I was going to write about the recent changes announced by the FHA that allow the $8,000 first time homebuyers tax credit to be used to offset some costs in a home purchase (as opposed to waiting to get the $8K at tax refund time).
But Heather Barr, agent and blogger extraordinaire, beat me to it.
Might as well let her do the work.
Read Heather’s post, Bridge Loans Using $8,000 Homebuyer Tax Credit.
There is already some bad information out there on these new guidelines. I also suspect there will be people popping up that will claim to be able to “help you” get these funds advanced. Naturally this “help” will have a price attached to it. Be very careful, and consult with your lender and tax professional.
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Agreed! Just like the loan modification business how there were half-ass companies that offered to modify for an upfront fee, I believe as you said, we will see the same thing with this.
**Scott´s last blog post..What do Foreclosures mean for Multi-Family Investors
To answer the question, “Could This Be Bad?”, on her blog. I must say, YES!
Bad idea sold to the government by NAR.
Here is my question to all; HAVE WE BECOME SO DESPERATE TO SELL A HOME THAT WE WILL ENDORSE SUCH STUPIDITY?
Then again, maybe I’m wrong.
I am desperate. Let buyer beware (that’s my limit on ethics).
Gregory –
In your opinion, what’s the bad part? By that I mean is the $8K tax credit a bad idea from the get-go, or is the bad part this new FHA “directive”? If it’s the directive, is it really “bad”, or is it just “stupid” and won’t help?
I’d be interested in hearing your opinion. My thoughts on the $8K credit itself are mixed. Personally, I’m not a fan of the government mucking about in open markets, but I can see how it may help stimulate home sales. (Though to truly do that, they should have lost the first-time home buyer requirement.)
As for the new “directive”, as its planned I don’t think it will help, but I don’t see it as necessarily “bad”.
Jay, I’m not selling a lot of houses. The problem (IMO) is the income level of the buyers vs. the cost of the house. The current FHA 3% (now 3.5%) down and assistance with the closing costs of up to 3% of the price of the home should be the bare minimum in the purchasers leverage power on home ownership.
The only exceptions should (again, IMO) would be VA (perferably only for disabled vetrans) or market areas that would directly benefit from certain home owners with occupations such as teacher or police, fire, and medical expertise that would help the community grow.
The very thought of giving a grant or tax credit is a little questionable to the ability to “stimulate” the housing market. But, the idea of giving it to the buyer as a bridge loan is just bad economics. I never encouraged anyone to use a bridge loan to buy a house – that’s my opinion.
Maybe, I’m stuck in the 19th Century and read to many Steinbeck and Dickens novels. But, I watched the lobbyists get all the bankruptcy laws changed in this country just before the housing bubble popped. Coincidence?
Gregory, excellent point about the cost of home buying vs. average income levels. Working with a lot of first timers lately and Phoenix’s average income of high $20,000s to low $30,000s doesn’t allow much room for saving a down payment. These young folks are struggling(!) to save a few thousand dollars.
But have to disagree on the stimulative effect of the tax credit. While it didn’t make any of my buyers decide to buy, it tipped several over the edge from ‘maybe’ to ‘oh, yeah!’
**Heather´s last blog post..Loan Modification Scams
Nice thread, and quite relevant to me ATM.
Approved to 93k, we got an accepted offer on a beautiful Phx home. However, the bank needed closing by the 2nd of July. My lender couldn’t meet the deadline, so, we scrambled for a new lender. Now… my new lender can’t match the same DTI figures.
You see, as a grooming salon manager, a significant portion of my income is in tips. I’m down to the wire in underwriting, and am told now that the additional 8k in monetization would bring every thing into acceptable range. However, I’m also told that “Nobody” in AZ is actually processing these bridge loans yet. Am I being lied to?
My girl and I have seen three houses slip through our fingers to cash investors in the last two months. We’re pretty distraught at this point. Heck, we over bid one dream home by 20k and lost it to a cash deal.
I have 4.5k saved for a down as is….. and 4k gift from family…. the 8k tax break could get my family into this house. Any ideas? I only have days……
I realize this is a public forum, and probably shouldn’t disclose all of this, but… what the heck. It’s that important!
Heather, I’m glad you are seeing a positive effect. I often play the role of a phychologist (unlicensed, of course) and it is my opinion that those that could buy would buy without the government carrot. Those that can’t buy are being duped into ownership with “bridge” loans they can’t afford.
I don’t foresee the price of homes dropping too much in the near future, but I think INFLATION will eventually bring up the living wage to meet the price of housing (see, I’m optomistic!) A candy bar that cost 65 cents just a few months ago is now selling for a dollar and 5 cents. Soon will all be making the 6 figure income that those MBA types made and housing will be affordable again.
But, I’m still desperate to sell a house today. Caveat emptor!
Good to know this applies in other parts of the world as well. In Puerto Rico we have a $25k incentive for new developments I know a couple of people that have taken this benefit.
As I mentioned on Heather’s excellent blog (good job H.), having a “silent second” is a future recipe for problems, and the investors circling around to provide these short-term bridge loans may cause IRS headaches for those who participate. Since, in my opinion, FHA buyers are more likely to do their own taxes… and no one wants a tax problem.
**Doug Francis´s last blog post..My innocent trip to Arlington County Court
I have just barely started researching a lot of this myself. I have kind of mixed feelings as well. Thanks for the comments. They are always helpful.
i guess they cant give away the houses, they have to pay you to buy them. The tax credit is just another factor that contributes to the propping up of the real estate market. Let the market hit bottom, we will all eat ramen noodles and macaroni and cheese for a few months and then we will recover.
@Xander,
I just thought I would chime in — Jay’s blog is a great place to ask questions like yours because so many people read it!
I don’t know about other parts of the country, but in Phoenix… to my knowledge… there currently isn’t a program available for people to “monetize” the 8000 tax credit.
When/if programs do pop up (I actually expect them to), it will be lender specific because some lenders may actually decide to help people monetize the credit and some won’t — or at least that is what I would expect.
I also suspect that a non profit organization may pop up here soon that can help people in Phoenix monetize the credit, but as of right now, I am not aware of one.
And I actually hope that at least one loan officer responds to this thread and lets us all know who is helping people monetize the credit in the Phoenix area so that we can spread the word.
So — I don’t know if it makes you feel any better or not, but you are not being lied to when your loan officer says “no one in Phoenix is doing it” — or at least not to my knowledge.
Justin
**Justin McHood´s last blog post..Monetizing 8000 Tax Credit for New Home Buyers: Popular Questions and Answers
Great advice on being careful about anyone saying they can “help you” with getting the funds-I have heard of some frauds geared at taking advantage of home buyers that just haven’t realized all the details of the tax credit or realize they should refer to their lender to get all the details. Such a shame.
I have heard some about the tax credit your government is offering first time home buyers-from my understanding it has to be paid back starting in 2010, is that correct?
Bobbie – no, the current $8,000 first time homebuyer tax credit discussed in this and the linked post does not have to be repaid. There was an older $7,500 “credit” that has to be repaid, making it in effect, a no-interest loan, not a true credit.
I like that buyers still have to come up with their 3.5% Downpayment for FHA loans. My experience has shown stronger long term buyers went in to their purchase with a least that much skin in the game.
**Petra Norris´s last blog post..Lakeland Florida – A Great Place to Live
Hello All:
Couple thoughts: First off, I have asked around to a number of my friends who are still in the tax world and every one of them has indicated to me just how easy and effective it has been for their clients to get back the $8,000 tax credit. Basically, you just file an amended 2008 tax return (only have to deal with this one issue), e-file it, and ask for automatic deposit to your bank account. Monies are there within 2 weeks, if not sooner.
Second, with this in mind, it makes the use of the “up-front” downpayment, etc., assistance a very expensive use of money. Because the provider of the “up-front” assistance will be allowed to charge 2% (or, 2 1/2%) to process the loan, it equals about a 52% annualized interest charge (2% times 52 weeks in a year, divided by 2 weeks to get refunded). I tell my clients, “If you can get the money through savings or a gift, you are much better off.” (Amazing, how my clients end up doing a gift back to the donor for an amount that, coincidentally I am sure, equals the exact amount gifted to them…)
As an aside, I do not know of any one making these loans in the Phoenix area at this time, either.
Finally, yes, I definitely believe the $8,000 tax credit has had a positive impact on the housing market, even if it is concentrated in the $200,000 and below niche. Remember, there are income limits attached to it, so not sure how that would work in expanding it to everyone as those looking to buy $400,000 homes tend to make higher incomes (or, at least we hope so…:) ).
Because of continuous economic downturn, many realtors and business establishment were engaged in financial issues, they tend to get big loans in order for their business to survive in this time of depression.
Before assuming anything, anyone thinking about utilizing the first time buyers tax credit should get professional advise.
Before assuming anything, anyone thinking about utilizing the first time buyers tax credit should get professional advise.
Thanks for taking aminute to warn people about the upfront offers at a price. The government is giving it away for free, don’t make the mistake of borrowing it and having to pay interest. Can’t stress it enough. Thank you and Heather for the posts!
Trent Realty´s last blog ..Trent Realty | Florida Real Estate, REO and Foreclosure Properties