Danny Salas

Archive for August 26th, 2009

$8,000 Tax Credit “FAX”

FACT Or MYTH?

Many people are quite confused about the $8,000 First Time Home Buyer Credit offered by the Federal Government as part of the Stimulus Package through November 30th, 2009. This article is designed to state the facts, and stall the myths associated with this incredidible opportunity.

Who Qualifies?

If you have not owned real estate in the last three years (36 consecutive months), before the close of escrow, than you qualify. So, even if you have owned before, as long as it hasn’t been in the last three years, than you will qualify. EVEN if you need a non-owner occupant co-borrower to co-sign with you, the owner occupant will still qualify, if they meet the other criteria. That’s big!

Everyone Qualifies for $8,000?

There are income restrictions: $75,000 for individuals and $150,000 for married couples, however, if you make more, don’t be too discouraged, as you may qualify for a portion of the $8,000 refund. Consult an accountant for particulars. Plan on residing in the home for the next three years, or you’ll have to pay that money back!

What $8,000 Means

Think about it…you get an $8,000 gift for a down payment. $8,000 is 3.5% of $228, 571.43. So, if you make an offer on a $228, 400 home, put 3.5% down, ask the seller to pay your closing costs, close the deal before December 1, 2009, and file IRS form 5405, a few months later you get your $8,000 check from the Treasury Department, and viola…you’ve just bought a home which cost you pertineer NOTHIN’! NADA, Ziltch! It’s an incredible opportunity that MOST that could…should!

Example:

Let’s say that you are a W-2’s employee that has had enough taxes withheld each pay period that you are receiving a $750 rebate from the Federal Government. If you buy this year, your rebate would increase by the $8,000 amount (depending on purchase price and income qualifications), so your refund would be $8,750.00. These funds can be used to furnish your new home, purchase a new washer and dryer for the laundry area, etc. Even if you did not withhold enough funds throughout the year, and you end up owing an additional $5,000, again, should you qualify; you wouldn’t have to write a check to the Treasury Department. You would receive a check for $3,000.

How Quickly Should I Act

Most escrows are about 45 days. So…it takes time to find a home, negotiate offers, etc. So, work backward from the date that this offer expires. November 30, 2009. If your escrow has not closed by that date, and there is no extension to the program, that’s it, you won’t get the refund check.

What If I May Owe for 2009 1040’s?

You will fill out IRS form 5405. It’s an addendum to 2008’s 1040 Tax Returns. So, regardless…if you’ve filed ’08’s returns, than you will get an $8,000 check in the mail. It will take about two to three months, from what we’ve experienced.

May I Use The Credit For My Down?

Congress amended this decision and said, “yes,” as long as you receive a “bridge” loan from either an institutional lender, or from certain Government approved Non-profit Down Payment Assistance (DPA) Type Entities. I have even had client inform me that they had been told “by two real estate agents” that they could use the funds toward the down payment. Here’s the twist…the program ends November 30, 2009. So, no bank was willing to take the risk on a “bridge” loan and wait for the government to send them the refund check, at a later date. Also, any DPA entity didn’t want to structure a complete not for profit, side business, that they MIGHT be able to collect $500 to $1,000 for each transaction, obsorb the costs to do so, when the programs going away in November. So, non of that ever came to fruition.

HR 600 was a proposal to bring back the Nehemiah program, and if the government isn’t going to allow 100% financing with sellers paying the buyers’ closing costs, than hopefully, Nehemiah will come back into the picture. This would enable buyers to have the down payment and closing costs, stimulate the economy with the refunds, help the housing industry, and stimulate the economy by freeing up more money for people to fill up the new houses with new necessities. HR 600 did not pass with these requests, however, expect to see some changes when HR 600 is re-visited by Congress and The Senate, this coming year! Expect programs like Nehemiah to come back!

Is Payback Required?

Don’t get confused with President Bush’s $7,500 incentive passed by congress, and President Obama’s new Stimulus Bill. President Bush’s incentive was a loan to be paid back yearly. Obama’s is an actual credit.

Chico, CA Interest Rates Market Report – Economic Influences – August 26, 2009

Here’s The Scoop

Yesterday, I expected difficulty with the Treasury Department auctioning $42 Billion in two-year notes.  We expected that our Government would have to stand up and do the borrowing to purchase all, or most of those investments, for a couple of reasons.  First, foreign appetite for our bonds has been relatively bleak, requiring Uncle Sam to purchase these bonds.  While that’s what our leaders have positioned the stimulus funds for, it still will, eventually, cause inflation (interest rate’s worst enemy).  Second, the announcement of rising home prices and rising consumer confidence should have told investors to stay away from the lower yielding bond market and put money in stocks, hurting rates.

What Happened?

Instead, Mortgage-Backed Securities reacted differently.  Foreign investors, including their central banks, participated in 49.4% of those shares.  What a wonderful surprise!  Careful, though, because two-year bonds are a short investment, and therefore, less risky than the two remaining auctions left, this week.

Why Be Leery of Yesterday’s Auction Success…

The longer your bond investment length, the more risky that investment.  Longer investment periods run the risk of higher inflation, in the future.  If there is high inflation, that subtracts from the fixed income the investor is receiving on their asset (investment).  So, the longer you hold the investment, the riskier that investment.  If you have to sell the bond, in two years, you have an opportunity to make some interest, and receive your initial investment back again.  If that span is longer than two years, than if inflation hits…you might have to sell at a discount, or if you wait for the maturity of the investment (who’s going to buy it if the investor’s selling it?), you’ll have to suffer the consequences and take a huge loss.  Very risky!  In order for foreign markets to accept longer terms, at the rest of the week’s auctions, the rate of return better be higher, which means higher rates, potentially. 

Economic Factors

Durable Goods Orders were reported at and increase of 4.9%, when the government had prepared for 3.2%.  Factored into the equation was aircraft orders. When subtracting the transportation information the staistic leveled down to a .08% increase, when the government expected a 1.0% mark.  Mortgage-Backed Securities enjoyed that info. early in the morning, however, again, the market is jittery before the five-year note auction set for this afternoon. 

New Home Sales

These figures were hot again!  We expected approximately 390,000, however, reports came in at 433,000.  This is, generally, not good for rates because it’s a good economic report that will take money out of bonds (MBS) and into stocks.  When money flows out of bonds, their values go down, and therefore, their yields (or interest rates) increase.

Mr. Optimistic

Yes, generally, I consider myself an Optimist, however, are these housing numbers due to a lack in construction?  Possibly!  How about, as mentioned in yesterday’s article, people moving whilst the gettin’s good?  While rates and home values are at one of their most opportunistic times?  Perhaps both!

What To Do?

Currently, take advantage of yesterday’s surprise and float into the day.  But, your loan expert better have their finger on the lock button…like I will today.  Until tomorrow…