The $8,000 Home Buyer Tax Credit

In an attempt to help stimulate the housing market, the Federal government recently enacted a new Home Buyer Tax Credit for first-time home buyers who purchase a principal residence. The tax credit is equal to 10% of a home’s purchase amount or $8,000, whichever is less.

A tax credit is direct dollar-for-dollar reduction in what a taxpayer owes in taxes. A person who owes $8,000 in income taxes and is eligible for the full $8,000 home buyer’s tax credit would owe nothing in federal taxes.

In order to qualify for the tax credit, the buyer has to meet the following general parameters:

• Be a First-Time Home Buyer: The law defines this as a buyer who has not had ownership of any principal residence in the past three years.
  
  
• Buy a Principal Residence: Any home that will be used as a principal place of residence will qualify, including condos, newly constructed homes and manufactured homes. The home will also have to be purchased by December 1, 2009. (the tax credit is also retroactive to purchases made on or after Jan. 1, 2009)
  
  
• Meet Certain Income Thresholds: In order to qualify for the full $8,000 tax credit, a single taxpayer cannot have a modified adjusted gross income (MAGI) that is greater than $75,000. For married taxpayers who are filing a joint return, the MAGI limit is $150,000. For those with higher incomes than these thresholds, the tax credit is reduced and is phased out completely for single taxpayers with a MAGI of $95,000 or more, and for married taxpayers with a MAGI of $170,000 or higher.
  

The District of Columbia also offers a first-time home buyer tax credit, but a taxpayer can only choose this local tax credit or the Federal tax credit.

Home buyers are becoming more aware of this tax credit and are using it to minimize to offset the costs of a home’s down payment. Sellers should also be aware of this tax credit, so that they can relay this important information to prospective buyers.

For more information about the home buyer’s tax credit, ask your accountant or visit http://www.federalhousingtaxcredit.com.

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The Root Causes of the Underwater Homeowner...Part II

Earlier today I put out a Tweet (follow me @ForSaleByOwner) to pass along a news story about a real estate broker who apparently has been smashing the yard signs of a former employee-turned-competitor. As you can see in the video, the broker was arrested for destruction of personal property and should rightfully be held responsible for his acts.

But my attention was also focused on the other party, a Realtor who apparently works for a real estate company that promises buyers the opportunity to buy homes with only a $500 downpayment.

As I wrote in an earlier post about the root cause of the underwater homeowner, the median downpayment of a home bought in 2008 was just nine percent. For first-time home buyers, it was just 4 percent. Financial advisors suggest that buyers make at least a 15-20% down payment. So, I questioned, who has been planting the idea in so many people's minds that it's a good idea to buy a home with hardly any downpayment (29% of all buyers, by the way, put 0% down)?

Maybe it's real estate agents with businesses like 500downpayment.com? Telling people that they can buy a home with such low down payment amounts puts these folks on the path to heavy debt and, as we're seeing across the country, foreclosure and bankruptcy. The real estate commission structure is designed so that it rewards any and all real estate transaction, no matter if the buyer can actually afford the home or not.

Sadly, as long as the commission structure is maintained whereby it rewards even sly real estate sales tactics, far too many unsuspecting Americans will continue to be put in situations where they don't have the financial means to pay for their homes.

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Real Estate Commissions Totaled $46.6 Billion in 2008

Commissions paid to real estate agents and brokers totaled $46.6 billion in 2008 – a $12 billion decrease from 2007 levels -- according to an analysis performed by ForSaleByOwner.com. The nationwide average commission paid on a home sold through a residential brokerage during 2008 was $12,600. Sellers in the West paid the most to get their homes sold ($16,230), followed by home sellers in the Northeast ($15,500), South ($11,050) and Midwest ($9,540).

The cost of paying real estate commissions has clearly been magnified by declining home values. With home prices falling across the country, losing another five-plus percent in the form of a real estate commission is simply a luxury that today’s sellers cannot afford.

The National Association of Realtors recently found that people who sell their home themselves sell quicker and for closer to asking price than agent-assisted sellers. Agents do provide some convenience but, with commissions averaging $12,600, selling ‘by owner’ is a much more cost effective approach to getting a home sold.

A recent survey from the National Association of Realtors found that people who sell “by owner” get closer to their asking price and sell quicker compared to those who sell through an agent. The trade association found that those who sell without an agent receive 97 price of their asking price, while those who sell with an agent receive 96 percent of their asking price. The trade association also found that a home sold through an agent takes 10 weeks, while it takes just six weeks to sell a home “by owner.”

In addition, separate studies from Northwestern University and Stanford University found that FSBO sellers are as effective as agents in maximizing the sales price of their homes. After commissions are factored into equation, the studies reported, sellers who sell “by owner” actually save more money, and retain more equity, than sellers who sell through agents. The September 2008 issue of Consumer Reports magazine also reported that FSBO sellers are more likely to get their asking price while agents deliver, on average, a sales price that is $5,000 less than the original asking price.

http://www.forsalebyowner.com

The Root Causes of the Underwater Homeowner

The Wall Street Journal is reporting today that, as of the end of 2008, a disturbing 20% of all U.S. homes that have a mortgage on them were "underwater." That means that when the New Year's Eve Ball dropped in Times Square, there were more than 8.3 million homeowners throughout the country that owe more on their mortgage than their home is worth.

Experts agree that this 8.3 million figure has climbed since that time.

But how did we get here? Declining home values have received much play in the media as the reason why so many are underwater, but declining home prices only tell half of the story. Considering that a mortgage is simply a home's sales price minus its down payment, we can accurately state that mortgages are more likely to become underwater whenever a smaller down payment exists.

A 2008 report from the National Association of Realtors provides us with critically important statistics about down payment amounts (click on the above image for complete information). According to the National Association of Realtors:

• The median down payment amount for all home buyers is ONLY 9 percent;
• The median down payment amount for first time home buyers is ONLY 4 percent;
• 29% of all home buyers put 0% down to buy their home; and
  
• 34% of first-time home buyers put 0% down to buy their home.

Such low down payment amounts, coupled with decreasing home prices, are the reasons why there is such a large percentage of home owners who are underwater. These folks obviously made a bad decision to leverage themselves so greatly, but a fundamental question is, "Who was advising them to buy homes that they couldn’t afford?"

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