Why home ownership makes sense financially

A recent Harvard Study (The rent crisis is about to get a lot worse) conducted to explore the cost and benefit of renting vs buying found that the number of  households which could be spending at least half of their income on rent could increase 25% (increasing to 15 million households) over the next decade.

Eric Belsky is Managing Director of the Joint Center of Housing Studies at Harvard University. He also currently serves on the editorial board of the Journal of Housing Research and Housing Policy Debate. Last year he released a paper on homeownership - The Dream Lives On: the Future of Homeownership in America. In his paper, Belsky reveals five financial reasons people should consider buying a home.

Here are the five reasons, each followed by an excerpt from the study:

1.) Housing is typically the one leveraged investment available. 


“Few households are interested in borrowing money to buy stocks and bonds and few lenders are willing to lend them the money. As a result, homeownership allows households to amplify any appreciation on the value of their homes by a leverage factor. Even a hefty 20 percent down payment results in a leverage factor of five so that every percentage point rise in the value of the home is a 5 percent return on their equity. With many buyers putting 10 percent or less down, their leverage factor is 10 or more.”

Are Tax Credits Still Available for First Time Home Buyer's in 2011?

Income Tax credits are only available to qualifying military personnel.  Here is a link to the Home Buyer Tax Credit Review article. 

Because of the many different tax credits, times covered by the offering, and what tax credits needed to be repaid and which ones didn't, here is a quick review:

Summary of the First-Time Homebuyer Credit by Year

For 2008: up to $7,500, the credit is paid back over 15 years. For Jan - Nov 2009: up to $8,000, the credit does not need to be paid back.
For Dec 2009 - April 2010: up to $8,000 for first-time buyers, the credit does not need to be paid back.
For Nov 7, 2009 - April 2010: up to $6,500 for "long-term residents" buying a new home, the credit does not need to be paid back.
Until April 30, 2011: homebuyer credit continues to be available for qualified members of the U.S. uniformed services.

10 Common Errors Home Owners Make When Filing Taxes

By: G. M. Filisko
Published: January 25, 2011
Don’t rouse the IRS or pay more taxes than necessary—know the score on each home tax deduction and credit.  Here's 10 "sin's" that will rouse the IRS...

Sin #1: Deducting the wrong year for property taxes
You take a tax deduction for property taxes in the year you (or the holder of your escrow account) actually paid them. Some taxing authorities work a year behind—that is, you’re not billed for 2010 property taxes until 2011. But that’s irrelevant to the feds.
Enter on your federal forms whatever amount you actually paid in 2010, no matter what the date is on your tax bill. Dave Hampton, CPA, tax manager at the Cincinnati accounting firm of Burke & Schindler, has seen home owners confuse payments for different years and claim the incorrect amount.

Five Mortgage and Foreclosure Myths

Because of the rapidly changing rules in the mortgage world, call me for up to the minute lending guideline changes.  

Marty 

In a mortgage market that changes as quickly as this one, today’s fact is tomorrow’s fiction. For buyers, misinformation can be the difference between qualifying for a home loan or not.

Sellers and owners, knowledge is foreclosure-preventing, smart decision-making power! Without further ado, let’s correct some common mortgage misconceptions.

FAQ's Homeowners have at tax time:

10 critical questions for homeowners at tax time

Gina Pogol   HSH.com

Albert Einstein once said, "The hardest thing in the world to understand is the income tax." If you buy, sell, finance or own real estate, it gets even worse. Before you belly up to the nearest bar or start pulling your hair out, check out this list of FAQs for tax-paying, home-owning citizens.

Yep, property and taxes go together like blood and leeches. Yet there is no reason to pay more than the minimum. Here are some commonly asked questions about taxes and homeownership.

Knowing the answers will help keep your tax bill as low as possible.

Here are the 10 Frequently Asked Questions homeowners have at tax time:

Tax Credit Deadline for closing Extended and Flood Insurance again available

Great news for First Time Home Buyers and for those buyer's needing flood insurance to close on their loans!  Here are the latest updates from Congress.

• Tax credit processing extension

o        The Congress has passed H.R. 5623, the Homebuyer Assistance and Improvement Act, which extends the tax credit closing deadline until September 30^th.  There will also be no gap between June 30^th and the date the President signs the bill into law.  The extension only applies to transactions in which the purchase contract was signed by April 30^th. Please note this bill is pending the President’s signature.

• Flood insurance extension

o        The Senate has passed H.R. 5569 which extends the National Flood Insurance Program until September 30, 2010.  The bill is retroactive from June 1, 2010 to the date the President signs this bill. Please note this bill is pending the President’s signature.  

Marty helped me proceed with confidence with my decisions-Closing April 27, 2010

First American Title with Sue Heiner was a great place to be on April 27th! She was closing on Paul Smith's first home purchase and there was a party going on!

At the closing (party) was Troy Erickson with Coldwell Banker- 2nd from the left - (you can reach Troy at 801-430-7380 or at troyerickson@utahhomes.com), Paul's Father (he was rooting his son on in his first mortgage loan closing), Paul Smith, and Marty Qualls. (Sue Heiner, Escrow officer and world's finest photographer! Thanks as always for a great job of closing, Sue!)

Congratulations to you Paul for your first time home buyer tax credit of $8,000 that will soon be in your wallet, bank account or as new blinds in your new home (!) before you know it!

As a first-time home buyer, I felt lost among all the details involved in getting a mortgage, but Marty went of his way to help me understand the decisions I was making so that I could proceed with confidence.  Thanks, Marty!

--Paul J. Smith
Closing April 27, 2010

 

Marty delivers timely and professional service-Closing April 29. 2010

Congratulations Brady Kotter! First Time Home Buyer Credit is soon to be in your pocket and you nabbed one of the best interest rates in Mortgage History! Celebration! Closing April 29, 2010

Jerry Priest at Executive Realty Service (can be reached at 801-710-4151), Bree, Brady and Marty Qualls at Mountain View Title with Angie Chandler, Escrow Officer and Photographer! Great job closing Angie :)

Marty, Thank you for your great efforts in putting this loan together for Brady and doing it in a timely and professional manner. I appreciate the opportunity to work with you again.

Sincerely, Jerry Priest, Executive Realty Services, 801-710-4151

Steve and Britannia Kennett Closing-April 22, 2010

First Time Homebuyer's Steve and Britannia Kennett, with Brittania's Dad, Steve Alder, with Kelly Stone-Realtor with Keller Williams Success Realty in South Ogden-Phone number 801-336-0896 and Marty Qualls Celebrate the BIG Day in the Kennett's lives!

As a First Time Home Buyer, Steve and Britannia qualified for the $8,000 Federal Tax Credit, purchased their home at a huge discount with built in equity (thanks to Kelly Stone's expert help as their Realtor) and were fortunate enough to get a mortgage rate of a lifetime and are now home owners-one of their life long dreams come true! Congratulations!

   Working with Marty was great. He answered our questions and was sure to make sure we understood everything we needed to know. 

  He was quick to respond to our calls and very thorough throughout the whole process. 

  He made the home-buying process a delight! 

         Thanks Marty! Steve and Britannia Kennett

Scott and Jennifer Spafford Closing-April 22, 2010

Scott and Jennifer locked on a historically low rate for their long term take out loan to finance their brand new (beautiful!) newly constructed dream home!

Congratulations on a great loan rate and loan!

And for the final great timing decision, they took advantage of the $6500 Federal Tax Credit for repeat home buyers! WOW life IS good in America!!

Doug Paskett Closing-June 18, 2009

Marty Qualls, Doug Paskett and Donald Mendenhall at Equity Real Estate (attended closing for Tyson Thornock, Equity Real Estate, who was the buyers agent and was out of town. Tyson can be reached at 801-820-7772).

Doug purchased his home with perfect timing; as a first time home buyer he was able to take advantage of lower sales prices, the $8,000 Federal Tax Credit for First Time Homebuyers, and he received one of the best interest rates in Mortgage history! Congratulations Doug!

Simply put, Marty is AWESOME!

I'm not a fool in matters of money but I don't know all the intricate details of finance.

• Marty assessed my understanding immediately and filled in the details I didn't know without going into what I did know.

I wanted to get into a house quickly and Marty exceeded my goal, guiding me and helping me.

• Again, he's simply awesome and I was fortunate to have him in my corner!

Doug Paskett

New Home Owner

Jake Rackham Closing-January 6, 2010

Congratulations on your first home purchase Jake! $8,000 tax credit now in your pocket has to feel great! Thanks again for the opportunity to help you with your mortgage needs!

Jamey Gomez Closing-December 29, 2009

Valerie Trujillo with Century 21 Gage Froerer, 801-389-6480, Jamey Gomez with Cassie and Marty Qualls at closing on December 29, 2009.

Jamey took advantage of the $8,000 Federal Tax Credit for First Time Home Buyer's! Congratulations!

Brian Hunt Closing-December 18, 2009

Marty Qualls with Brian Hunt and Chad Buttars, Realtor, Utah Executive Real Estate, 801-941-8400.

Listing Agent on transaction was Shauna Ray at Prudential Real Estate and the closing was at Executive Title with Michelle Campbell Escrow Officer.

Brian took advantage of the $8,000 tax credit for First Time Home Buyers!

Congratulations Brian!

Realtors Hosting State and Nationwide Open House Day 4/10/10

Watch your newspaper, listen to your radio and visit Realtor Open Houses to be hosted in your neighborhood, city and state tomorrow, Saturday, April 10, 2010.

With home price affordability at historic low's, interest rates still hovering at all time lows, this is a great time to purchase your next home!

Remember, the first time home buyer $8,000 tax credit and the $6,500 repeat buyer tax credit is available for the taking until Friday, April 30th!

IRS Form 5405-Tax credit for First Time Home Buyers and Repeat Homebuyers

Go here to print your form!

http://www.irs.gov/pub/irs-pdf/f5405.pdf

2009 Home Buyer Tax Credit: First Time Homebuyer and Repeat Home Buyer

CPA Shares Little-Known Facts About the 2009 Home Buyer Tax Credit Extension

Like most government legislation, the Nov 6, 2009 homebuyer tax credit extension created more questions than answers. However, according to Doug Geissler, a certified public accountant, the Internal Revenue Service is literally writing the "refund rules" as they go along.
Unbeknown to homebuyers, real estate agents and the mortgage industry, the IRS is giving behind-the-scenes instructions (that are not available to the general public) to CPAs and tax advisors on how to file for the homebuyer tax credit after Nov. 6, 2009. It will be completely different than what you might have advised your clients previously-and your clients are not going to like these changes!

The first shocker?

• Your clients cannot file a 1040 EZ to claim the tax credit. Nor can they file tax returns electronically if claiming the tax credit.Why no electronic filing or 1040 EZ forms? It's the first step in stopping fraudulent tax credit refunds. Believe it or not, the IRS never had a way to determine if a person owned a home-no auditing software in place-to determine if they previously claimed a "mortgage interest" deduction within a three-year time period. The IRS is building auditing software now to "catch" previous homeowners who are trying to claim a FTHB tax credit.
  

• Secondly, the IRS now requires that the HUD-1 or closing statement be attached to the 5405 form (and that cannot be attached electronically). Here's the link to the 5405 Revised Form dated December 2009: http://www.irs.gov/pub/irs-pdf/f5405.pdf

And to give them time to audit the document, the IRS is telling tax advisors to expect an average of a 16-week turn around time-which means that it could either be the refund or a request for additional documentation. Mr. Geissler says that one of his clients recently received an IRS notice, requesting a letter from a landlord, a copy of a driver's license and the closing statement on an amended tax return where the client was claiming the FTHB tax credit. Yes, the new law allows them to ask for additional info on amended returns.

So, what means, that if your clients is expecting an income tax refund and a homebuyer tax credit refund, both refunds could be held up for several months.

We all know what adjusted gross income is, right? But did you know that there are over 20 different "modified adjusted gross income" interpretations for different tax forms and credit tax claims?

In regard to the homebuyer tax credit, the simple explanation is that is Line 38 on the 1040 form (remember, no 1040EZ to claim this tax credit). However, if IRS Form 2555 (Foreign Earned Income) or IRS Form 4563 (Exclusion of Income from Bona Fide Resident of American Samoa) is attached, this income has to be added to line 38 to determine if the clients meet the maximum income limits of $125,000 or $225,000. While this might not apply to very many clients, it's something you can counsel your client about if they claim foreign income to qualify for a loan.

FHA holds firm on 3.50% minimum down payment

This past Thursday (March 11, 2010), FHA Commissioner David Stevens testified before Congress that an increase in the minimum down payment from 3.50% to 5% would result in 300,000 fewer buyers able to use FHA financing. This translates into a 40% drop in the Housing Market. It looks like FHA is going to stand firm on their minimum down payment at 3.50% and says the increase in the upfront mortgage insurance premium in 3 weeks from 1.75% to 2.25% should be sufficient to correct the shortfall in revenue and keep FHA solvent.

In other news last Thursday, David Stevens said that a .25% to .75% increase in mortgage rates is an acceptable sign of health in the economy. Wow, hang onto your hats if this happens! This of course is not the news that we want to be hearing and I could see that if there is a chill in the housing market because of the increases in rates, we will see the Government again participate in the Mortgage Back Security (MBS) program. For now, this is an excellent time for taking advantage of tax credits, low rates and depressed home prices.

MBS Purchase Update

As I have mentioned in previous Blog posts recently, the Government’s Program to purchase Mortgage Backed Securities (MBS) is nearing the end. This program began in January 2009 as part of the economic recovery act of 2009 and was designed (and has been successfully implemented) to hold down mortgage interest rates.

This week’s purchases of MBS by the Government was $12 Billion, bringing the total to $1.173 Trillion since January, 2009, and leaving $77 Billion to be spent over the next 8 weeks. Leaving an average of $9.62 Billion per week to be spent, I have warned, as have other financial experts, that mortgage rates are going to begin increasing.

This latest week of increased refinance activity (up 21% Nationally) may be an indication of the reality of our situation becoming clear to homeowners who have not yet taken advantage of lower rates. A recent Government report (in a previous Blog Post), indicated that just 30% of eligible homeowners who could benefit from the lower interest rates we are enjoying, have actually taken the steps to refinance.

Also, homeowners wanting to sell their current homes in order to take advantage of the $6500 tax credit scheduled to expire on April 30, 2010 has also dramatically risen recently (National Association of Realtors article I read yesterday).

And finally, the first time homebuyer. What a shining star in the market place this past 12 months! With over 42% of all homes purchased in 2009 attributed to first time home buyer’s, and why shouldn’t these first time home buyer’s take advantage of a “once in a lifetime” benefit?!

First Time Home buyer's are rushing to put homes under contract before April 30^th (and close before 6/30/10) to take advantage of the $8,000 tax credit!

This is a wonderful time in Mortgage rate history! Please call me if I can help with any Purchase or Refinance Questions you may have!

First Time Home Buyer's Are Buying Homes!

According to the National Association of Realtors profile of home buyers and sellers, First Time Home Buyers reached the highest market share on record in 2009. First Time Home Buyer's bought 47% of homes purchased, the highest percentage since 1981.

I've gathered a lot of experience over the years. And I'd like to share it with someone ready to buy their first home. The $8,000 tax credit is soon to expire with a scheduled date of April 30, 2010 as the deadline for a home contract and June 30, 2010 as the closing date.