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Senate Amendment to 2009 Stimulus Bill: First-Time Home Buyer Credit

by Flexo on February 2, 2009

in Real Estate and Home

This text refers to the original amendment to the stimulus bill, which has now been superseded in the final law. The first-time home buyer tax credit is now $8,000 and is available for people who purchase a house between January 1, 2009 and November 30, 2009. Here is how to claim the $8,000 home buyer tax credit on your 2008 or 2009 tax return.

30-year fixed rate mortgages at 4% aren’t the only the only benefits the Senate wants to offer taxpayers as it has the chance to shape the 2009 economic stimulus before the bill is sent to the Office of the President to be signed into law. A number of amendments are on the table, designed to address the housing market by encouraging people to start buying again.

Here’s another amendment under consideration.

Senate Budget Committee Chairman Kent Conrad, D-N.D., said last week he would propose an expansion of a temporary $7,500 first-time home buyer credit so that it applies to all purchases of primary residences. Some Republican senators have called for an increase in the credit to $15,000. (CNN)

The current law offers a tax credit of $7,500 to buyers purchasing their first home. The tax credit is a loan that must be paid back over the course of 15 years, starting two years after the credit is taken. It only is available for houses purchased between April 9, 2008 and July 1, 2009. Individuals earning above $75,000 (or couples earning above $150,000) will see the maximum credit phased out.

Without an amendment, the 2009 stimulus bill would remove the requirement that the credit be paid back over time, as long as the house isn’t sold within three years.

Buying a first home is one of the most difficult purchases to make. In addition to learning about all the requirements of owning a house for the first time, working with real estate agents, and in most cases, hiring lawyers, first-time home buyers need to raise money for the down payment and other fees. Purchasing subsequent houses are often less stressful, and money is often raised by sale of the first home. There are many programs to help first-time home buyers, but help more from the government might increase the possibility of a quicker recovery in the housing market.

February 13 Update: The Senate and House of Representatives have both passed the compromise version of the stimulus bill. Read the complete stimulus bill here, and you’ll be a step ahead of many of the congressmen who didn’t have a chance to read it before voting.

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Senate Amendment to 2009 Stimulus Bill: 4% Fixed-Rate Mortgage

by Flexo on February 2, 2009

in Real Estate and Home

Updated March 20, 2009: The stimulus bill is now a law. Read our roundup of the many ways you can benefit.

Without any Republican support, the 2009 stimulus package pushed by President Obama passed the House of Representatives. The bill is now making its way through the Senate, and it won’t come up for a vote without discussion and amendments. A number of likely amendments, proposed by Republicans and Democrats, address housing issues. Housing — specifically, the housing bubble, is considered by many to be the root of the economic downturn.

Here is one of the amendments being considered.

Senate Republicans are likely to introduce a provision that would encourage lenders to offer a 30-year fixed rate mortgage at 4% for a limited period of time. The loans would only be available to credit-worthy home buyers and homeowners seeking to refinance. (CNN)

When housing prices increased the level of affordability for most buyers, people stopped buying houses and prices, on average, stabilized or fell. If this is a root cause of the economic downturn, the necessary correction would involve allowing prices to fall further until reaching a level at which more people were willing to buy. In the mean time, supply would be reduced as home builders continue to slow down production. But this amendment would do the opposite.

Giving more people access to credit will allow people to qualify for bigger mortgages to afford higher-priced houses. This would keep prices inflated. On the other hand, giving people access to more credit will help people feel they are in a better financial position. Economic downturns are partly psychological; good sentiment can go a long way to turn the economy around.

A 30-year fixed-rate mortgage at 4% is a great deal. The difference between the market rate and this benefit would be paid by an addition to the stimulus package. Like the rest of the stimulus, it would be paid through government debt issued mainly to overseas investors.

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Home Prices Keep Falling

by Flexo on December 30, 2008

in Real Estate and Home

Six or seven years ago, a couple I knew married each other and bought a house right away. I can’t claim to know their personal financial details, but I am sure the value of the house was well beyond three times their combined income. The husband explained to me that house values never go down, so the purchase was a good investment.

It’s true that for many years, the New Jersey county they lived in has seen incredible increases in average housing values. And according to the Housing Price Index (HPI) offered by the Office of Federal Housing Oversight, it’s quite possible that prices in their area continued to increase, although data on their town is not available. A nearby locality has seen consistent price increases from 1997 through 2006, followed by decreases in 2007 and 2008.

The methodology for determining this index is not perfect. This area has seen almost constant development in the past ten years with larger and more expensive homes being built. The HPI only counts single-family residential properties that have had two mortgages originated by Freddie Mac or Fannie Mae. Eventually, these new homes would increasingly have two mortgages as described, some sooner than others. When these larger, bigger homes enter the index, they skew the numbers higher.

While part of the index represents actual increases in house values, some of the increase is due to newer construction and the tendency to build bigger.

Meanwhile, another housing price index, the S&P Case-Shiller index, has posted the biggest decrease ever, 18% down from the same time last year. This is the 27th consecutive month showing a year-over-year decrease.

Home prices post record 18% drop, CNN Money, December 30, 2008

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10 Tips for Buying a House in Any Market Condition

by Flexo on October 17, 2008

in Real Estate and Home

When you sell one house and buy another, the overall market conditions don’t matter as much. Unless the two houses involved are in areas with drastically different market conditions, you are exposed to the buy side and the sell side at roughly the same time. Whether it’s a “buyers’ market” or a “sellers’ market,” you will in theory have the advantage with one deal and the disadvantage in the other.

The situation is different when you’re buying your first home. Financial wisdom would say that it would be beneficial in the long run to understand the market condition and buy only when the pricing makes it advantageous, in reality you buy your first house when it’s time. Usually external forces drive that decision.

No matter what the market condition, consider these ten suggestions from MSN Money for buying a home.

1. Determine your limit and stay within your budget. You may have heard recently that the United States is experiencing a credit crisis. Banks are freezing up their capital and not sharing with borrowers. However, if you were well qualified for a mortgage before, you can most likely still get one now. I have noticed that I’ve stopped receiving poorly targeted spam email with home loan offers, so it’s possible the more risky mortgages have dried up. But for those who qualify for a mortgage, stick to a reasonable, affordable amount.

2. Find the right real estate agent for you. A co-worker of mine had a horrible time dealing with a real estate agent provided by our company as one of our “benefits.” The agent called incessantly, wouldn’t respect her price range, showed her houses that were a poor fit, and wasted her time. She fired the agent and tried again a year later with a new agent recommended by a friend and had a much more pleasant and fruitful experience.

Before working with an agent, interview them. Discover how they like to work and whether you will be compatible.

3. Research beyond the information provided by your agent. For this I recommend a useful tool: the Internet. Search listings to find houses you’d like to see. Find out as much as possible about the community in which you are considering living. If it’s relevant for your family, look into the local public school system. Find blogs written by residents about the community.

4. Visit the neighborhood. I can explain from first-hand experience why this is a good suggestion. for me, it has applied to my search for apartments in the past. Don’t only visit the neighborhood, visit the neighborhood at night. the character of the community might change, either for better or worse.

5. Be ready to negotiate. Houses are usually priced with negotiation in mind. This also goes back to your choice for agent. Since they may receive 3% of the sale price if split with another agent, they might not be extremely motivated to work with you to negotiate a lower price. Also, if the same agent represents the buyer and seller, it’s in the agent’s best interest to keep the price high.

If the house has been on the market for a while or if the local market is weak, you may have the ability to offer a price 20% lower than what the seller is asking.

6. Use caution when buying foreclosed properties. Across the country, foreclosures are at all-time highs. These homes can present great values, but they can be risky. It’s going to be difficult to snag a great deal because the best foreclosed houses in the best areas are priced knowing that there will be a lot of interested buyers. The best deals are left for the people who are willing to put a lot of work into fixing up a house to get it to the point that it is appealing for living.

7. Find the right lender and mortgage. MSN Money suggests dealing with lenders with roots in their communities but still look for the best deal. If you’ve been saving for a down payment and you have good credit, you’re in a good position to find the best interest rates.

8. Find a good home inspector. The same co-worker who had problems with her agent had problems with her inspector. They did not keep appointments and did not complete the job. Stay with the inspector while he or she walks through and around your prospective purchase and ask questions about anything that looks suspicious.

9. Buy long-term. Try not to view the house you plan to live in as an investment. Yes, it is a major purchase and will provide you with a major asset, but don’t go into home ownership thinking that you’ll make a lot of money. First of all, to see any appreciation, you’d have to sell the house. most likely you’ll buy a new house with the proceeds (if any) when you sell. Over the long term, real estate barely beats inflation. And keep in mind that if you consider your house an “investment,” your mortgage interest, maintenance costs, community fees, and any other house-related expense should be considered your “cost basis.” That will reduce whatever you consider your “profit” when you sell.

10. Don’t time the market. For the last four years or so, people around me have told me that the best time to buy a house, when the prices will be at their lowest and homes will be most affordable, will be in 2009. The best time to buy a house is when you need to buy a house (if ever).

10 home-buying tips for uneasy time, David Koeppel, MSN Money

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Why I Will (Probably) Never Buy a Condominium

by Flexo on August 18, 2008

in Real Estate and Home

The “condominium” (or “condo” for short) is generally seen as the missing link between renting an apartment and owning land with a house. Commonly, at least in my experience, a condominium is an apartment building in which the units are individually owned but the common spaces are jointly owned by all individual owners.

There is one primary advantage in owning a condominium unit above renting: your equity an an asset with a possibility of appreciation. There is also one primary advantage above owning a house and land, the probability of finding a comfortable dwelling for a lower price.

The disadvantages are numerous:

Lifestyle of dwelling. Living in a condominium is much like living in an apartment building. You are close to your neighbors, and no matter how things appear initially, the walls and ceilings are never as thick and sound-proof as they appear to be initially. If I want to hear the children living downstairs screaming at 3:00 in the morning, I’d prefer to stay in an apartment.

Price won’t increase as much as a single-family house. Even when the real estate market is in an upward trend, beneficial to sellers, the price of condominium units won’t increase as much as the price of houses. There seems to be an endless supply of condominiums. Apartment buildings are often converted to condos when the market is favorable to such a move. Houses, and more importantly the land they sit upon, are much more limited in supply. If you own a condominium you own a certain cubic feet of air within your particular enclosure. You do not own the biggest driver for appreciation, the land.

condominiumsAssociation fees. The common areas in a condominium are owned jointly and are usually governed by a board of directors or another group of representatives. In addition to your mortgage and taxes, you will also be responsible for association fees. These fees ensure there is enough funding to mow the lawn, fix the roof, insure the owners against liability, and advertise unsold units.

Association rules. Rules vary from one condominium to another, but they are designed to keep the appearance of the buildings professional and uniform. This supposedly keeps property values higher. Don’t expect to be able to paint the outside of your unit in a way that reflects your personality. Your landscaping options are limited. In many cases, you won’t even be allowed to erect a small flag on your door frame or window. Some associations don’t allow pets.

While I reserve the right to change my mind, I’d rather skip “Apartment Living Part 2″ when it’s time for me to “upgrade” my living situation. My intention is not to insult condo owners, it is only to discover what is best for me.

Photo credit: edkohler

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Home Improvement Cost vs. Value (2007)

by Smithee on August 13, 2008

in Real Estate and Home

As first-time homeowners, we watch more than our share of DIY Network / HGTV / buying and selling home shows. My wife and I work as a team: she concentrates on making home improvements, and I’m concerned with making sure things don’t fall apart. I also worry sometimes that any project we undertake might be a waste of money, or at least, not realize the return that some people promise.

I’m sort of haunted by this phrase that shows up in a commercial for DIY Network’s show “Sweat Equity”, where the host Amy Matthews is heard to say, “You’ll get two dollars back for every dollar you spend.” That might have been true when she said it, depending on which project she was talking about in the specific real estate climate she was in at the time. I asked my parents, who have dozens of years of real estate experience between them, and my father, who is as scientifically-minded as I am, found me a good resource:

costvaluelogoRemodeling Online has a “Cost vs. Value Report” that analyzes the average cost of 29 common projects one might undertake to increase the resale value of a home – if not the resale value, at least the likelihood that someone will buy it.

What’s more, they have specific information for different regions of the country, even down to the City level in some cases. Where we live, for example, remodeling the bathroom will recoup 90.9% of what it cost us, when the national average is 78.3%. But none of the projects listed indicate a cost recoupment of over 100%, nationally or regionally, so we’ll probably never get even one dollar back for every dollar we spend. But that doesn’t mean we’ll stop making improvements. It just means that the main reason to make home improvements is for the sanity of the current owners. I’m okay with that.

(Here’s a direct link to where the average numbers come from, as well as complete descriptions for each project analyzed.)

Update: Justin points out in the comments (below) that my comparison isn’t quite fair, since in the Sweat Equity scenario, you’d be doing all the work yourself. The Cost vs. Value table assumes that you’re paying full price for labor, so there’s bound to be some percentage that you’d be saving / recouping by doing it yourself.

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Inspect Your Home Inspector

by Guest Author on August 12, 2008

in Real Estate and Home

This article was written for Consumerism Commentary by Antelope, an entertainment lighting designer working hard to achieve financial security.

In the last year, my wife and I have sold a house in one city, and bought and sold another house in another city. After a bad experience with a home inspector when we were buying our second house, we learned a ton about home inspectors. You can do all of the research you would like, but sometimes you learn things in the School of Hard Knocks.

Believe it or not, some states have no certification requirements for a person to call themselves a “Home Inspector.” if you live in Delaware, Colorado, Florida, Hawaii, California, Idaho, Maine, Minnesota, Missouri, Michigan, Nebraska, New Hampshire, Utah, Vermont, Washington, Ohio, Wyoming, Kansas, Iowa, or New Mexico, your state does not have licensing requirements for home inspection companies. This means that a person could call themselves a Home Inspector, charge you $300 for an inspection, and completely miss major issues. Even when dealing with an inspector in a state with licensing requirements, you are not protected from bad experiences. My wife and I had one such experience with an inspector in Oklahoma City — Oklahoma has licensing requirements — who lied to us during the inspection. After we realized we had to immediately drop $20,000 for a new roof, the inspector told us he thought the seller was a criminal and we should have never bought the house. Unfortunately for us, we had already signed a document holding the inspector for a monetary amount covering only the cost of the inspection.

If you’re interested in finding out what each state requires for its Home Inspectors to undergo for licensing, check out this information provided by Kaplan. States are all listed with the requirements and classroom hours each inspection candidate needs in order to complete state licensing. The Independent Home Inspectors of North America has useful information on this topic as well.

It also helps to check up on references of home inspection companies. Check places like Angie’s List to find reviews for inspectors or their companies and the Better Business Bureau to see if a particular inspector is involved with any disputes or lawsuits. Even searching Google for your selected company can reveal issues with their reputation.

Unfortunately, sometimes you just get dealt a crappy inspector who delivers a crappy inspection. Life isn’t perfect, and real estate often brings out the worst of it.

If you enjoyed this article, please stay tuned to Consumerism Commentary for more from Antelope.

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The Real Estate Roller Coaster

by Smithee on July 29, 2008

in Real Estate and Home

I really enjoy good “data visualization”, which is a fancy, but more succinct way of saying “a way to look at information as more than just numbers.”

Last year, before most of us were aware of the “mortgage crisis,” some enterprising individual took a list of average housing prices in the United States since 1890, adjusted them for inflation, and then plotted them as if they were altitudes on a roller coaster ride. Watch the video, and you won’t be so surprised why the housing market took a downturn:

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