$8,000 First Time Home Buyer Tax Credit - Keeping it SimpleMonday, June 29, 2009

I have had so many clients come in and talk with me about the credit and because of all the news stories and proposed changes to this tax credit, a lot of confusion has been created around how it works. Now, before I make my blanket statements, you should always contact your CPA (or call me if you need a referral to my guy) to make certain you are getting all you qualify for.

1.] What is a First Time Buyer? If you have not owned your primary home in over 3 years, you are considered a First Time Buyer. It needs to be consecutive, but many people do not realize this.

2.] Do I get the full $8k? This depends on your yearly gross income. If your modified adjusted gross income exceeds $95,000 (or $170,000 if you are married filing jointly) than you will not qualify for the credit. For buyers that make $75k or less, you will qualify for the entire $8k.

3.] When can I obtain the funds? Once you close on your home purchase, you can amend your 2008 tax return to obtain the funds this year. Your CPA can you help you with this. Or you can wait to file for 2009.

4.] Do I have to repay anything? If you sell or convert your home within the first 3 years of ownership, a refund of the credit will be required. This will be in the form of additional tax added to your return the year of the sale/transfer. This includes converting the home to a rental property or switching it to business use.

5.] Can I use the $8k upfront for down payment or closing costs? The current answer to this is 'No'. FHA allows for this, but no lenders are implementing this and in the current real estate market they prefer borrowers to bring some funds to the purchase and have a stake in the success of the mortgage loan.

I hope this helps. Call me at 503-488-1818 if you have additional questions.

Curious about mortgage rates?Saturday, June 20, 2009

I'm sure if you are a current home owner reviewing your refinance options, or a home buyer looking to 'pull the trigger' and lock in a rate, you are fairly surprised to see how quickly the 4.750% on a 30 year fixed loan jumped to 5.5% in just a few days. Then, it falls back down to the low 5% range only to pop back up a day later. The more you know about WHAT drives rates, the more these wild swings begin to make more sense. However, realizing that emotions in the market play just as much a role as technical data, you never know for certain what direction the market may move in the short-term.

What sets the Rates?
The more you learn about the other side of your mortgage, the investor that collects the interest you pay, the more you will understand how the rate is set. To keep it very simple, mortgages (at least the majority of them) are bought and sold on Wall Street. Fannie Mae and Freddie Mac securitize the mortgages in pools that are sold to investors. They are Bonds and traded each day much like stocks. As stocks move up and down, so do bonds. Typically, when stocks are strong, money flows out of the bond market and into the stock market as investors seek the higher gains from the equities market versus the safe haven of fixed-return assets. When the stock market looks too scary, the money will flow into bonds, often times resulting in lower mortgage rates.

As you are probably well aware, the financial markets are very shaky ... each day there are economic reports that cause alarm to investors and stocks and bonds get bought or sold quickly, pushing the values up and down wildly. With the government having a large role in our financial markets, announcements of their new plans and efforts to stabilize the market have cascading effects. Okay, enough on this - back to rates. No one knows exactly where they will be from day to day, but the trend seems fairly obvious ... up, up, up.

Inflation
Bottom line: inflation is going to be a big problem in the years to come. All the government spending will need to be repaid, and the Dollar weakens when the Fed prints money to spend. We will likely see rates stay in the mid 5% range through the summer and for some time to come, but in the next few years seeing rates reach double-digits would not be shocking.

Get off the fence ...
If you are looking to get into real estate, right now is an amazing time. If you can buy while prices are very low, take advantage of tax credits from the government (first time buyers) and get great low rates on 30 year fixed loans, don't wait too long - it will not and cannot be sustained too much longer.