What You Need to Know about the First Time Home Buyers Tax Credit Extension

The first time home buyers $8000 tax credit was extended on Nov. 6. While most requirements concerning the tax credit remained the same, some changes were made. All the changes will apply to those settling on their primary residence after Nov. 6.

1. Date Extended to April 30, 2010

The first time home buyers $8000 tax credit was extended to cover primary residences that settle by April 30, 2010. With the new law, if you have a primary residence under contract by April 30, 2010 then you can still qualify as long as you settle before July 1, 2010. First time home buyers are still defined as buyers who have not owned a home within the last three years.

2. A Tax Credit is Available for Current Home Owners

If you have lived in a primary residence consecutively for the last five out of the eight years, then you can qualify for a joint $6,500 tax credit or 10% of the purchase price whichever one is less if you are closing on your new primary residence between Nov. 6 and April 30, 2010. If you are married filing separately then the credit will be $3250. The new primary residence does not have to cost more than the primary residence you sold.

3. Income Limits were Increased

For purchases after Nov. 6, 2009, single home buyers can now make $125,000 a year and married buyers can make up to $225,000 to qualify for the tax credit. However, if you do exceed the income limits, you can still get a portion of the credit. The credit amount is reduced incrementally until it is phased out completely when the income limit is exceeded by $20,000.

4. Purchase Price can’t Exceed $800,000

The purchase price of the primary residence can not exceed $800,000. While this will not affect most first time home buyers it could affect those non first time home buyers who are moving up after selling their primary residence.

5. Age Requirement

You now have to be at least 18 years of age and not a dependent on someone else’s tax return for the year of the purchase to receive the tax credit.

6. Proof of Purchase

To reduce fraud, you now have to attach proof of purchase to your tax return in order to receive a credit. With the new tax credit extension and provision allowing existing homeowners to receive a tax credit, 2010 should be a great year for real estate on the Main Line and everywhere. Another extension is not likely to happen, so take advantage of this great opportunity while it lasts. How often does the government pay you to purchase a home?

Reverse Mortgages: Be Aware

Reverse Mortgages are very appealing to older home owners on Philadelphia’s Main Line as well as in other areas of the United States during these hard economic times. A reverse mortgage is basically when a lender gives you a cash advance on the equity you have in your home. You don’t have to pay back the advance until you either sell the home or die. However, there are several things you should be aware of before getting a reverse mortgage, such as:

1. How much money will you actually be able to borrow? There is a maximum home value which was just raised from $417,000 to $625,500, although you can’t obtain a reverse mortgage for the full value of your home. A formula is used to determine how much you can borrow. This formula takes into consideration how old you are (the older you are the more you can borrow), current interest rates, and your home’s value. You will have to subtract what you owe on your house and any loan fees involved in getting the loan. This is all subtracted from the amount you are able to borrow. To see how much you could possibly borrow go to www.revmort.com/nrmla.

2. Reverse mortgages have very high fees. A Money magazine article states that as well as paying normal closing costs, there is an origination fee of 2% on the first $200,000 of the loan balance and 1% thereafter, plus mortgage insurance premium of about 2% and on top to that there is a monthly service charge. Origination fees are legally not to exceed $6,000, but by the time you add up all of the fees involved, the total amount in fees is usually in the $10,000 to $15,000 range.

3. There is some risk involved. First of all you have to be at least 62 years old before you can obtain a reverse mortgage. If you decide to obtain a reverse mortgage in your early sixties or seventies, you have to ask yourself “Will the money outlast me?” If or when you run out of money, you won’t have any home equity left, so the longer you can wait to obtain a reverse mortgage the better.

4. Alternative ways to make ends meet. Because retirees have seen a rapid decline in their investments, reverse mortgages have increased by 50% over the past two years and the average age of the borrower has shifted from 76 to 72 years old. So, before taking out a reverse mortgage, don’t forget that cutting expenses, moving into a smaller home, or taking out a home equity line of credit are some other viable options to obtaining a reverse mortgage.

Before you are able to obtain a reverse mortgage you are required to meet with an independent counselor who should explain the loan and all of the drawbacks. However, a recent study showed that counselors are not fully explaining all the risks involved so be sure to do your research and try to find out all the pros and cons of obtaining a reverse mortgage to make sure it is the best option for you.

How You Can Improve Your Credit Score

Money magazine had a great article on credit in its September issue. Many people on the Main Line, who are interested in real estate, ask me if it is hard to get a loan these days and the answer is “no” if you have a good credit score. What is a good credit score and how can you keep it high? FICO is the most used credit rating system. The top score is 850 and the lowest is 300. “You need a 750 or better today to have the same treatment you got with a 700 two years ago,” says John Ulzheimer, president of consumer education at www.Credit.com. The higher your score the better the interest rate you are able to obtain for a mortgage. To achieve the best rate, you need to do the following:

1. Know your score.

You have three FICO scores based on the information at the three credit bureaus: Experian, Equifax, and TransUnion. You can obtain a reflective score at www.myfico.com for $16 or you can receive an estimate for free at www.Creditkarma.com. You can get the history report that your score is based on for free at www.annualcreditreport.com. You are legally allowed one free credit report from each bureau annually.

2. Look for Errors

If you find a mistake notify the bureau (they have instructions on their websites) and have it corrected. Make sure your credit line amounts are correct and that none of your accounts have been marked late or delinquent in error. You could raise your score by 200 points, says Ulzheimer, just by having a mistake corrected.

3. Don’t be Late on Your Payments

Your payment history makes up the largest portion of your credit score. One late payment can cause 100 points to be taken off your score. Your payments aren’t recorded as being late until you are 30 days past due. If you make a payment 30 days past due and then pay on time after that, you should be able to get most of your points back. Being 90 days past due can affect your credit score for years so be very careful.

4. Follow the 20% Rule

The second largest factor that makes up your credit score is how much you owe compared to how much credit you have available. Credit card balances and their available lines of credit are something that you can control. You need to keep the ratio at 20% or less overall to maintain a high credit score as well as for each individual card. This is known as your credit card utilization rate. People have become very concerned over banks cancelling cards and lowering credit limits since it can really affect your credit score. If your rate becomes higher than 20% then you will need to pay off some of your debts or obtain another card to increase your credit limit since just a utilization rate of 25% could decrease your score by 50 points. However, don’t get a new credit card if you are planning on applying for a mortgage soon.

5. Keep and Use your Oldest Credit Cards

15% of your score is based on the length of your credit history. The longer you can show that you have been able to manage credit card debt the better for your credit score. Don’t cancel your cards and use them periodically so credit card companies won’t cancel them on you.

There are other components that make up your credit score but they are not as easily controlled, so just concentrate on the ones that you can and you should be okay.

Regards,

Sarah

Visit me at www.SarahSellsTheMainLine.com

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Buyers Beware of Purchasing New Construction

Although there are not a lot of new construction subdivisions on the Main Line, buyers need to be aware of some of the potential hazards of purchasing new construction and some of the precautions they need to take.

Homebuilders have been hit hard by this economy and many are filing for bankruptcy. If a builder goes bankrupt, buyers could lose their deposit monies, liens could be placed on homes just completed and purchased, builders would no longer be able to uphold their warranties, houses, clubhouses, pools, and/or parks could be left uncompleted and neglected.

What should a buyer do if they are thinking of purchasing new construction?

1 Make sure the builder is financially sound before purchasing any new construction or having a home built. The internet can help you with this especially if it is a publicly held company.

2. Drive through the neighborhood to see if any work is being done. If there aren’t a lot of subcontractors working on completing homes or amenities then that could be a sign the builder is having financial difficulties.

3. Knock on the doors in the neighborhood to see if the owners are pleased with their home and if the builder has been repairing items under warranty.

4. Don’t buy in a neighborhood where you are one of the first homes. If the neighborhood is well established and the builder does get into financial trouble, your neighborhood won’t look like a construction site and you won’t be sharing responsibility for common maintenance with just a few home owners

5. Eliminate some of the risk, such as losing your deposit and being unable to get out of a contract, by purchasing a house that has already been completed in the new subdivision.

If you do decide to have a new home built:

1. Make sure your deposit money is being kept in a third party escrow account; not in the builder’s escrow account so you will have a better chance of having your money returned.

2. Have a clause put in the contract that if the builder goes bankrupt , seeks debt reorganization or debt discharge, the buyer will receive all their deposit monies back and have the ability to declare the contract null and void.

3. In the contract, make sure there is a clause stating that the seller at the time of settlement will make sure a title insurance policy with an affirmative mechanic’s lien coverage clause insuring the home will be available to the buyer.

4. The buyer may also want to include language in the contract that states the property must appraise at the sales price or more in order for the settlement to occur due to decreasing home values. If a lower sales price can be agreed upon by both parties then the closing can take place.

Not all builders are in financial trouble, but all buyers need to be aware and take precautions before purchasing new construction whether on the Main Line or elsewhere.

Regards,

Sarah

Visit me at: www.sarahsellsthemainline.com

How a Foreclosure on the Main Line Can Affect the Community

There are not a lot of real estate foreclosures here on the Main Line. According to the Philadelphia Inquirer, Philadelphia and the eight surrounding counties placed number 77 out of 100 metro areas nationwide in the number of people filing for foreclosures in 2008.
However, I am starting to see more foreclosures on the Main Line and it is worrisome and it affects the whole community.

There is a home four houses down from mine on the Main Line that went through foreclosure. It once was a beautiful home surrounded by a picket fence with perennials planted next to the road. The yard had two large water fountains and had been professionally designed and landscaped. It resembled a large French cottage. It was an asset to our neighborhood. Then we started noticing that the privet hedge and perennial beds were starting to look overgrown. Next the picket fence was starting to fall apart and ivy starting climbing on the outside walls. Then we realized that the owners had left town. My neighbors started calling me. They were very concerned about someone breaking in and trying to live there. We talked about getting together to clean up the yard so the house wouldn’t look vacant. One day my child came home very upset because there were policemen at the vacant house. They were putting up a Notice to Sale on the front door. She felt horrible for the family that had lost their home and she was close to tears. In the end, there were about three large pink notices left on the front door for everyone to see. It is now a REO property and is listed for sale. There is a padlock on the front door along with a lockbox . The house looks very scary and forlorn.

It takes about 10 months to foreclose on a home. A lot can happen to a home during that time. I understand that the hardwood floors are all buckled and that the basement is full of water. The yard and fence still look horrible. The REO (Real Estate Owned) company did cut back the privet hedge but that is about all. Who will buy the property? Will the house be fixed up or torn down? Will they turn it into townhouses? How will this house affect the values of the homes in the neighborhood? These are all questions that the community is asking. All we know is what was once a lovely home is now an eyesore and a reminder of what many families are going through in these difficult economic times.

Regards,


Sarah

www.sarahsellsthemainline.com

How the $8000 First Time Home Buyers Tax Credit can Help You Purchase a House Now

Many people who have never been able to purchase a home on the Main Line would love to take advantage of the new 2009 $8000 tax credit, but they don’t have enough money for a down payment or to cover the closing costs. If you are a first time home buyer and you need your 2009 $8000 tax credit to help you purchase a home, there is a way to receive your tax credit early. First time home buyers who would qualify for the tax credit are allowed to lower their income tax withholdings up to the amount of the tax credit. This extra money will be brought home in the buyers take home pay. Buyers can then save and use this extra money to help them with their down payments or their closing costs. Buyers just need to adjust their withholding amounts on their W-4 through their employer or quarterly estimated tax payments if they are self-employed. However, if a buyer does decide to lower their income tax withholdings and does NOT make a tax credit qualified purchase then they would have to repay the IRS for the income tax possibly including even interest and penalties. If you would like to read the rules and guidelines concerning income tax withholdings, they can be found in the IRS Publication 919.

Also, some rules were changed as part of the stimulus package to allow first time home buyers to claim the tax credit and take part in a program financed by tax-exempt bonds. Some state financing agencies, such as the Missouri Housing Development Commission, have developed programs that provide a short-term loan in the amount of the tax credit to first time home buyers which can then be used for a down payment. Potential first time home buyers should contact their state housing finance agency to see if such a program exists. Most of these numbers are listed by state on the website www.housingfinance.com.

Best Regards,

Sarah

Visit me at: www.sarahsellsthemainline.com