A couple weeks ago, the NAR made an announcement that the $8000 tax credit could be used as the down payment for FHA loans.  Some opined that lenders would provide a “bridge loan” for the down payment.  Unfortunately, this was rescinded.  Currently, the funds are only available in the form of a tax credit, which entitles first time home buyers a refund on their 2009 taxes (claimed in 2010).

There are several hypotheses as to why it was rescinded.  The first is that law makers believe buyers should have some of their own money invested in the property.   They believe that one of the factors that led to the sub prime meltdown was 100% financing.  When a buyer has their own money invested in a property, they may be less likely to default.  Currently, FHA requires a 3.5% down payment.

The second reason seems to rest on the “bridge loan.”  While in theory, the loan seems safe to the lender, because the IRS is paying the tax credit.  However, they questioned how they would get reimbursed  after the buyer received it.

In the end, it was rescinded.

There have been rumors that third party non for profits like NACA may somehow get involved.

Nonetheless, the $8000 tax credit is still a HUGE incentive.

As we all have just experienced, the rules are changing at a torrid pace, sometimes daily.  It is essential that we all stay up to date so we can provide the best customer service.

If you have any questions you can contact Marc at marcj@aandnmortgage.com.

According to Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development (HUD), the Federal Housing Administration is going to permit its lenders to allow home buyers to use the $8,000 tax credit as a down payment on the purchase of a new home.  He shared this information at midyear legislative meetings held in Washington D.C. on Tuesday.

Up until now, home buyers were only able to obtain the credit at tax filing time.  The goal of this change is to allow the FHA home buyer to have upfront access to funds when they close on their home.  By permitting this ”early” credit, many more people will be able to purchase homes.  It also may mean people can spend more on their new home as a result of having up to an additional $8,000 for their down payment.  Saving a down payment is often the challenge of the first time home buyer.

Eligible home buyers will be able to access the funds immediately at the closing table because FHA’s approved lenders will be permitted to monetize the tax credit through short-term bridge loans.

While this attempt to further stimulate the market is a valiant one, it may mean that irresponsible buyers could simply use that tax credit to buy the home, default on the mortgage without ever have invested a dime of their own money.  Unless the use is still restricted on a certain percentage of the money for purchase comes directly from a buyer’s bank account. 

The restrictions/limitations on this new plan have not yet been published.  I will follow up when the details are publicized.

With all the foreclosures and short sales out there you would think that people who could not previously afford homes would be scooping them up. That is happening to some extent but there is still a key obstacle to making these homes affordable and it’s the property taxes. While prices have come down considerably in some cases property taxes have not. To give you an idea of the magnitude of the problem let me give you a few examples I have stumbled on over the past few months:

• 2124 Dewey Ave. in Evanston is a 2 flat with a list price of $250,000 and annual property taxes of $14,416. That compares with other similarly priced 2 flats with property taxes in the range of $4,000.
• 6412 Gray Hawk Dr. in Matteson is a townhouse with a list price of $114,900 and annual property taxes of $6,794. This compares to other similarly priced homes with property taxes in the range of $2,000 or less.

In general, property taxes may be high because the previous owner didn’t/couldn’t apply for the homeowner’s exemption or the assessed value is just way too high given the current market. If property taxes are too high by $4,000 per year that is equivalent to an increase in the purchase price of $62,000 at a 5% interest rate, which prices many people out of the market for these homes.

Of course, someone could buy these homes and then try to get the taxes fixed – appeal the valuation or apply for the proper exemptions. Alas, we are dealing with the government here and consequently the process is convoluted and there are no guarantees. For instance, there are rules about how long you need to live in a place before you can apply for the homeowner’s exemption and it could be 1 1/2 years before you can get anything done. Similarly there are numerous different processes for appealing your valuation and some of them are only available to you during certain times of the year. I tried talking to these people and it was like something from Alice In Wonderland – the white knight was talking backwards. Something about this board and that board and the county and the township and the window and I should call this other number – and plenty of attitude for someone who works for me. Bottom line: you can go months without getting any tax relief. And then, as I said earlier, there are no guarantees. You could be stuck with high taxes the rest of the life of your home. It’s a huge risk for people.

So these homes just sit and sit.

In my financial blog I just posted an article that is pertinent to the world of home ownership. The gist is that it usually doesn’t make sense to pay down your mortgage.