Six Things to Know About the New First Time Buyer Tax Credit

The $787 billion stimulus bill that President Barack Obama signed into law on Tuesday, February 17, 2009, includes a measure designed to help revive the real estate market. It's a tax credit to first time home buyers and here are six things you should know about it....

1. $8000 to new buyers: The tax credit included in the economic stimulus is equivilant to 10 percent of the purchase price of the home with a cap of $8000. It applies only to first-time homebuyers of a prinicpal residence. It does not have to be repaid (see #6 below also).

2. Definition of First Time Homebuyer: For the purpose of this legislation, a "first-time home buyer" is someone who hasn't owned a principal residence for three years before buying a house. Even if you owned investment property or a second home prior to the date of this purchase, as long as you haven't owned the home you are living in for the last three years, you qualify for the credit.

3. 2009 Buyers Only: Only those who purchase a home on or after January 1 and before December 1, 2009 are eligible for the credit. Anoyone who bought a home last year won't be able to take advantage of this credit. (Call me about the preceding credit that may be available to you).

4. Income Limits: This tax credit is subject to income limitations. Single buyers with an adjusted gross income of $75,000 or less, qualify for this credit. The limit is $150,000 for married couples. Those earning more than these limits may be eligible for reduced credits.

5. Refundable: Because the tax credit is "refundable", qualified buyers can take advantage of it even if they don't have as much in tax liability.

6. Recapture: Buyers have to own the home for at least three years in order to benefit from this credit. If they sell the home before then, they will have to return the credit to the government. (Exceptions will be made in certain cases, ie., divorce or death).

*****added 2/26/09***** As it turns out, you can use this credit on your 2008 tax return if you purchased your home after Jan. 1, 2009. If you have already filed and want to use the credit, simply file an amended return.

For more information on other portions of the stimulus plan that pertain to the mortgage industry, please e-mail me at rick@getanhonestmortgage.com.

Opportunity of a Lifetime

I wanted to show you a history of what mortgage rates have been doing over an extended period of time, and the history of how “sitting on the fence” can bite you in the very thing you (or your client) have been sitting on (I’m addressing both potential buyers and real estate professionals in this blog entry).

Below is a chart of what 30 year mortgage rates have been doing on a monthly basis since the year 2000. We have 8 years worth of interest rates. Right now, we’re looking at the lowest interest rates since the year 2000. These are actually the lowest rates since the Federal Reserve started keeping track in 1971. Now is the time to buy a house. This is not the time to wait on the interest rates.

Just look at the next chart. From 2003 to 2008 there have been four times that rates fell below 5.75% and each of those four times, when rates bottomed out, they shot up as much as a full percentage point. So, whether you’re a buyer waiting to save another 10th of a percent on your rate, or you are a real estate professional and have a client who is doing the same, you need to take a hard look at this chart and realize that the risk, far out weighs the reward for such a gamble.

y final chart shows the trend in home prices, year over year. Five different sources show that home prices have been declining downward consistently. Most sources claim this slide to be in double digit figures. So, combine the rates being at their lowest point on record and house prices that have been reset to the prices of about 20 years ago and it’s the opportunity of a lifetime! What are you waiting for?

I could go on and on about this market, the return on investment for real estate vs. any other investment, interest rates, and so on, but the long and short of it is, now, more than ever, you need to get serious about closing on the purchase of a home. If you’re in the market to refinance and you’re waiting for rates to get down under 5.00%, how will you feel if that doesn’t happen and rates go up to 6.00% and you missed your opportunity?

Whether you are a real estate professional, a potential home buyer, or someone in the market to refinance, please consider giving me a call to go over any of this information as well as getting your ducks in a row for this opportune time. Call me in the office at 401-671-6500, or cell (in RI) 401-651-2716), (in MA) 774-278-0885.

A Few Myths About Credit Reports

“Too many inquiries on my report will hurt my score”
I’ve always believed that this was a myth started by a mortgage broker who was afraid the competition would steal his/her potential borrower. The fact of the matter is, the computer systems that compute your score know enough that you’re shopping for a mortgage and won’t hold it against you if there are a few inquiries from mortgage companies (but don’t check with 15 companies).

“Collections and derogatory accounts come off in seven years”
Only after you’ve paid them off!!! I constantly hear clients say “That should be gone, it’s over seven years old” or “That should be gone soon, it’s been nearly seven years.” The fact of the matter is that the clock doesn’t start until the account is paid. Then it sits on your report for seven more years. Chapter 13 bankruptcy can be removed after seven years, but Chapter 7 stays on for ten years.

“Checking my own credit report can take points off my score”
There are two kinds of pulls. A hard pull and a soft pull. Calling a friend at the bank to check your credit for you is not the best way to check it. That’s a hard pull and can count against your credit. You can get your report, free of charge, either directly from one of the major credit reporting agencies, or from annualcreditreport.com.

“I pay my bills on time. I’m sure my credit score is good. I don’t need to check it”
Just recently, I had a borrower in my office who discovered a mortgage on his report that didn’t belong to him. When he called the lender, they admitted that there was an error and that the account belonged to someone else. A routine check of your credit is always a good idea.

“Closing dormant accounts will help my credit report”
It will actually hurt your score at the time you close those account(s). The reason is that your score is calculated based on the ratio of your total available credit as compared to your total actual balances. When you close out an account, you’ve lowered the total available credit without changing the total balance of your accounts, therefore reducing that ratio.