has made specific provision so that there would be no repayment of 2009 credits that are claimed on 2008 returns.
22. I made an eligible purchase of a principal residence in May 2008 and claimed the $7500 credit on my 2008 tax return. My brother, who has never owned a home, wishes to purchase a partial interest in the home this spring and move in. Will he qualify for the $8000 credit, as well?
No. Any purchase of a principal residence (or interest in a principal residence) from a related party such as a sibling, parent, grandparent, aunt or uncle is ineligible for the tax credit. Since you and your brother are related in this way, he cannot qualify for the credit on any portion of the home that he purchases from you, even if he is a first-time homebuyer.
23. I live in the District of Columbia. If I qualify as a first-time homebuyer, can I use both the $5000 DC credit and the $8000 credit?
No; double dipping is not allowed. You would be eligible for only the $8000 credit. This will be an advantage because of the higher credit amount, plus the eligibility requirements for the $8000 credit are somewhat more easily satisfied than the DC credit.
24. I know there is no repayment requirement for the $8000 credit. Will I ever have to repay any of the credit back to the government?
One situation does require a recapture payment back to the government. If you claim the credit but then sell the property within 3 years of the date of purchase, you are required to pay back the full amount of any credit, including any refund you received from it. A few exceptions apply. (See below, #24). Note that this same 3-year recapture rule applies, as well, to the $7500 credit available for 2008. This provision is designed as an anti-flipping rule.
25. What if I die or get divorced or my property is ruined in a natural disaster within the 3 years?
The repayment rules are eased for many circumstances. If the homeowner who used the credit dies within the first three years of ownership, there is no recapture. Special rules make adjustments for people who sell homes as part of a divorce settlement, as well. Similarly, adjustments are made in the case of a home that is part of an involuntary conversion (property is destroyed in a natural disaster or subject to condemnation by eminent domain by an authorized agency) within the first three years.
26. I have a home under construction. Am I eligible for the credit?
Yes, so long as you actually occupy the home before December 1, 2009.
WITHHOLDING EXAMPLES: Note: The impact of estimated tax payments would be the same.
Situation 1: Sally plans her withholding so that her withholding is as close as possible to what she anticipates as her income tax liability for the year. When she fills out her 1040, her liability is $6000. She has had $6000 withheld from her paycheck. She also qualifies for the $8000 homebuyer credit. Result: Sally’s withholding satisfies her tax liability and reduces it to zero. She will receive a refund of the full $8000.
Situation 2: Nick and Nora file a joint return. Nick is self-employed and makes estimated payments; Nora has taxes withheld from her salary. When they compute their taxes, their combined withholding and estimated tax payments are $11,000. Their income tax liability is $9800. They also qualified as first-time homebuyers and are eligible for the $8000 refundable tax credit. Result: Ordinarily, their combined estimated tax payments and withholding would make them eligible for a refund of $1200 ($11,000 - $9800 = $1200). Because they are eligible for the refundable tax credit as well, they will receive a refund of $9200 ($1200 income tax refund + $8000 refundable tax credit = $9200)
Situation 3: Cesar and LuzMaria both have income taxes withheld from their salaries and file a joint return. When they file their income tax return, their combined withholding is $5000. However, their total tax liability is $7200, generating an additional income tax liability of $2200 ($7200 - $5000). They also qualify for the $8000 first-time homebuyer tax credit. Result: Cesar and LuzMaria have been under-withheld by $2200. Ordinarily, they would be required to pay the additional $2200 they owe (plus any applicable interest and penalties). Because they are eligible for the refundable homebuyer tax credit, the credit will cover the $2200 additional liability. In addition, they will receive an income tax refund of $5800 ($8000 - $2200 = $5800). If they owed penalties and/or interest, that amount would reduce the refund.
City’s Foreclosure Rate Ranks Lowest Among Top Five Metro AreasPennsylvania Foreclosure Activity Up 43 Percent
IRVINE, Calif. – March 28, 2008 – The five-county Philadelphia metropolitan area reported 1,147 foreclosure filings in February, a 4 percent decrease from the previous month, but still a 47 percent increase from February 2007, according to the latest RealtyTrac® U.S. Foreclosure Market Report. The city’s foreclosure rate of one foreclosure filing for every 1,399 households was well below the national average and lowest among five of the nation’s largest metro areas. Philadelphia’s foreclosure rate was lower than the foreclosure rates in New York, Los Angeles, Dallas and Chicago.
RealtyTrac publishes the largest and most comprehensive national database of foreclosure and bank-owned properties, with over 1 million properties from nearly 2,500 counties across the country, and is the foreclosure data provider to MSN Real Estate, Yahoo! Real Estate and The Wall Street Journal’s Real Estate Journal.
“Foreclosure activity is down in the Philadelphia metropolitan housing market most likely because many local homeowners opted for more conservative mortgage products,” said James J. Saccacio, chief executive officer of RealtyTrac. “Metropolitan Philadelphia has fared far better than most other large metro areas.”
Philadelphia County accounts for majority of metro foreclosure activityPhiladelphia County reported 675 properties with foreclosure filings in February, the most of any county in the metro area, and a 28 percent decrease from the previous month. Despite the decrease, Philadelphia County documented the highest foreclosure rate among metro counties, with one in every 977 households receiving a foreclosure filing in February — still below the national average.
Montgomery County reported the second highest county total in the metro area, 178 properties with foreclosure filings for the month. Montgomery County also posted the second highest foreclosure rate among metro counties, with one in every 1,734 households receiving a foreclosure filing.
The rest of the counties in the Philadelphia metro area also registered foreclosure rates below the national average in February. Bucks County reported 86 properties with foreclosure filings, one in every 2,762 households. Chester County reported 87 properties with foreclosure filings, one in every 2,055 households. Delaware County reported 121 properties with foreclosure filings, one in every 1,819 households.
Pennsylvania foreclosure activity up 43 percent Pennsylvania reported a total of 2,415 properties with foreclosure filings in February, a 43 percent increase from the previous month and a 22 percent increase from February 2007. The state’s foreclosure rate of one for every 2,245 households receiving a foreclosure filing registered far below the national average and ranked No. 34 among all the states.
A total of 223,651 properties with foreclosure filings were reported nationwide in February, a 4 percent decrease from the previous month, but still 60 percent ahead of the total reported for February 2007. One in every 557 U.S. households received a foreclosure filing during the month.
The RealtyTrac Monthly U.S. Foreclosure Market Report provides the total number of foreclosure filings nationwide, statewide and by county in the Philadelphia Metropolitan Statistical Area Division over the preceding month. RealtyTrac’s report includes documents filed in all three phases of foreclosure: Defaults — Notice of Default (NOD) and Lis Pendens (LIS); Auctions — Notice of Trustee Sale and Notice of Foreclosure Sale (NTS and NFS); and Real Estate Owned, or REO properties (that have been foreclosed on and repurchased by a bank).
Thursday, September 11, 2008
Banks loan money to home buyers. The banks then sell those mortgages - assuming they meet certain credit standards - to Fannie Mae or Freddie Mac. Banks then use the money they get from the sale of those mortgages to make new loans. It's a system that provides a continuous supply of relatively low-interest cash so that banks can keep making affordable loans to home buyers.
So where do Fannie and Freddie get the money to keep buying mortgages from banks? They bundle the mortgages they buy from banks and resell them to major investors. They get a good rate of return because, historically, Fannie and Freddie bonds have been considered to be almost as safe as U.S. government bonds.
But as home prices started to drop in many real estate markets, and homeowners started to default on their loans, Fannie and Freddie got caught holding the bag - using their own cash to cover bad loans.
Changes within Fannie and Freddie
Earlier this week, Treasury Secretary Henry Paulson announced that Fannie Mae and Freddie Mac have been placed into conservatorship by the Federal Housing Finance Agency (FHFA). This is the most important event our industry has experienced in the past three years. This is good news for both the mortgage and real estate markets.
This government takeover will be a catalyst for the following changes:
- Immediate reduction in mortgage rates due to the narrowing of Fannie/Freddie yields over Treasuries
- Stabilization of credit markets
- Positive changes in investor psychology
- Positive impact on real estate market due to lower rates. When combined with the first-time buyer tax credit, this will stimulate the first-time home buyer market, which will unlock the trade-up market
Tuesday, August 19, 2008
Here’s how it works:
The credit is $3,750 for married couples filing separately. Unmarried people who jointly purchase a home will be able to divide the $7,500 credit.
- This program is actually a loan, which home buyers must repay over 15 years at zero percent interest beginning in the second year after they purchase the home. A home buyer who qualified for the whole credit would pay an additional $500 in income tax for 15 years or about $41.67 per month. If you should sell before 15 years you will owe the government the remaining balance.
- The credit applies only to homes purchased on or after April 9, 2008, and before July 1, 2009.
- High-income home buyers don’t qualify: Eligibility begins phasing out for single filers with adjusted income of more than $75,000 and $150,000 for joint filers. It completely phases out at $95,000 for singles and $170,000 for married couples filing jointly.
Saturday, July 12, 2008
1. Buff up curb appeal.
You’ve heard it before, but it’s critical to get buyers to want to look on the inside. Be objective. View listings from the street. Check the condition of the landscaping, paint, roof, shutters, front door, knocker, windows, house number, and even how window treatments look from the outside. Add something special — such as big flower pots or an antique bench — to help viewers remember house A from B.
2. Enrich with color.
Paint’s cheap, but forget the adage that it must be white or neutral. Just don’t let sellers get too avant-garde with jarring pinks, oranges, and purples. Recommend soft colors that say “welcome,” lead the eye from room to room, and flatter skin tones. Think soft yellows and pale greens. Tint ceilings a lighter shade.
3. Upgrade the kitchen and bathroom.
These make-or-break rooms can spur a sale. But besides making each squeaky clean and clutter-free, update the pulls, sinks, and faucets. In a kitchen, add one cool appliance, such as an espresso maker. In the bathroom, hang a flat-screen TV to mimic a hotel. Room service, anyone?
4. Add old-world patina.
Make Andrea Palladio proud. Install crown molding at least six to nine inches in depth, proportional to the room’s size, and architecturally compatible. For ceilings nine feet high or higher, add dentil detailing, small tooth-shaped blocks used as a repeating ornament. It’s all in the details, after all.
5. Screen hardwood floors.
Buyers favor wood over carpet, but refinishing is costly and time-consuming. Screening cuts dust, time, and expense. What it entails: a light sanding, not a full stripping of color or polyurethane, then a coat of finish.
6. Clean out, organize closets.
Get sorting — organize your piles into “don’t need,” “haven’t worn,” and “keep.” Closets must be only half-full so buyers can visualize fitting their stuff in.
7. Update window treatments.
Buyers want light and views, not dated, fancy-schmancy drapes that darken. To diffuse light and add privacy, consider energy-efficient shades and blinds.
8. Hire a home inspector.
Do a preemptive strike, since busy home owners seek maintenance-free living. Fix problems before you list the home and then display receipts and wait for buyers to offer kudos to sellers for being so responsible.
Wednesday, May 21, 2008
Loan to values greater than 85%. Private mortgage insurance is no longer considered a “mitigating” factor for higher loan to values. The more equity in the property, the more Fannie Mae smiles upon you (this is a not a change, the pmi factor is).
“Authorized Users” on credit cards will no longer be considered. It was not uncommon for parents to add their child to their credit accounts as an “authorized user”. This may have been done so that the child could have credit available in the event of an emergency (picture a college student away from home). Once people figured out that the timely payments made by the parent (or credit payer) was benefiting the “authorized user”, it didn’t take long for some people to actually sell their credit history on that account by allowing strangers to become “authorized users”.
Debt to income ratios tighter. “In general, the updates to the maximum allowable total expense ration in DU (Desktop Underwriter aka Fannie Mae) Version 7.0 will be more conservative…”
Loan Type/Level of Risk. With Version 7.0, Fannie Mae is associating levels of risk with varios products (from lowest to highest):
- Fully amortized fixed rate mortgages
- Fully amortized 5, 7 and 10 year ARMs
- 6 month, 1 and 3 year ARMs and Fixed Rate Interest Only Mortgages
- Interest Only ARMs and balloon mortgages
Version 5.7 viewed fully amortized fixed rate, fixed period (3-10 year) ARMs as having the least amount of risk with balloon and interest only mortgages having moderate additional risk. Negative amortized mortgages were considered the riskiest…now they’re off the charts.
Condos are now considered a higher risk than single family detached. Version 7.0 views one-unit properties that are not “attached condominiums” as less risk than attached condominiums and two-unit properties. Three- and four-unit properties have a higher level of risk associated than condo and duplex properties.
Bankruptcy, mortgage delinquencies and foreclosures. A bankruptcy needs to be fully discharged and 24 months since the date filed.
If a borrowers credit report shows a mortgage that was reported 60 or more days delinquent in the last 6 months, they will receive a “refer”.
If the borrower has had a foreclosure reported within the last 5 years, they will also receive a “refer”. If the date of the foreclosure cannot be determined, if the foreclosure was filed within the last five years and has not been satisfied, the loan will be declined.
Self-employed borrowers will no longer be considered “an additional layer of risk”! Hey…I have to end this on a positive note!
Expanded Approval is being pumped up. Fannie Mae is anticipating more EA approvals. An EA approval means that the borrower’s scenario is “less than perfect” or some prefer to say “A Minus”. There are different levels of EA approvals (such as EA-1, EA-2, etc.). Expanded approval also come with higher rates than a typical conventional mortgage as it’s risk based pricing.
Guidelines will continue to tighten for a while with Fannie/Freddie and the private mortgage companies. This is again, another reason for people, professionals and consumers alike, to learn all they can about FHA which may be an option to consider over an Expanded Approval and tougher underwriting standards with conventional mortgages.