Fairfax, Virginia: Although USDA loans are not a big deal in the northern Virginia area, but they are HUGH deal in the outlying counties of Fauquier, Prince William and Loudoun. It was recently been announced that the USDA 100% (zero down) loan program will be out of money by the end of April 2010.  Typically the USDA program has sufficient funds to cover the needs of potential borrowers. But as with many home financing programs, money is in short supply.  As lending guidelines have tightened over the past two years, the ability of a borrower finding a zero down home loan out side of the Veteran Department VA loan has disappeared almost completely.  This is has caused homebuyers that wouldn’t typically consider a USDA loan for financing to not only consider it, but actually apply for and be approved for the USDA zero down home loan. The program has no mortgage insurance, great rates and flexible credit guidelines. So over the last few years, USDA has stepped up to fill the void and provide affordable zero down loans for qualified first time homebuyers across the nation.

Although Fairfax, Virginia doesn’t have many areas that work for the USDA program, the increased demand across the country for USDA loans has led to a shortfall of funds. Last year the stimulus money was used to bridge the funding gap and business went along as usual. The stimulus money helped fill the void the past couple of years, but without additional it is projected that funds for the program will dry up sometime in late April.  When this happens the USDA will stop issuing loan commitments until their normal refunding takes place sometime next fall.  Most economist suspect any slow down in the housing market could have drastic affects on the economy pulling out of the recession.  Many first-time homebuyers could miss the $8,000 tax credit.  The best idea would be to fund the USDA program now so as to try and prevent the economy from slipping back in to a recession.

Below is a list of the members of the committees that can help steer passage of the appropriation request:
United States Senate Committee on Appropriations
Subcommittee on Agriculture
Rural Development
Food and Drug Administration

Democratic Members

• Senator Herb Kohl (Chairman) (WI)
• Senator Mark Pryor (AR)
• Senator Dianne Feinstein (CA)
• Senator Tom Harkin (IA)
• Senator Richard Durbin (IL)
• Senator Byron Dorgan (ND)
• Senator Ben Nelson (NE)
• Senator Jack Reed (RI)
• Senator Arlen Specter (PA)
• Senator Tim Johnson (SD)

Republican Members

• Senator Sam Brownback (Ranking Member) (KS)
• Senator Mitch McConnell (KY)
• Senator Susan Collins (ME)
• Senator Christopher Bond (MO)
• Senator Thad Cochran (MS)
• Senator Robert Bennett (UT)

The Clock is Ticking!
Time is Running Out for Significant Savings!

Attention home buyers! Waiting to buy a home could cost you nearly $20,000 or more over a seven-year period if you time your purchase incorrectly. While the actual impact will vary depending on purchase price, the impact will certainly be significant because of stimulus programs scheduled to end in the coming months.

Economic turmoil and the real estate bubble have created significant opportunity for all those seeking to capitalize on the situation at hand. YOU Magazine will address the real estate purchase market and what people interested in both buying and selling a home need to know this month to take advantage of the current market conditions.

We also consulted with Michael J. Maher of “The Maher Team,” one of the busiest agents in the country who sold 216 homes in 2009. With a degree in mathematics, he knows his numbers and the impact on both buyers and sellers.

As little as a few years ago, it would have almost been incomprehensible to expect that actions from Washington would impact decisions involving the purchase and financing of real estate. Well, that was then and this is now and the decisions people make or don’t make stand to impact wallets across the country.

Before You Buy – Things to Consider
The pressure is on to buy in the first quarter of 2010, so what should buyers focus on before pulling the trigger? Maher recommends that buyers focus on three things that are either expensive to fix later or unable to change without buying another home. His three primary areas to focus on are what he calls the three Ls: “Location, Lot and Layout.”

When considering location, use technology like GoogleMaps™ before visiting a home to save both time and gas. Mapping allows you to view the property from different angles, see if the home is on a busy street, or if it offers the other requirements you need. For example, if you need a large yard where the kids or dogs can play, a tool like GoogleMaps™ will help you eliminate some homes immediately.

While it is relatively easy to get caught up in the aesthetics, don’t do it. Overlook items you can change later like paint, carpet and other cosmetic details. Narrow your focus down to two or three homes and “all things being equal, focus on location, lot and layout.”

Selling a Home?
If you are selling a home and want to make sure you can get it off the market for time crunched buyers, remember that today is what Maher calls a “price war beauty contest.” Sellers need to be focused on having their home priced competitively and making it most appealing upon inspection. Sellers also should consider paying for a home warranty to alleviate any concerns cash-strapped buyers may have about paying for repairs after closing.

More than anything else for both buyers and sellers this year, Maher suggests that people not let the money savings opportunities pass them by. “Anyone that qualifies is in a no-lose situation – they are buying at the bottom of the market, economically, historically, seasonally, market-wise and interest rate-wise. The perfect storm has arrived and the pearls and treasures have floated to the surface.”

Gifts from the Federal Reserve Are on the Clock

MBS Purchase Program
Mortgage rates have been artificially low the past fourteen months due to assistance from the Federal Reserve and their mortgage backed securities purchase program. Regardless of the expert, when asked what the impact has been to lowering rates, the range is from 0.50-1.00% or potentially more. The Federal Reserve reiterated in its January statement that they will be ending the program on March 31st.

While it is uncertain to what degree interest rates will immediately rise starting April 1st, the overwhelming trend will be higher. Many experts are predicting that rates will start to rise in advance of April 1st.

Tax Credit
Low mortgage rates are not the only stimulus program ending in less than three months. Credited for boosting a major share of home sales at entry level, first time home buyers have been taking advantage of a tax credit of up to $8,000 for over a year.

Repeat purchasers were also given incentive in November with the availability of up to $6,500 in post-closing cash. Tax credit qualifying buyers have until April 30th to get under contract and must close by June 30th. If home buyers miss either date, it will be a costly one.

HUD and the FHA Tighten Up
HUD announced in January that the upfront costs to obtain an FHA mortgage are going up for any applications received April 5th or later. The cost of the up-front mortgage insurance premium (MIP) will increase for all case numbers effective April 5th by 0.50%, from 1.75% to 2.25%.

What Waiting Will Cost You
The costs of missing out on the combined incentives add up quickly for those who fail to act by the deadlines. The first incentive scheduled to end will impact buyers on a monthly basis in the form of higher monthly payments. On a $200,000 mortgage, a 1.00% increase to interest rates could increase a monthly payment by $125 a month or $10,500 over a seven-year period. Obviously, the longer the loan remains in place, the greater the impact of the potential loss.

The second potential loss that will be incurred would be waiting to obtain a mortgage guaranteed by the FHA. In the same example of borrowing $200,000, the upfront cost would be an additional $1,000, or .50% of the amount borrowed. While this cost may be financed, the impact to a monthly payment would also be an increase of approximately $5 a month and have to be accounted for later upon the sale of the property.

Finally, the third potential cost in waiting will be the end of the tax credit for qualified buyers of a primary residence, up to $6,500 for repeat buyers and up to $8,000 for first time home buyers.

Add all this up and the cost of choosing to wait could run up to nearly $20,000 or more depending on the purchase price of a home and the type of mortgage applied for. So, even if someone believes that home prices may fall from where they are today, even with a modest decline in price, the cost of waiting could outstrip any benefit of finding a home for less.

Copied from my ‘You’ online magazine subscription

Mr. Market seems to be wanting to move down for the second leg of the correction – I’d expect markets to continue to sell off here on the indexes, and with that will go a further drop in consumer confidence which could weigh heavily on housing in the months ahead.   To see the existing housing data, click on Market Trends above.  

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Fairfax, Virginia:

The Worker, Homeownership, and Business Assistance is the larger bill that included the homebuyer tax credit additions. Taxpayers wanting to take advantage of the first time home buyer credit (up to $8,000) or the new repeat home buyer tax credit (up to $6,500) can now get the revised IRS form 5405 to submit with their 2009 tax filing from the IRS website. Existing northern Virginia homeowners have been waiting for months for the revised form and instructions for months. The revised form is now posted on the IRS site. http://www.irs.gov/pub/irs-pdf/f5405.pdf – Please verify with your tax professional this is indeed the form you need.

Revised Form 5405 & Proof Needed for Federal Tax Credit

How much?

• First-Time Home Buyer Tax Credit of up to $8,000 to first-time home buyers that have a ratified contract on or before April 30, 2010 and close before July1st, 2010.
• 10% of the sales price up to maximum of $8,000 and $6,500 for current homeowners that meet the guidelines on home purchases up to $650,000.

Who is eligible?

• A “first-time home buyer” is defined as a buyer who has not owned a principal residence during the three-year period prior to the purchase. Married taxpayers, the homeownership history of both the home buyer and his/her spouse. If one spouse has owned a principle residence in the past three years, the credit cannot be taken.
• For unmarried joint purchasers, IRS Notice 2009-12 allows to allocate the credit amount to any buyer who qualifies as a first-time buyer. For example, a parent might help their child buy a home. Or two people buy a home together where one has not owned a home and one has. The credit can be taken by the eligible Ownership of other properties, such as a vacation home or rental property that was not used as a principal residence in the past three years does not disqualify a buyer as a first-time home buyer.

Special rules for people in the military

• People serving in the military on extended duty outside the U.S. for 90 days or more have an extra year, through June 2011, to buy a house and claim the tax credit.

Income:

1. What is “modified adjusted gross income”?
   Modified adjusted gross income (MAGI) as defined by the IRS.

 a)      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 Schedule A itemized deductions or personal exemptions are subtracted.

b)      AGI can be found on forms 1040 and 1040A tax form, is the last number on page 1 and first number on page 2.

c)      AGI on the 1040-EZ tax form, AGI appears on line 4.

d)      AGI is inclusive of all types of income received including wages, salaries, interest income, dividends and capital gains.

2.  There are partial deductions available for higher incomes, but they fall off dramatically.

For further information please review the IRS site and as always consult your tax professional. See IRS Form 5405 for more details on completing the tax credit.

Documentation Needed for First-Time Home Buyers

First-time home buyers must provide the IRS with proof of purchase. The IRS indicates that one of the following documents must be attached in order for a federal tax credit for home purchase to be processed correctly:

• Copy of Form HUD-1 (Settlement Statement) or similar document that shows all parties’ names and signatures, the property address, sales price, and date of purchase.
• Copy of the executed retail sales contract (in case of mobile home purchases) that shows the same information.
• Copy of the dated certificate of occupancy (in case of new construction) that shows the owner’s name and property address.

Additional Proof Required for Existing Homeowners

Existing homeowners are eligible for a $6,500 tax credit if they have lived in their old house for five consecutive years out of an eight-year period ending on the purchase date of the new house. In addition to the documentation requirement above, taxpayers who fall into this category must also provide proof of the five-year residence with mortgage interest statements, property tax records, or homeowner’s insurance documents.

Useful links

These links are external links that we have found useful. The links provide information some are duplicates, but each has their own point of view expressed to support their companies mission.

 From Realtor.com

Detailed information about the extended homebuyer tax credit, including

1. The Basics: Extended Home Buyer Tax Credit 2009/2010
2. How to Get the Extended Home Buyer Tax Credit
3. In-Depth: 2009 First-Time Home Buyer Tax Credit
4. American Recovery and Reinvestment Act of 2009
5. Comparison of the 2008 and 2009 first-time homebuyer tax credits.

From the National Association of Homebuilders.

Home Buyer Tax Credits – First-time homebuyer tax credit and the repeat buyer

From The IRS:
  1.  First-Time Homebuyer Tax Credit
  2.  First-Time Homebuyer Credit

The Senate voted to extend the $8,000 first-time home buyer tax credit for home buyers in the Fairfax, Virginia and Alexandria, Virginia areaa. Additionally, the new bill also includes a $6,500 credit for existing homeowners who have been in their current residence for at least five years.  The tax credit has been extented to November 30,2010.  Watch the video to see if you are eligible for the $8,000 tax credit.  As always, please consult your tax advisor.

Click here to view the embedded video.

What factors determine your credit score?

Payment history – 35%
Amounts owed – 30%
Length of credit history – 15%
New credit – 10%
Types of credit used – 10%

Obviously the single most important factor is your record of paying your bills on time. As delinquent accounts age they factor less into the calculation of your credit score. Here is what we did to help one of my clients move into her home.

Mary was referred to me by her sister, Jane.   Mary had contacted several other lenders to get a loan, but they were not able to get her a fixed rate mortgage with a decent rate. Mary wanted to purchase a home in Vienna, Virginia and since the home was from her parent’s estate, she felt comfortable going with a two part plan to get the home and a great rate. Mary had some initial credit issues left over from a nasty divorce, where her ex had run up some credit card bills and other liabilities in her name and then left Mary to make good on the debt he actually incurred.

Once we reviewed her credit we were able to setup a two part plan. Part one was to purchase the home from the estate and part two was to clean up her credit, then refinance into an A paper program a short while later.  We chose this route because timing was critical in closing before a certain date. Mary’s income and assets were sufficient for the initial loan program used to purchase the home.

The credit plan was to reallocate some of her revolving debt over several cards, instead of just one card. We also paid down an installment account to less than ten months so we wouldn’t have to count the monthly payment in her ratios. Once we had these two items taken care of, we sent the proper documentation to the credit agency we use to have Mary’s credit rescored. The rescoring process to about seven days from start to finish, and the outcome was a score high enough to move forward with the purchase. This still left us with some follow-up credit work that needed to be done at a later time.

I am happy to say, Mary is in her house, credit scores have increased and she is a happy homeowner. 

The Senate voted to extend the $8,000 first-time home buyer tax credit. Additionally, the new bill also includes a $6,500 credit for existing homeowners who have been in their current residence for at least five years.

read article»
NAR summary and comparison

Summary:

The Refurbished Home Buyer Tax Credit Details

Current

• Existing $8,000 tax credit is through November 30, 2010. (10% of sales price, up to $8,000 credit.)
• Original tax credit has $8K credit had income limits of $75,000 for singles and $150,000 for married couples filing jointly.

New

• Extension of the existing $8,000 tax credit is through May 1, 2010. (10% of sales price, up to $8,000 credit.)
• To claim the credit you must enter into a valid written contract by May 1, 2010. Must close before July 1^st 2010.
• NEW for long-time residents of same principal residence. 10% of sales price, up to $6,500 credit. Basically a credit for current homeowners that have at least 5 consecutive years in the same home. (This is over simplified version)
• Max sales price of $800,000, Applies to primary residences only.

Military

• Armed Forces – deployed on duty outside the United States. Extensions to May 1, 2011 and must settle before July 1. 2011). Deployment must be for at least 90 days between Dec 31, 2008 – May 1, 2010.

Fraud

• As with every gift, there are those that want to take more than their fair share. So the government has added some fraud prevention measures.
• Must be at least 18 years old to apply for the credit
• Properly executed settlement statement used at closing of home must be included with the tax return. Completed Form 5405.

Looks like the Tax credit will be extended with some help for current homeowners. See this article 

The Homebuyer tax credit might be extended check out this article:
http://tinyurl.com/yh8amph

I am not sure if this is good for the country as a whole. The actual cost of  the tax credit is well beyond the $8,000 credit to first time home buyers.