DC $5000 First Time Home Buyer Credit Retroactively Approved for 2010 Purchases

Buried in Friday’s signed, sealed, and delivered Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 was a provision retroactively approving the $5,000 tax credit for first-time home buyers in DC for 2010, and extending it through 2011 as well. Home buyers will remember that the credit, last approved as part of the 2008 stimulus bill, is usually approved late in the year and applied retroactively, leaving home buyers anxious about whether they’ll be entitled to the large credit.

This is a dollar-for-dollar credit against your federal income taxes owed (as opposed to a deduction, which would be worth less.) “First Time” buyers, for purposes of this law, are defined as those who purchased a home during the tax year and did not OWN IN DC in the twelve months prior to purchase. So if you owned in Virginia or another state and then bought in DC, you still qualify!

The maximum credit is for $5,000, or $2,500 if married filing separately. The credit begins to phase out when the modified AGI above $70,000 ($110,000 for married filing jointly) and phases out completely at $90,000 ($130,000 married filing jointly).

If you want to take advantage of the $5000 credit by buying a home in 2011, contact us to start your search!

Search the entire multiple listing service here.

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Breaking News: Closing Date Deadline on First Time Buyer Credit Extended to 9/30/10

Late Wednesday, the Senate voted to approve the extension of the settlement date for eligible first time buyers to “before October 1, 2010.” The House had approved the measure earlier in the week, and it’s expected to be signed into law imminently.

This is great news for anyone who had a lender that dropped the ball and couldn’t close the loan on time, and may even help out a few patient buyers of short sales who ALWAYS have delays, but unless you were already under contract by April 30, this extension does nothing for the rest of the buyers out there.

Still, better late than never–thanks Congress, for extending the deadline, even if you had to wait until the evening of June 30 to get it done.

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Potential Extension of June 30 Settlement Deadline & FHA Loans About to Get More Expensive–AGAIN!

Senate Majority Leader Harry Reid has co-authored a proposal to extend the June 30 settlement deadline for the first time buyer credit until September 30 to give lenders more time to process the incredible volume of contracts trying to close.   The surge in loan volume has created delays around home appraisals and the usual delays associated with short sales are also creating headaches for buyers hoping to take advantage of the credit.   Of course, savvy buyers know that many short sales will NEVER close, so the extension may not help them at all.  Read more about why short sales never close here.

The House also passed legislation this week granting the Federal Housing Administration (FHA) the authority to raise the annual fees it charges borrowers to help shore up the agency’s dwindling cash reserves.  The fee is currently capped at 0.55 percent of the value of the loan. The bill raises the cap to 1.5 percent.  FHA Commissioner David H. Stevens said it wants to raise the fee for new borrowers to 0.9% next year to help raise capital and also make the fees more consistent with private mortgage insurers. FHA has certainly been a good deal for buyers recently, with very competitive rates and low insurance charges, which resulted in FHA’s share of purchase loan market from 3% in 2006 to 30% recently.   As the agency raises those fees, it plans to somewhat lower the upfront fees it charges borrowers.

Buyers:  FHA is still a great option in 2010–low rates and fees, and only 3.5% down.  If you’re interested in starting your Northern Virginia home search, contact us.

More: Attend a free first time homebuyer class in Arlington.

Search: See homes for sale in Northern Virginia and Washington, DC.

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Selling a Home AFTER the Tax Credit Expiration

In this month’s video “This Month in Real Estate” from Keller Williams, a survey shows that first time home buyers accounted for 42% of February’s real estate sales, and investors accounted for an additional 19%.   But now that the tax credit has expired, does that mean the end of the road for sellers?

Definitely not!  We’re still in the spring season, and there are still plenty of buyers out there.  Sellers need to price their home correctly, which means knowing the trend in your neighborhood.  Consider the advice I gave in this BobVila.com article “What’s My House Worth?”.  Sellers might also consider a pre-sale inspection so that they know what to expect in the negotiation of concessions (as I suggest in this moving.com article).  Finally, consider ALL offers.  Consider an offer the opening try by a buyer (who may be testing the waters “just to try” a low offer), and work with a potential buyer to come to an agreement.  ALWAYS make a counteroffer — you never know where it will go.

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Is the $8000 First Time Home Buyer Tax Credit Going to Be Extended?

Alas, my crystal ball is in the shop.

But I CAN tell you the same thing I recently told the Washington Examiner about the upcoming expiration of the credit:  the administration and Congress are under a lot more pressure now to control spending than they were this time last year.

Last year it was all about saving the economy (read: saving the housing market) and pulling us out of our depression/recession.  This year it’s all about record deficits, massive new entitlement programs, and the threat of inflation.  Even a bill renewing the national flood insurance program and extending unemployment benefits has been held up for weeks.   How difficult do you think it would be to renew the home buyer tax credit?

My best guess right now is that the tax credit will not be renewed in its current form.  

Learn More:

Read about the tax credit.

Attend a free first time buyer class.

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Property Taxes & Real Estate Related Income Tax Deductions

Property tax season is upon us, and assessments were mailed out. Seventy five percent of Arlington residents saw a drop, but remember that assessments are a lagging indicator.  A lower assessment doesn’t necessarily mean a lower tax bill though…rates are due to increase (read my post about how property taxes are calculated here.)  If you live in DC, check your tax bill to make sure you received the homestead exemption – DC often mistakenly omits this important exemption from owner occupied units!  If you think your assessment is too high, next month I’ll have some links on challenging your property tax assessment.  If you’re in need of some market data to support your case, please contact us!

Income tax season is also here, so homeowners get ready to claim all your deductions. If you bought a house in 2009, remember to provide your HUD-1 to your tax advisor (and a note for my clients…I’ll be emailing you a copy of yours in the next few weeks so that you don’t have to go digging for it.)  If you’re claiming the first time buyer credit, be aware that as of right now you can’t e-file, and there could be delays with your refund (read details here). Here’s the form to claim your $8000.
Remember, even if you don’t qualify for the federal first time home buyer credit of $8000, be sure to ask your tax advisor whether you qualify for DC’s $5000 tax credit because the rules are different for each.
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Is Buying a Home One of Your 2010 New Year’s Resolutions?

Get started by attending a free, no obligation first time home buyer class at Arlington Central Library on January 26 at 7:00 pm.

Our first time home buyer classes are educational sessions designed to give an overview of current market conditions and the home buying process.  We cover a recap of the market, current trends and market stats including days on market, average sales prices, and inventory levels.  We’ll also discuss the impact of the banking system collapse and bailout, the home purchase process and common pitfalls, financing basics and a how to get started checklist.

Specific topics covered:

  • First Time and Repeat Buyer Credit Details
  • Arlington, Northern Virginia, DC, and Montgomery County market analysis (average sales prices, days on market, etc.)
  • Mortgage basics: rates, points, fees
  • Financing basics: FHA, Conventional, Conforming, and “Jumbo” loans
  • Calculating the tax benefits of homeownership
  • Short Sale, Foreclosure/REO/Bank Owned basics
  • Search tips
  • Fees and closing costs
  • Buyer agency and choosing an agent

Details:

Tuesday, January 26th 7:00 – 8:15
Arlington Central Library
1015 N Quincy St 2nd floor meeting room
Ballston (Orange Line)

Though there is no cost to attend, you must contact us to register since seating is limited and we need to make sure that materials are available for you.

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VHDA Loans Allow Financing of Down Payment

Down Payment Assistance in VirginiaThe Virginia Housing Development Authority has extended its Homebuyer Tax Credit Plus program to match the deadlines of the Federal First-Time Homebuyers Tax Credit.

VHDA’s program lets borrowers use a second mortgage to finance up to 5% of the sales price (enough to cover FHA’s 3.5% down payment requirement) by using the $8000 first time home buyer tax credit–effectively allowing borrowers to “monetize” the credit.  The second mortgage helps cover the down payment and closing costs, with zero interest and no payments for the first 12 months. Borrowers then have the option of paying it down within the first 12 months, using their $8000 credit to pay it off, or paying it off over 29 years.

There are restrictions on the program, of course.  Purchase price is limited to $408,100, and gross household income for two or fewer persons cannot exceed $86,900 for the Washington, DC, MSA, including Northern Virginia.

The deadline for the program matches the newly extended deadlines for the tax credit, so buyers must be under contract by April 30 and settled by June 30, 2010.

If you need help starting your home search, or finding a lender, please contact us.

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Learn More: Sign up for our free first-time home buyer class at Arlington Central Library on Jan 26 at 7:00 pm (registration required) Details and registration information can be found here.

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See more Buyer Resources

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Why is the $6500 home buyer tax credit important?

By this time, most people are aware of the extension and expansion of the $8000 first time buyer tax credit, and many even know about the new “category” of “first time buyers” who are eligible for a $6500 credit.   You can read more details here.  Income limits were raised (previously $75,000 AGI for a single up to $125,000), and the new deadline is April 30 (under contract).

These changes obviously made a lot of buyers very mad; those who purchased in 2009 but didn’t meet the income eligibility now look like suckers (but take heart…at least you had low prices, fantastic interest rates, and likely a lot more choice in inventory than today’s buyers have.)  And what about those souls that purchased back in 2008 when the “credit” was just a $7500 loan? (Again, take heart…low rates, low prices, and you really did have the pick of the litter on inventory.  Just look at the inventory lines on this graph of Northern Virginia Homes for Sale and compare the 2008 line to today What good is a big credit if everything available to buy is not worth buying?)

With inventory so tight, why do we need an extension and expansion, and on top of that a new category (the so called “move up” buyer, though in reality it could just as easily be a “move down” buyer, or even just someone who wants to convert their current residence into an investment property)?

The first reason is that the DC area is unique with its suddenly tight inventory.  DC has long been predicted to lead the nation’s real estate recovery given the incredibly strong job market, well above average incomes, and stimulus money flowing freely.

The second reason is that the pool of buyers has dwindled towards the end of the credit period (which was due to expire at the end of this month) so we needed to find a way to increase it again.  Why didn’t this initial rush of buyers lead us to a full recovery?  Again, it varies by area…the progress towards a stable market in DC was much more evident than in the rest of the country.  But two complicating factors: (1) the pool of entry level housing dropped too quickly and buyers were left circling and competing against other buyers for remaining homes and (2) much of the inventory they were buying were vacant, foreclosures, or short sales–meaning that those sellers were not, in turn, trading up to buy the next level of housing. So the recovery stalled at the entry level price point (in our area, I’d approximate this at $450k and below).

The extension and, more importantly, the new category attempts to address the second issue in particular.  First, now that a higher AGI buyer has an incentive, that category might be buying up inventory in the “next tier” of pricing, driving a recovery up the ladder, so to speak.  Second, by creating a new category of credit eligible buyers–the $6500 crowd–it’s likely that those trading up will also be selling their entry-level homes in order to afford their new purchase, relieving some of that inventory pressure on the first time buyer category.   So in other words, just as the $8000 stabilized entry level pricing, the hope is that the $6500 will stabilize “trade up” level pricing.

But those people are all underwater on their homes and can’t sell, you say!  Ah, the eligibility restrictions cover that: one must have owned and occupied the property for 5 of the last 8 years (meaning they purchased in 2004 or earlier), and while there will certainly be some who cashed out equity and are indeed underwater, there will be many more who have plenty of equity in their property and want to use this opportunity to move into the home more appropriate for the next stage of their lives. This last point, of course, might not play out if those owners decide to hold on to their current property as an investment, and simply buy a second property.  I suspect the people who do that will be limited though: the AGI limit, even when raised, along with the $800,000 maximum purchase price will limit people in the DC area from taking full advantage of that.

It will be interesting to see how this all plays out, but I suspect we’ll see an increase in the entry level category of inventory in early 2010, both from continuing foreclosures, trade up buyers, and simply sellers who recognize that the market at the lower price points in our area has stabilized and maybe is even on the upswing in certain neighborhoods.

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Ready to start your home search? Contact us to be notified of our next free First Time Home Buyer Seminar or to meet for a cup of coffee to discuss market conditions where you want to buy.

Thinking of selling? If you have a property priced below $450k or so and in a desirable neighborhood, there very well could be a lack of inventory.  Sell “high”, and use the proceeds (along with historically low interest rates) to buy “low” at the next pricing category.   Read more below:

Read more: How Do I Protect Myself if I Buy and Sell a Home at the Same Time?

Sign up for a free MLS Market Snapshot to see what’s been going on in your neighborhood (Northern Virginia, DC, and Maryland only)

Read more: Six Myths About Choosing a Listing Agent

Read more: Marketing Your Home

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$8000 First Time Home Buyer Extension and New $6500 “Move Up” Buyer Credit Details

Money 100s

It’s officially passed the House and Senate, and is now awaiting the President’s signature.  Along with the extension of the $8000 First Time Buyer credit (now applies to any buyer under contract by April 30, 2010 and settling by June 30, 2010), there is now a new credit category: long-time residents of the same principal residence which has been given the shorthand name of “move up buyers”–though in reality it could just as easily apply to “move down buyers.”

If a homeowner has owned and used the same residence as their principal residence for any five consecutive years in the last eight (as of the date of purchase of a subsequent residence), then they are treated as a “first time home buyer” eligible for a (up to) $6500 tax credit when they file their next return.  Other key points:

  • This credit applies to purchases under contract between December 1, 2009 and April 30, 2010.
  • Income limits are higher than with the previous credit: $125,000 AGI for a single individual and $225,000 AGI for a married couple (and then phases out until $145k/$245k).
  • Homes with a ‘purchase price’ (as defined by the IRS) above $800,000 are ineligible.
  • Thanks to all the fraudsters out there, purchasers must now submit documentation of purchase along with their tax return.

Some other restrictions apply (e.g., must keep the home for at least a year), but the key points are above.  Update 11/14: here’s a nice summary article that appeared in the Washington Post.  Some other FAQs that have since been answered:

  • There is no requirement that you sell your current home.  You can rent it out, or sell it later.  BUT you must occupy the new home as a primary residence
  • Many types of dwellings are eligible: new construction, existing homes, condos, mobile homes, or boats that function as a primary residence BUT in no case can it cost more than $800,000 or the property is ineligible.
  • If you close between Nov 6 and Dec 31 of 2009, you can claim the credit on your 2009 return or even amend your 2008 return (important to know if your income has changed, making you ineligible in 2010!)

This is key news for our area, which has seen a dramatic drop in housing inventory, especially at the first time buyer price point–this could well create demand in the next category up (up to $800,000 that is) of homes, and will create some breathing room, inventory wise, for the continuing first time buyer demand.

This could be the ideal time for these move-up or move-down buyers:

  1. Prices for inventory at the first time buyer price point are stable or even rising
  2. Interest rates are still at historic lows
  3. Upper end homes have dropped (and are continuing to drop) in price

Combine these three points and you get “sell high” and “buy low”. If you’re thinking of selling your home to “move up” or “move down” and want more information on the tax credit, please contact me.

Read More: Why is the $6500 tax credit important?

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Read more: How Do I Protect Myself if I Buy and Sell a Home at the Same Time?

Sign up for a free MLS Market Snapshot to see what’s been going on in your neighborhood (Northern Virginia, DC, and Maryland only)

Read more: Six Myths About Choosing a Listing Agent

Read more: Marketing Your Home

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