Massachusetts Home Buyer Guide

Many Proposals To Extend, Increase Tax Credit

There seems to be more than a little support for extending and/or increasing the tax credit for first-time home buyers, USA Today reported June 23, 2009.

One proposal calls for expanding the tax credit to $15,000 from the current $8,000 and eliminating any income restrictions. That same proposal would eliminate the first-time home buyer requirement.

Another proposal would extend the current tax credit to all home buyers through 2010.

Read The USA Today Article

Bill Would Increase $8K Tax Credit To $15K

U.S. News & World Report's The Home Front blog reported June 12, 2009 that Georgia Republican U.S. Senator and former real estate professional Johnny Isakson filed a bill June 10, 2009 that would expand the current first-time home buyer tax credit from $8,000 to $15,000.

Besides the increased tax credit, it could be taken by anyone who buys a primary residence, instead of only by first-time home buyers.

The bill would also remove the income limits. Presently, the tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The tax credit amount is reduced to zero for taxpayers with MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.

The credit would be available for one year following the enactment under Sen. Isakson's bill.

I think the bill should be retroactive by two to three months, so it doesn't put the brakes on deals because home buyers think they'll receive an extra $7K by waiting. In addition, now that the bill has been filed, it should be voted up or down quickly, so home-buying decisions are not put on hold while the bill is pending.

“'The first-time homebuyer tax credit has made a difference,' said Isakson in a statement. 'First-time homebuyers used it and the market stabilized, but we don't have a recession in first-time home buyers. We have a recession in the move-up market. One of the biggest problems facing the American people today is an illiquid housing market, a decline in their equity, a decline in their net worth and a depression in the housing market that we are obligated to correct if we possibly can.'”

Read The Home Front Post

Less Than Six Months Left For $8K Tax Credit

Just a reminder that qualified first-time home buyers have less than six months to search for a home, find a home, come to an agreement with a seller and close the deal before the federal $8K tax credit expires on December 1, 2009.

Get all the details of the $8K tax credit.

Start your home search.

$8,000 Tax Credit Moves Buyers

The following video on Boston.com is of a couple that bought a home in Watertown, MA. The first-time home buyers said that, among other things, the first-time home buyer federal tax credit influenced their decision to buy now.

A Buyer Agent's View Of The Market

The Boston.com Boston Real Estate Now blog had a recent post with some real estate market perspectives from buyer agents working in the trenches.

I was quoted in the post.

"When the dust settles on the Spring market median home prices in most places will be down compared to the previous year, but single-family home sales will be up.

"I am seeing a lot of first-time home buyers who have been on the sidelines for a while ready to make a move. The buyers that study the market are ready to jump at a good deal. Homes that are well kept in nice locations are selling quickly, if priced appropriately. I have seen a few places sell in less than a week.

"Chelmsford, Billerica, Tewksbury and the Bradford and Riverside sections of Haverhill have been very popular locations with many of my first-time home buyers."

Read The Entire Post

FAQ About The First-time Home Buyer Tax Credit

The American Recovery and Reinvestment Act of 2009 authorizes a tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence on or after January 1, 2009 and before December 1, 2009.

The 2009 home buyer tax credit is much improved compared to the 2008 version.

The following questions and answers, created in part by the National Association of Home Builders, provide basic information about the tax credit. If you have more specific questions, I strongly encourage you to consult a qualified tax adviser about your unique situation. The following is for informational purposes only.

1. Who is eligible to claim the tax credit?
First-time home buyers purchasing any kind of home, new or resale, are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and before December 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner.

2. What is the definition of a first-time home buyer?
The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the home ownership history of both the home buyer and his/her spouse.

For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit; however, unmarried joint purchasers may allocate the credit amount to any buyer who qualifies as a first-time buyer, such as may occur if a parent jointly purchases a home with a son or daughter. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.

3. How is the amount of the tax credit determined?
The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.

4. Are there any income limits for claiming the tax credit?
The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The tax credit amount is reduced to zero for taxpayers with MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.

5. What is "modified adjusted gross income"?
Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine "adjusted gross income" or AGI. AGI is total income for a year minus certain deductions (known as "adjustments" or "above-the-line deductions"), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.

To determine modified adjusted gross income (MAGI), add to AGI certain amounts such as foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions and deductions for higher-education costs.

6. If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?
Possibly. It depends on your income. Partial credits of less than $8,000 are available for some taxpayers whose MAGI exceeds the phaseout limits.

7. Can you give me an example of how the partial tax credit is determined?
Just as an example, assume that a married couple has a modified adjusted gross income of $160,000. The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000.

Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.

.Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax adviser for information relating to your specific circumstances.

8. How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008?
The most significant difference is that this tax credit does not have to be repaid. Because it had to be repaid, the previous "credit" was essentially an interest-free loan. This tax incentive is a true tax credit; however, home buyers must use the residence as a principal residence for at least three years or face recapture of the tax credit amount. Certain exceptions apply.

9. How do I claim the tax credit? Do I need to complete a form or application?
Participating in the tax credit program is easy. You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on Line 69 of their 1040 income tax return. No other applications or forms are required, and no pre-approval is necessary; however, you will want to be sure that you qualify for the credit under the income limits and first-time home buyer tests.

10. What types of homes will qualify for the tax credit?
Any home that will be used as a principal residence will qualify for the credit. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.

11. I read that the tax credit is "refundable." What does that mean?
The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.

For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed).

12. I purchased a home in early 2009 and have already filed to receive the $7,500 tax credit on my 2008 tax returns. How can I claim the new $8,000 tax credit instead?
Home buyers in this situation may file an amended 2008 tax return with a 1040X form. You should consult with a tax adviser to ensure you file this return properly.

13. Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?
Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been "purchased" on the date the owner first occupies the house. In this situation, the date of first occupancy must be on or after January 1, 2009 and before December 1, 2009.

In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.

14. Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?
Yes. The tax credit can be combined with the MRB home buyer program. Note that first-time home buyers who purchased a home in 2008 may not claim the tax credit if they are participating in an MRB program.

15. I live in the District of Columbia. Can I claim both the Washington, D.C. first-time home buyer credit and this new credit?
No. You can claim only one.

16. I am not a U.S. citizen. Can I claim the tax credit?
Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of "nonresident alien" in IRS Publication 519.

17. Is a tax credit the same as a tax deduction?
No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS.

A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $8,000 in income taxes. If the taxpayer receives an $8,000 deduction, the taxpayer’s tax liability would be reduced by $1,200 (15 percent of $8,000), or lowered from $8,000 to $6,800.

18. I bought a home in 2008. Do I qualify for this credit?
No, but if you purchased your first home between April 9, 2008 and January 1, 2009, you may qualify for a different tax credit.

19. Is there any way for a home buyer to access the money from the tax credit sooner than waiting to file their 2009 tax return?
Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the down payment.

Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.

Further, rule changes made as part of the economic stimulus legislation allow home buyers to claim the tax credit and participate in a program financed by tax-exempt bonds. Some state housing finance agencies, such as the Missouri Housing Development Commission, have introduced programs that provide short-term credit acceleration loans that may be used to fund a down payment. Prospective home buyers should inquire with their state housing finance agency to determine the availability of such a program in their community.

20. If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?
Yes. The law allows taxpayers to choose ("elect") to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.

Taxpayers buying a home who wish to claim it on their 2008 tax return, but who have already submitted their 2008 return to the IRS, may file an amended 2008 return claiming the tax credit. You should consult with a tax professional to determine how to arrange this.

21. For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest?
Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount.

Read another FAQ list about the tax credit created by the National Association of REALTORS®.

Also visit FederalHousingTaxCredit.com.

Get started with your home search.

Higher Home Loan Fees Counter Housing Stimulus

Mortgage interest rates might be low, but some consumers will be looking at increased fees on home loans starting April 1, 2009, The Washington Post columnist Kenneth Harney wrote February 14, 2009.

Fannie Mae and Freddie Mac are increasing mandatory fees and toughening credit score and down-payment rules starting next month. 

"Most major lenders already are pricing in these higher fees, effectively raising costs to borrowers immediately and reducing the impact of housing stimulus efforts from Congress and the Obama administration."

Under the new guidelines, even potential borrowers who assumed that their FICO credit scores would get them favorable rates will be charged more unless they can come up with down payments of 30 percent or more. For example, a buyer with a 699 FICO score who brings a sizable down payment of about 25 percent to the closing will be hit with a 1.5 percent "delivery" fee at closing.

A buyer with a FICO score between 700 and 720 will pay an extra three-quarters of a point. Even someone with a FICO score from 720 to 739 will pay a quarter-point fee.

Condominium buyers who cannot come up with a 25 percent down payment will be hit with a three-quarter point penalty fee, no matter how high their credit score, simply because they are not purchasing a traditional detached, stand-alone house. That's unfair.

"Buyers of duplexes, where one unit is owner-occupied and the other is rented, will be charged a flat 1 percent fee from Fannie, even if they have FICOs above 800 and make 50 percent down payments. Refinancers who take cash out at settlement also will be forced to pay extra, as much as three points if they have low credit scores and modest equity stakes."

Both Fannie Mae and Freddie Mac report that the extra fees are necessary to counter higher risks and losses associated with certain loan products and borrowers.

In other words, people with decent credit and a down payment are paying for the deadbeats with lousy credit and no money down who borrowed money a few years ago.

Losses for the two companies have increased due to declining home values in many parts of the country. Homes are worth a lot less after foreclosure. 

"Although they were quasi-private enterprises until September, Fannie and Freddie now are operating under federal control and are bleeding billions of dollars of red ink. Freddie spokesman Brad German said that some of the loan categories and credit risk combinations targeted in the latest round of fees 'default at four to eight times' the rate of other mortgages in the company's portfolio. 'We have to manage these risks appropriately,' he added, and that means pricing them based on the probability of higher losses."

Sure, some borrowers are a greater credit risk than others, but Fannie and Freddie are charging consumers with, for example, 700+ credit scores and 20 percent down payments more fees because they can, plain and simple. It seems that people who have a history of paying their bills on time and using credit wisely are being penalized by many recent government and corporate policies.  

It's ridiculous and counterproductive in an environment in which real estate markets around the country need a shot in the arm, not roadblocks to getting home buyers into homes.

The National Association of REALTORS® and other industry groups oppose the new fees and plan to lobby Congress and federal regulators to back off the new guidelines.

"As recently as two years ago, FICO scores in the upper 600s were enough to qualify any applicant for prime financing. Now scores of 720 to 740 are the bare minimum if you're going to escape add-on fees -- and still not good enough if you choose to buy a condo or a duplex."

There is an alternative available for just about anyone who wants to avoid these new fees: Federal Housing Administration (FHA) mortgages, where down payments go as low as 3.5 percent and credit scores are far less of an issue for most potential borrowers.

Get a referral for a competent, honest, mortgage professional.

Read The Washington Post Column.

Tax Credit Scaled Back To $8,000

The plan to include a $15,000 tax credit to any home buyer in the U.S. Senate's version of the stimulus package has been scaled back to $8,000, and only first-time home buyers will qualify.

In addition, the tax credit is available for homes purchased through August, instead of the Senate plan, which allowed home buyers to take advantage of the credit for one-year from the enactment of the legislation.

The final agreed upon tax credit is $500 more than the U.S. House had in its stimulus plan.

Read The Associated Press Article

Senate Increases Tax Credit To $15K

That's right, $15,000 for free for doing something millions of other people have done for years without such an incentive.

The U.S. Senate passed an amendment to the economic stimulus package that will provide all, not just first-time, home buyers up to a $15,000 tax credit that does not have to be paid back.

The tax credit would give home buyers 10 percent of the price of a primary residence bought within one year of the passage of the legislation, up to $15,000.

Those people who already bought a home and qualify for the current $7,500 tax credit (Download $7,500_Tax_Credit_Info) would not likely be able to take advantage of the new tax credit.

Apparently the new tax credit does not come with income limitations, so it also provides an opportunity for upper-income consumers looking to purchase a larger home.

Not everyone thinks the tax credit is a good idea. Those who oppose it believe it might cause another housing bubble. Personally, I don't see how a credit that is available for only one year could possibly create a bubble. At best, the tax credit might help stabilize the housing market and spur the economy a bit.

Stay tuned. This might be a game changer in the housing market.

Read The New York Times Article

The $15,000 Home Buying Tax Credit: 6 Things to Know - Business Week

The Art Of Home Staging

I found the following video on Boston.com.

Mobile Version of Massachusetts Home Buyer Guide

You now can read the Massachusetts Home Buyer Guide on your mobile phone. Use the following link (http://homebuyer.mofuse.mobi/) or insert your mobile number where indicated on the right to have the URL sent via a text message. Don't forget to book mark the page on your phone.

Maybe A Real Tax Credit For Home Buyers?

In 2008, federal lawmakers created a $7,500 tax credit for first-time home buyers or others who haven’t owned a home in at least three years. House or condos purchased between April 8, 2008, and July 1, 2009 qualify; however, unlike virtually any other federal tax perk in existence, the home-buyer credit requires you to pay the government back the money over 15 years.

Essentially, the $7,500 is more like an interest-free government loan than a true federal tax credit.

With Congress and President Obama's administration working on a stimulus plan, there’s a good chance that lawmakers will eliminate the tax credit’s repayment requirement, the Boston Herald reported January 25, 2009.

The housing industry estimates that a real credit will generate an extra 202,000 property sales this year. The National Association of REALTORS, among other housing stimulus, is pushing to extend the credit’s current July 1, 2009 expiration date to December 31, 2009 in order to provide an opportunity for even more home sales.

The credit only applies to U.S. principal residences. No second homes, investment properties or houses located outside of the United States qualify for the credit.

Sen. Charles Schumer, D-N.Y on February 1, 2009 told "Face the Nation" on CBS that Democrats would support a GOP-backed idea to double a home buyers' tax credit from $7,500 to $15,000 and make it available to all buyers instead of those purchasing their first home. He also said the Obama administration is considering ways for the government to lower mortgage rates.

See current tax credit brochure:Download First_Time_Home_Buyer_Tax_Credit

Assessed Value Does Not Equal Fair Market Value

The assessed value of a home is a pretty worthless piece of information when considering what a property is actually worth. 

Sellers love to point out that the list price is below the assessed value, and home buyers are typically outraged that a home is listed above the assessed value. 

In fact Massachusetts assessed values are nothing more than a yard stick for a city or town to collect an appropriate amount of taxes. Assessed values do not equal fair market value.

Metro West real estate agent Bill Gassett has authored a good blog post on the topic of assessed values. 

Another Multi-auction Event; Buyers Beware

The Boston Herald reported January 25, 2009 that a Dallas-based auctioneer, Hudson & Marshall, will auction off more than 100 bank-owned Massachusetts properties at the Boston Quincy Marriott Saturday January 31, 2009.

Another 28 Western Massachusetts properties will be sold January 27, 2009 at the Sheraton in Springfield, MA.

Successful bidders must make a $5,000 deposit in cash, cashier’s check or certified funds for each property. The article did not mention it, but I suspect the deposit is not refundable. All properties are sold "as is."

"Evelyn Friedman, director of [Boston's] Department of Neighborhood Development, warned that some properties sold at such massive auctions have title problems."

I really don't recommend these auctions for first-time home buyers, and all buyers should be very careful about what they sign.

Read my previous post about some other multi-property auctions in Massachusetts over the last 18 months. Some successful bidders may still be waiting to move in. 

Read The Boston Herald Article

Foreclosures Not Necessarily Bargains

Many home buyers have been convinced that bank-owned properties or short sales are the best bargains.

It's just not true.

Bank-owned properties, sometimes referred to as real-estate owned (REO), typically need a substantial amount of work. Most people think that work means fresh paint and new carpets, not exactly. These properties have a lot of deferred maintenance and many times have been damaged by the last owners.

Sometimes pipes freeze and there is water damage. Other times the properties have been broken into by vandals. Damaged walls and ceilings are not uncommon. Fixtures are often missing. 

For those individuals willing to do major rehab, many bank-owned properties have the potential of providing a good return on investment; however, buyers need to have cash or a rehab loan to make the repairs and upgrades. The best deal in the world is not any good, if you don't have the cash to make repairs and upgrades. 

An article on Boston.com explains some of the pitfalls of attempting to purchase short sales. A short sale refers to a property where the sellers still own the property, but they can't sell it for enough money to pay off the mortgage(s) and costs of sale.

"Buying a listing that's subject to lender approval requires patience on the part of the buyers, sellers and their agents. It can take three to four months to get an answer. There's no guarantee that a short-sale offer will be approved, and it's not uncommon for lenders to reject a purchase offer without giving a reason why."

Many buyers choose to walk away after a couple of months of waiting for a lender response.

In the current market, there are plenty of good deals, without the hassles of a REO or a short sale.

The photo above was taken inside a bank-owned multi-family property.

Read The Inman News Article on Boston.com