A reader writes/asks:
“Can you get the $8000 tax credit for first time home buyers on a contract for deed sale? “
Contract for deed means the buyer allows the seller to retain title of the property (after the purchase) in exchange for a smaller down payment or other concessions. As long as the buyer makes regular payments, all is well but should he or she miss one payment, they risk losing the property since the seller retains title. It’s sort of like paying rent, and having that rent credit your equity.
As far as this new $8000 taxpayer deal, I have to ask the experts for help.
Experts can you please chime in?
It was my first venture to a Dallas County foreclosure auction, which takes place the first Tuesday of every month “on the courthouse steps”, as ordered by Texas law. And yesterday’s was billed as the biggest ever, some 6000 commercial and residential properties auctioned off for lack of payment. Honestly, way more fun than the fair. I met fascinating people, saw some familiar faces — Allie Beth Allman, Baxter Brinkmann — and learned a lot. Will definitely go back for more. This is where savvy agents know they can not only pick up great deals for clients but find out what the bottom line really is. If you’ve never been, and you love real estate, this is a must-see show. A few quick observations, then hit the jump.
One, I cannot believe how archaic the process is. A bunch of hot people standing outside the George Allen Courthouse, lawyers in suits (low wool content, I hope). We could have used chair massages and Slurpee’s, and where’s the potty? At first we went to Lew Sterrett Frank Crowley, I pulled out the Handi-Wipes, but was re-directed to 600 Commerce after passing my handbag through the metal detector. Veterans tell me that folks didn’t like being at Lew Crowley for obvious reasons. So we get to 600 Commerce and like a sidewalk fair, everyone is standing outside under the overhang, where I stayed remarkably comfortable for a July day in Texas. (Note to Dallas County: exterior ceiling fans.) A few people did stop and ask if this was a fair or something. It was hot, but could have been worse. Pity the poor trustee who was off next to Tarrant County’s auction — it is held on the west-facing courthouse steps, outside, no overhang.
Foreclosure attendees consist of four basic food groups: newbies, like me; investors (serious), also known as vultures; bank reps — I learned many of the banks buy back their own properties so they can re-sell them; people desperately trying to save their homes. The atmosphere is almost camp-like, since the savvy bring coolers and those fold-able camp chairs — one trustee even had a camp battery pack and fan. Paperwork is kept in rolling file cartons a la the Container Store. The American Dream is in full force — one person’s loss is another’s bargain. Most folks are dressed casually save for the few dedicated attorneys in suits who stand out like hot, sore thumbs, but at least you can see them as they read off their prepped legal docs — same verbiage, different debtor: “Whereas on August 12, 1999, Michael Jackson, a single man, executed a deed for the sum of $500,000 in Dallas County…” You cannot hear very well as the buses, planes and sirens are out-screeching words, so everyone leans in close, creating a huddle around each trustee. I saw one bid start at $80,000, the home sold for $214,000. (Interesting, the guy waiting to about $150K to jump in.) The bidding on some properties started at a dollar. One Lakeridge property owned by Bank of America started at $24,650, and I wrote about a four million dollar property out there. Someone cleaned house on a $5 million dollar downtown commercial property they snagged for $3 million. The blood thirst for bargains was thick: I was back at the silent auction table at a charity fund raiser where an aggressive broad planted herself in front of the sign-up for lunch with Nolan Ryan at The Ballpark, or at Filene’s Basement with La Perla fifty cents a pair.
Next Tuesday morning foreclosed homes in Dallas will be sold on the courthouse steps. Foreclosures are a sad time and I cannot think of a worse, more horribly stressful scenario than being forced out of your home. I know — it happened to me.
A reader writes:
Candy, I didn’t realize there was this $8,000 credit for buying a home. I’m seriously considering it. I just don’t know enough about what things cost and what neighborhoods I might like, which is why I enjoy reading DallasDirt. I guess we’ll need a Realtor to show us around but — they scare me. Will Realtors work with small potato clients like us? – SR”
Realtors scary? Actually, dear agents, there is a perception that if you are not Mr. and Mrs. Gotrocks, you are not worth a sneeze, much less sale. But this email, from a local young professional, is exactly why I am bullish on our local (read: affordable) market. Here’s the deal: these young kids are working and busy. They Twitter and Facebook and still find time to volunteer at the SPCA. It won’t take long before they learn, over the water cooler, that Uncle Sam is gobbling their paycheck and owning a home may help out. Inch by inch, these kids will be getting into the market, even though the toughest thing about buying your first home is scraping up enough dough for the down payment. As of May 29, first time home buyers can fashion that $8000 tax credit into their down payment and to help with upfront home buying costs.
Here’s a real shocker: Dallas home sales are down from last year — but prices down just an itty bit. But wait. Didn’t Trulia just say that Dallas has one of the highest price reduction rates in the country? When I saw that story, first thing came to mind: how in the Beejesus does Trulia know anything about anything in an undisclosed price state? Beats me. As we told you in last week’s Real Estate Round Table, that $8000 first-time home-buyer’s credit – you have to have not owned a home for at least three years and must earn less than $120,000, although higher salaries can be pro-rated — is really getting first time home buyers off the fence, into the homeowner’s pool. I’ve been interviewing a few first time home buyers to gather thoughts — stay tuned.
Most consumers who are buying homes tune into interest rate talk more readily than sex, antennae positioned to pick up any waves indicating lower rates and fewer points. For those of you new to home buying, I will be offering Dallas Home Buying 101 periodically on this blog to help ease you into the (sometimes scary) process. Obtaining financing is usually step one in the home buying process. Here’s why: get pre-qualified before you begin your house search, you are ready to pounce when you find that perfect property. With financing in your back pocket, you have a competitive edge on the other buyers who may not, ahem, qualify for a mortgage and therefore cannot bid against you.
Some of us used to look in the newspaper for financial information, like ads on mortgage rates. Well those days are gone because mortgage rates can now change up to five times a day. As The Mortgage Reports tells us, you’d do better to follow rates through Twitter. Take-away: pre-qualify for your mortgage loan, and get the best possible rate by asking your lender to send you rate changes on Twitter.
I’m just saying here — looking ahead to how much house someone who earns $250,000 a year will be able to buy as we re-distribute the wealth. Not saying it shouldn’t be re-distributed, not saying it should. (Thain’s should.) OK, $250,000 in the 28% income tax bracket. That leaves $180,000. Or a monthly income of $15,000. Lots of money. We had a car lease of $1,000 on that Beamer, and maybe a little college loan out there. We are down to $13,000. We charge about $4500 a month — we pay that off. We donate and/or fritter another $1000. Did I forget anything? That leaves us $7500 for PITI — house payment, taxes and insurance.
I ask you: what price range home can you afford with $7500 a month?�
Vital point from a commenter:
“Regardless of political mudslinging, the crux of the discussion is this section
“Under Fannie Mae’s pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a
conventional, 30-year fixed rate mortgage of less than $240,000 — a rate that currently averages about 7.76 per cent. If the borrower makes
his or her monthly payments on time for two years, the one percentage point premium is dropped.”
So Candy, how many of the current defaulters used that program? I am sincerely asking the question. Is it 1% of the current defaulters, 10%, 50%, 0%? What is it?
Don’t go pointing fingers without having some answers.”
Anyone have the answers?
I know the reports are preliminary, but I am already getting ulcers over President Obama’s cure for our housing woes. Here’s my first report card:
A -$8000 tax credit for first-time buyers, l like very much. Assuming this will work like a section 179 deduction and come right off the taxes, not add 5 more pages or 6 hours of CPA billable hours to the tax return, essentially using tax dollars to help fund the home purchase.
F- Revamping U.S. bankruptcy rules, giving judges the power to reduce mortgage payments and set lower interest rates. Excuse me, but I think part of our problem was that banks got too big, unregulated and complex. So now we are going to let judges play banker? This will slow down lending and banks will have to recoup their losses from somewhere —charge more to the customers who pay their bills, or higher PMI or PMI for everyone or higher interest rates.
Not fair, folks.
C – The government will match reductions lenders make to keep borrowers home payments at 31% of their income. What income — stated income? Does that include alimony?
Incomplete – Flushing Fannie Mae and Freddie Mac with $900 billion.
Reader James Clutts over at CSW Home Loan fills us in the details of what actually passed to benefit homebuyers in the Economic Stimulus package:
It now appears the economic stimulus bill will deliver be some significant benefits to those wishing to purchase or refinance a home. These include:
Ø A true first-time homebuyer tax credit in the amount of $7500 available for a qualified purchase of a principal residence between January 1 and September 1, 2009. I say “true” since, this time, the “credit” will not have to be repaid by the homeowner!
Ø FHA, Fannie and Freddie loan limits will be revised. While specifics have not been released, reports indicate the 2008 limits will be reinstated for 2009 with certain limited exceptions.
Ø Foreclosure mitigation and neighborhood stabilization is forthcoming. In essence, this means that there will be some as-yet-undetermined method for funding state and local efforts to abate foreclosure and stabilize and redevelop neighborhoods. of abandoned and foreclosed homes are authorized.
One of my favorite bloggers is not too keen on Federal Reserve Chairman Ben Bernanke’s apparent self-satisfaction with the loan programs he has engineered thus far. Show regular folks the money, honey. I found Fareed Zakaria’s column (Newsweek) on the health of the Canadian banking system interesting. No Canadian bank failures thus far, and Canadian banks are leveraged at 18 to 1, compared with U.S. banks leverage rate of 26 to 1. Canadians are bullish on home ownership –68.4 percent of Canadians own homes, compared to 68% of Americans. But Canadians can not deduct the mortgage interest on their homes. What Zakaria did not mention: Canadians pay far higher income taxes than we do, ostensibly to cover their national health care system, which Zakaria says is cheaper than ours. (Would the Canadian system have covered a woman having octuplets?) Canadian medical care is rationed, and patients wait months for surgeries. Many Canadians come to the U.S. for what they perceive as better health care. In any case, his point is that porky-ness — our gubmint encouraging over consumption — isn’t necessary to stimulate home ownership.
My daughter recently attended a first-time home-buying seminar sponsored by Virginia Cook’s Ed Murchison and Beverly Bell, and Shelter Mortgage. She learned that loans are available for young people like herself for as little as 3.5% down, that you need 6 months worth of mortgage payments in the bank for an economic safety net, and that the $7500 deduction for first time home buyers will increase to $15,000 in the new economic stimulus package — details are forthcoming. Pork city! Clearly this stimulus package wants to get the young people into homes solidly, and I am glad someone is offering sound advice. Too bad seminars like these are not required for every first time homebuyer.
Call me Bob Shiller, who thinks every American family ought to have a personal financial adviser paid for by the government. Let’s see, no mortgage deduction, free health care, a free financial adviser on Uncle Sam’s tab, will there be any money left in our paychecks?
Do you think the mortgage deduction in the U.S. encourages over-consumption? Is that deduction sacrosanct or heading for oblivion or… heading for a one-time offer?