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More Info on Tax Credit

If you would like detailed information as provided in the American Recovery and Reinvestment Act you may e-mail me at darrelbright@gmail.com. I have a very useful pdf I can send you.

$8,000 Tax Credit

Last fall, the Federal Government introduced a financial incentive to prospective first-time homebuyers — an income tax credit of up to $7,500. The rules were simple: you must have been a first-time homebuyer (as defined by not owning a home in the previous three years) and you met certain income restrictions.
The new $8,000 tax credit is available to those who buy between January 1, 2009 and December 1, 2009. It’s not a deduction, it’s an actual credit. Unlike the $7,500 first-time homebuyer tax credit introduced last summer; this does not need to be repaid.
First timers who qualify can make no more than $75,000 in adjusted gross income if they’re single or $150,000 if filing jointly. The maximum tax credit is $8,000 or 10 percent of the sales price of the home, whichever is less. Three years residence in the property are required. As always, check with your accountant for details and be sure to submit IRS form 5405 when you file your taxes.

Two Questions

Mortgages: Why are rates up?

Quick answer:

As a general rule the Federal Reserve uses the Federal Funds Rate to control other interest rates in the U.S. economy. Since the secondary mortgage market is currently less solvent, mortgage rates have not followed Bernanke’s advice.

Long Answer:

The federal funds rate is controlled by the Federal Reserve. The Chairman of the Federal Reserve is Ben Bernanke, who took over for Alan Greenspan in early ’06. The Federal Funds Rate is the rate of interest banks use to borrow money from each other. When the news reports that the Fed is lowering interest rates, it is the Federal Funds Rate that is being lowered. This has a “trickle down effect” on other rates. If banks can borrow money for less, then individuals and businesses can borrow from banks for less. This should lower interest rates. Why does there seem to be no effect on mortgage rates? When you take out a mortgage on your home the lender who signed you up has a problem, they don’t have anymore money. If the mortgage company held on to your note they would have a limited amount they could loan out. So, to get more money to lend out they must sell your loan into the secondary mortgage market. Some banks will continue to service your loan. Meaning your statements will look the same each month and any problems will be handled by original institution. Lenders in the recent past were writing mortgages to individuals with low or “Sub-Prime” credit. They were doing this because there was a market for them; they had a place to sell them. Individuals with low credit typically could barely afford their monthly payments. People who chose adjustable rate mortgages could not afford to pay more when the rates adjusted up. This led to low credit borrowers foreclosing on their homes. This led to investors not wanting to buy sub-prime montages in the secondary market. Lenders now have to charge higher interest rates to the borrowers in order to attract investors in the secondary market. Risk verses Reward. By looking at the above chart at first it would seem that the Fed has no control over mortgage rates. This is not true, if the fed had not intervened by dropping the federal Funds Rate then borrowers today would be paying a much larger premium for using other people’s money.

Home Prices: Why are prices down?

Quick Answer:

They went up too quickly and the market is correcting itself. At least we aren’t as bad as Miami and Las Vegas.

Long Answer:

A twenty city index shows a 15.8% decline in the national home price. Of all twenty cities used in the index only one has managed to decrease less than 1% and that city is Charlotte, the only North Carolina city represented by the index. Bad news seems to sell papers more that good news, so the benefits of our local market are rarely reported on. For instance, since February the median American home price has risen 6.6 percent. Home prices are trending up and will increase over time. It is very important when selling your home to price it correctly. This allows you to ultimately sell for more. Even though you might be selling for slightly less than you would have a year ago, it will equal out because you can now buy for less.

“No one can know for sure, but the hard data is clear. The median price has risen four straight months. The average American is out there taking advantage of bargains in their local real estate market. They are not listening to Wall Street but following their own belief that the best time to buy is when no one else is, and they are out there buying. If this keeps up, February may prove to have been the low in prices.”

David Michonski, CEO of Coldwell Banker