Let me first disclose that I am not a tax professional and this should not be considered tax advice.

Glad that’s over!

When a home buyer client of mine e-mailed me recently with confusion about how to claim the home buyer credit in 2010 from the IRS, I knew that he probably wasn’t the only one out there. He was really bummed out to read an old memo from the IRS on the first page on Google that gave the impression he would have to wait until he filed his 2010 taxes to get his rebate check… but know, recent home buyers, that just isn’t the only option. The new memo was released in January.

The home buyer tax credit was intended to be an economic stimulus… not a delayed stimulus plan.

You have two options to claim the tax credit for home buyers:

• File an Amended 2009 Form 1040x along with IRS Form 5405 and proper documentation including a copy of your HUD-1 Settlement Statement.
• Or you can wait until you file your 2010 taxes next year.

Like I discussed in a post in January, I felt that the home buyer tax credit or rebate program was going to be another super motivator for home buyers who were on the fence. As an active Vienna Real Estate Guy, I did see it push some sales forward by a month or two, as those long-time owners living in Vienna VA put their homes on the market ahead of their projected time frame to capture the excitement.

Basically, first timers could get 10% of the sales price or up to $8,000 maximum. And current owners had the option to buy a home to qualify for the long term home buyer tax credit, up to $6,500.

But now that the deadline of April 30, 2010 has passed, there are plenty of people wondering how do I get that money to fix up the kitchen or replace the carpets? Maybe to amended your 2009 using Form 1040x to claim your first time home buyer tax credit is the route for you… consult a tax professional for advice if you have questions.

By the way, how long is it taking people to get those checks?

Related articles by Zemanta

• San Antonio First Time Home Buyer or Just Preparing Your Taxes? (rerockstar.com)
• The Amended Federal Income Tax Return and the IRS Form 1040X (personal-tax-planning.suite101.com)

Image via Wikipedia

We had a bright and sunny weekend here in Northern Virginia, and a surge of home buyers were out looking at the homes for sale that had popped up late Thursday afternoon and Friday morning. A little marketing tip is to put a home into the MLS database Thursday to feed all the IDX sites out there that send e-mails to registered home buyers.  Our MLS, actually the Metropolitan Regional Information System (MRIS), is the #1 source and they pump out the data you see on Trulia, Zillow, Frankly MLS, Roost, Redfin or Sawbuck. They have their own “ad-free” site for you called Homesdatabase.com which is excellent.

So I showed some townhomes in Fairfax around $350,000 and the newest listing was swamped with buyer agents and their eager clients. At one house there was a guy with an Alexander Ovechkin jersey who looked like he would fight us for it!

I tried to show a home in Vienna priced at $599,900 in my neighborhood but the agent, who I know well, told me she had two offers on Friday. One offer was so good that it was accepted by the home sellers… before the scheduled open house!

Vienna, VA Home Buyers can’t wait for the Sunday Open House

I also showed a home in Vienna around the corner priced at $699,900 and again I knew that agent well. She was holding an “open house” and there were three families there at the same instant, all looking quietly and wondering if they would be in a bidding war over this classic 1970′s colonial? It seemed like it was the house du jour…

Residential real estate is the ground floor barometer for the economy and, mark my words, the economists will be talking about this in five weeks. Again, I am seeing a frantic home buyer surge as they are trying to find a home, and get a contract accepted to get the $6,500 or $8,000 home buyer credit before the deadline… and lock in a low mortgage interest rate (currently below 5%).

Real estate in Vienna, VA is fueled by the location to employment centers like Tysons Corner or Reston  (some people like the W&OD Bike Trail) and Fairfax is fueled by price where many homes have dipped significantly but have great locations or neighborhoods.

This is the time, home buyers of Northern Virginia, to have a buyer agent or ABR working for you!

Related articles by Zemanta

• Have You Seen Your House Listing Lately? (rerockstar.com)
• Town of Vienna, Virginia (dougfrancis.com)
• Buying a home in Vienna over a million? (dougfrancis.com)

Image by DougFrancis via Flickr

Revised to include new 5405 instructions

The world of residential real estate in the U.S. is facing an expiration date of historic proportions in 2010 that buyers and sellers need to pay attention to for a variety of reasons. April 30, 2010 is the last day that buyers and sellers can “enter into a binding contract” for a real estate transaction to qualify for the two, limited time, federal tax credits for buyers of residential real estate.

Having a strategic real estate plan in early 2010 is essential for both sellers and buyers of primary residences especially before the ship has sailed… and it will. Hey, I’m just a real estate agent so ask your tax adviser what’s best for your tax situation.

Attention home Sellers, it ain’t just for first-time home Buyers this time!

Way back in November ’09 when first-time buyers were in a frenzy to close on a home before November 30th, Congress passed The Worker, Homeownership, and Business Assistance Act of 2009 to extend the first-time home buyer tax credit and add a new tax credit for “long-time resident” homeowners. So now the move-up home seller group or downsizing home seller needs a clear strategy for getting a contract on their existing home and then a contract on their new home. These tax credits are for principal or primary home purchases and not intended for investors or people buying second homes.

Home Sellers, if you had planned on moving-up or down this year, then you should realize that buyers this winter have a deadline or extra motivation to snatch-up your home. This is important especially since home inventories are low in many areas (supply vs. demand). And then, once you have that contract in hand,  you can put in a contract on your new home before the April 30th deadline for the “long-term resident” credit if you qualify.

If you are thinking of just waiting until the Traditional Spring Market in 2010, then you really need to think again. Waiting until May to put your home on the market is a strategic error. The motivation of the tax credit can act a little like rocket fuel to qualified buyers to enter into contracts by the April 30 deadline, and I witnessed that phenomenon in the Northern Virginia real estate market last fall as the original deadline approached. This credit is essentially up to $8,000 cash to the first-time home buyer… and that will buy a lot of home furnishings!

I forecast 45% of 2010′s real estate sales are “in escrow” during this period

Here are the important dates as posted on IRS.gov:

• Binding Contract by April 30, 2010
• Must Settle on the Purchase by June 30, 2010

First-Time Homebuyer Credit details:

• Buyer who have not owned a primary residence during the three years up to date of purchase
• No one under 18 years old
• Modified Adjusted Gross Incomes up to $125,000 for single filers (reduced credit $125,000-$145,000)
• MAGI up to $225,000 for joint filers (reduced credit $225,000 – $245,000)
• No credit on homes with a purchase price over $800,000
• Maximum Credit of $8,000 or 10% of Purchase price (smaller of the two)
• Need to file IRS Form 5405
• New instructions as of January 15th, 2010: Revised 1/10 5405 Instructions

Long-time Resident Credit details:

• Must have used the same home as a principal or primary residence for at least five consecutive years of the eight-year period on the date of purchase of a new home as a primary residence.
• Credit up to $6,500
• Modified Adjusted Gross Incomes up to $125,000 for single filers (reduced credit $125,000-$145,000)
• MAGI up to $225,000 for joint filers (reduced credit $225,000 – $245,000)
• Need to file IRS Form 5405
• New instructions as of January 15th, 2010: Revised 1/10 5405 Instructions

Members of the Armed Forces and certain Federal Employees serving outside the U.S.:

• You will have an extra year to qualify for the credit

This information is intended as strategic advice to help give readers an overview of the upcoming 2010 real estate market, and you should always consult a professional tax adviser to discuss your tax situation and if you qualify for this tax credit, and how much you are entitled to receive at your price-point.

Related articles by Zemanta

• 5 Pct. of Americans Plan to Buy a Home Next Year (abcnews.go.com)
• Are you “making an offer” or buying a house? (raincityguide.com)
• For that home tax credit, hurry (seattletimes.nwsource.com)

If you are or have a friend who is thinking about buying a home and taking advantage of the $8,000 first-time home buyer tax credit, then there are some facts you need to know, and we need to talk today. Especially since everyone and their little brother/sister knows about the current affordability index… more on that below. And this isn’t just information for my real estate clients in Northern Virginia, but for any home buyer out there across the USA!

Home Buyer Tax Credit info you should know:

• There is a deadline: Have a contract by May 1, 2010 and settle before July 1, 2010
• The income caps for the full $8,000:

Individual Filers with a modified AGI of $125,000
Joint Filers with a modified AGI up to $225,000

• First-timers are defined as someone who has not owned a home in the last 3 years
• Primary residence only (main home)
• A fast transaction from contract to closing is 30 days
• Most lenders suggest giving FHA loans a 45 day window
• The Fairfax County Courthouse is closed for Memorial Day.
• If rates change, your lender may have to give you a new estimate with a new review period.

So your strategy needs to start right now because I am seeing multiple offers on many places as buyers are rushing to beat the Home Buyer Tax Credit deadline. Work the time frame backwards for a minute because the big “crush” on mortgage companies will probably come at the end of June (code for delays). I am going to feel a bit uncomfortable if settlement is after the 19th and will advise you of the risk. With many loans today being of the FHA variety, lets move back another 45 days meaning you need a ratified contract by early April!

So what is this affordability index?

Prices are down about 15% since last year, and 30-year fixed rates that were at 6.5% last year are now lower than you may think. For example Curt Gilbert at Bank of America sent me a rate sheet on 10/30/2009 showing an FHA rate at 5.00% with 0.50 points. Conventional financing to $729,000 has rates close to 5.00% too.

For IRS details, (I will update this)

Time is passing quickly and we should be discussing a game plan right now or you may just miss the Home Buyer Tax Credit for 2010. My contact information is on the Contact Me page.

Related articles by Zemanta

• Question: Will the tax credit be extended to 2011? (rerockstar.com)

REVISED

As I was driving over to my office today, I heard on WTOP exciting new statistics released by the National Association of Realtors about pending home sales jumping last month. Of course I like that news since I’m in the home-sale-biz, but I feel like there is a considerable amount of “fudge” in those numbers. I say “fudge” because the real estate market has been fueled by the deadline of the first time home buyer’s credit scheduled to expire December 1, 2009.

UPDATE: The President has just signed an extension but you need to be in a contract by May and settle before July 1, 2010.

That’s an $8,000 tax credit for anyone who hasn’t owned a home in the past three years as long as they meet certain criteria.

But last week as Congress tossed around the idea of extending it (they won’t) (they might) (they did), many bloggers decided to beat the story celebrating its continuance. I just Googled the story and read tons of comments where people were relieved that it was extended because they were involved in “short-sales” and the banks had not responded to their offers. The box-score for short-sale success is grim so most of these people will never get the home or the tax credit.

In real estate blogs there were fierce discussions over if it was right or wrong to extend the credit which sometimes blurred the fact that it wasn’t extended (yet) (they did 11/6/2009). Jay Thompson, known as The Phoenix Real Estate Guy, put out a post asking people to stop posting that it had been extended! But Google had already indexed some other guy’s post… and he had over 60 comments from relieved short-sale buyers, who are probably hopping mad right now.

My recent Northern Virginia real estate experience tells me…

So the NAR stats released today and my recent market experience tell me a few things about the economic future. Like the cash-for-clunkers program to sell cars, there is going to be an immediate drop off in home sales in December 2009 (now wait till spring 2010). Almost 80% of the short-sale buyers who have padded the “pending contract” stats will not close and end up continuing to rent. And the NAR will use the dramatic numbers to lobby Congress to reinstate the tax incentive next year.

Like I said, there’s a little “fudge” in the statistics.

Related articles by Zemanta

• Home sales contracts rise for 8th straight month (money.cnn.com)
• Can You Still Catch the Buyer’s Market? (movephilly.blogspot.com)

… look at the interior photos! This home is not asking a 3rd party for approval! Not a foreclosure either… super clean and ready to settle by the end of the year!

Mint condition town home located close to Fair Oaks, Fairfax, and some of the best shopping on the East Coast including Wegman’s, Whole Foods, REI, Costco, Target and the Merrifield Garden Center. Walk to an almost new Fairfax County Elementary School (Eagle View), Fairfax County parks and walking trails and so much more.

3 level, rear load two-car garage, almost new condition. 3 bedrooms, 2 full and 2 half baths

All ready to close quickly. But we need to set up a time to see it this weekend… 703-304-6827.

Equal Housing Opportunity!

View Larger Map and settl

It has taken a couple of months, but you are now walking up the stairs and into your new home. It’s actually a little bigger than you thought and you can’t wait to paint the kitchen, replace the carpet, get the FiOS set up, and turn in the keys at the old place. Maybe even take a dip in the pool!

Nice story, but this is the type of mental image that I want my home buyer clients to have in their minds before we start looking for houses. Setting a goal is important and visualizing the ideal or “perfect scenario” makes it  seem a little less intimidating.

Home buying is a rough sport at any level:

• first-timers
• move-up
• retirement (move-out).

The primary complaint that I hear from today’s home buyers is… there is nothing to buy! Well, there are homes to buy depending on the region of the country you are in, and many of those homes may be short-sales (where the seller is asking the bank to forgive his loan for less than he owes) or foreclosed homes (a bank is the owner and seller). In either case, these homes may have issues like needing a lot of updating or fixing up, being sold strictly “as-is”, or the sale is a long-shot to ever get to settlement.

Even with the $8,000 first time home buyer credit, a home that needs all new appliances or carpeting isn’t that attractive. And a first time home buyer may understand why some homes went into foreclosure, like homes overlooking the Beltway or backing to an industrial area. And many people feel uneasy about buying anything for $400,000+ strictly “as-is” – yes, they ain’t fixin’ nuthin’.

Okay, these scenarios may have scared some of you away but for the person looking for a good home at a discount (from even 1 year ago) and a mortgage rate around 5% then this is the perfect opportunity. Yes, the affordability index is off the charts.

I tell clients to not get emotionally attached to any home until we have completed the home inspection. This is always a contingency included in my client’s offers because our contract specifically states that “the Purchaser may void the contract” after the inspection. It is make or break time… we have a contract, is it still worth it? If not, then we submit the notice to the Seller declaring the contract void and the home buyer is back looking for better options.

By having a clear picture of what you want the end to look like, making the decision to move on to another home will be much easier.

Being a real estate agent can spark a conversation almost anywhere, and I wound up answering questions from friends who are considering buying a property in Colorado. The questions are common ones but still very important to anyone who is planning to make an offer whether or not they are in Virginia or Colorado.

• Have pre-approved financing, and an approval letter or letters from your lender to submit with your offer.
• There may be a minimum Earnest Money Deposit required with your offer, so check the MLS listing sheet. If accepted, then this money get deposited in an escrow account and is part of your down-payment.
• Have your agent ask if there are other offers, or if there have been other offers. I feel that it is strategically important to know this fact before submitting an offer.
• Review the typical costs involved in buying a home such as an appraisal, lender fees, points, transfer taxes, title insurance, or other common expenses.
• Understand the monthly payment including principle, interest, taxes and insurance (PITI). With interest rates so low, you may be surprised what it could have been a year ago when rates were closer to 6.5%.
• Ask about time-frames. The mortgage lender may need 30-45 days to close, or the seller may need or prefer to close on a certain date. Again, a key part of your offer.
• Is this home a good deal, and if you don’t get it are there other homes that meet your needs?
• The $8,000 first-time home-buyer tax credit has a deadline of December 1st, 2009, and has an income cap of $75,000 for single filers and $150,000 for joint filers. These numbers are MAGI and are prorated above the income caps. See a tax preparer for advice.
• There are tons of deals out there… not! Home buying has been very active in Northern Virginia and many places around the country due to low rates and a supply of discounted homes for sale. You may have missed the boat.

As I arrived in Rhode Island, I bumped into an old friend and his father as they came up from surf-casting and lugging all their fishing gear. It seems that his parents are selling their ocean-front home, an amazing property, and no one was biting on the $6.7 million asking price. Since I had seen the property advertised in Rhode Island Monthly Magazine and had looked it up on-line, I knew what the listing needed and fast.

• More photos. This home has fantastic flower gardens that are right out of  Martha Stewart Living. This unique feature was not shown but is highly coveted by buyers in that price range!
• Understanding your audience. This home is more than a house; it is a treasure for anyone hoping to own a 19th century home with a 180° unobstructed Atlantic Ocean view.
• Online picture quality. Since 95% of people now house hunt online, make sure that the photo they find is of high quality.

While these were my friends asking me for advice, I was happy to share my experience with them to help them achieve their goals. Vacations are for re-connecting with family and friends, and this vacation gave me an opportunity to give back a little to people who have given me much for 40+ years.

By the way, although I thought that I broke my leg on Saturday, the x-ray technician did not see a fracture. I am still waiting to hear from the doc!

• Mortgage Interest Rates:

Rates have dropped in the past couple of weeks, and I was seeing the FHA rate at 5% with 1 point on July 21. Rates and points go up and down depending on consumer demand so having a “float-down” option is an especially good idea. Keep in mind that rates change daily. In my book, it is essential that you have a pre-approval letter from a mortgage company before you head out the door house hunting.

• The first-time home buyer tax credit:

The qualification cap for an individual is $75,000 in annual income. The qualification cap for married/ joint filers is $150,000 combined annual income. In my book, you need to “close” by the end of November. Yes, they say December 1st in the government fine print but, if there is a delay caused by a technical difficulty, car accident, or some other unexpected issue then you are out-of-luck, baby cakes!

• The current market:

Buyers in our area are much more motivated especially for homes that are in decent condition. Stories of multiple offers on a new listing or escalation clauses included with offers are getting to be common. In June, one of my clients was out-bid on two properties. In my book, take your search seriously and when you see a home you like then put in a well prepared offer… because if it appeals to your picky standards then someone else probably likes it too!

Having a buying strategy makes the process much more effective and enjoyable. That is why I sit down with clients to review the process, closing costs and mortgage options right from the start. To me it is a natural sequence that yields the desired results of finding the right house and actually buying it.

Down, set, hike!

HUD sent out a memo in early May announcing this program as many of you readers probably recall, but promptly pulled the memo when reasonable people like me pointed out the half-baked program. By the end of May they were ready to give it another shot.

There has been a ton of confusion over the specifics and, I admit, I was part of that group feeling that there would be loan sharks lining up to charge hefty fees to unsuspecting first-timers.

But the funny part to me is that the fee cap appears to be 2.5%, and the combined loan and fees cannot exceed the tax credit. The tax credit is 10% of the sales price or a maximum of $8,000, so the fee is less than $200? The use of the word “fee” seems vague because isn’t interest on these loans considered a fee? And HUD/FHA is asking the investor (yes, investor) to perform some due diligence to make sure the borrower is not a risk.

FHA expects that entities purchasing tax credit assets will employ appropriate due diligence measures including, but not limited to:

• Require the homebuyer to draft and provide the IRS form 5405 First-Time Homebuyer Credit.

• Contact the borrower’s employer and review pay stubs to confirm there are no outstanding garnishments.

• Review the homebuyer’s credit report to ensure there are no unpaid student loans, or other obligations that could be offset against the credit.

• Validate that all of the eligibility requirements for the tax credit are fulfilled

• Review previous tax returns and IRS tax assessment letters, if any, to determine that the borrower does not have unsettled obligations to the IRS

So there will be some extra hoops to jump through, but if borrowers want the cash now then they will need to work just that much harder. The detailed specifics of the “fees” will be essential and if that includes interest? So my best recommendation for those folks planning to exercise this option, plan for settlement at least 60 days from ratification.