Hi Everyone- hope all's been well and sorry I've been MIA on the blog a couple weeks. A couple new escrows, new buyers and last weekend Stay-cation between LA and Santa Barbara! Good Times.
Anyhow, Just wanted to pass along the latest Los Angeles Times' Median Home Pricing Charts showing sales trends for April 2009 in Los Angeles. Two Charts attached. The latter chart hasn't been released yet and will be appearing in the LA Times REAL ESTATE section this coming Sunday, 5/31/09. Our office received the information early, so just wanted to get it to you early as well. :)
Hope this is helpful and talk to you soon!
5/17/09 Article - Median Pricing from April 08 - April 2009
5/31/09 Article (To be released) - Comparison between Number of Active Listings vs. Solds - April 2009 - April 09
All the Best,
Jerry Hsieh
310-228-8856
Jerry & Rachel Hsieh Real Estate Team - Keller Williams Realty in Los Angeles
IF YOU WANT THE LATEST INFORMATION ON THE LOCAL LOS ANGELES REAL ESTATE MARKET, FOLLOW THIS BLOG! FEEL FREE TO SEND OUR TEAM A REQUEST FOR ANY PROPERTY ON THE MARKET YOU'D LIKE TO VIEW BY CALLING US AT 310.623.1359. Our Cell: 424.242.8856 Email: jerryandrachel@newhomesLA.com DRE #: 01701809
Wednesday, May 27, 2009
Friday, May 8, 2009
Westside LA Pricing still has a long way to Come Down?
It seems that Los Angeles pricing for homes over a million mark may still have a ways to come down. I'm not sure if anyone has noticed, but prices in higher end areas like Beverly Hills and Brentwood simply haven't come down as much as you would expect, and in some areas, homes prices have actually increased over the last year!
My feeling is that it is a great time to buy if you are looking in the under 1 million dollar price range. The fact is foreclosures have already made an impact on those neighborhoods, where values have come down around 30% now. I am in escrow on a property for myself for right around $600,000. In that neighborhood, home prices have already come down about 30-35%.
However, if you are looking over 1 million and in the more prime areas of Los Angeles, I believe there will definitely be an impact with a second wave of foreclosures as well as jumbo loan related defaults.
One of my clients passed this article to me. While I do believe the blogger takes a pessimistic viewpoint, I think there are some good points made and worth the read. Check out this article from his blog, Westside Real Estate Meltdown: westsideremeltdown.blogspot.com
-Jerry
310-228-8856
Second Title Wave of Foreclosures to hit the Westside Later this Year
My feeling is that it is a great time to buy if you are looking in the under 1 million dollar price range. The fact is foreclosures have already made an impact on those neighborhoods, where values have come down around 30% now. I am in escrow on a property for myself for right around $600,000. In that neighborhood, home prices have already come down about 30-35%.
However, if you are looking over 1 million and in the more prime areas of Los Angeles, I believe there will definitely be an impact with a second wave of foreclosures as well as jumbo loan related defaults.
One of my clients passed this article to me. While I do believe the blogger takes a pessimistic viewpoint, I think there are some good points made and worth the read. Check out this article from his blog, Westside Real Estate Meltdown: westsideremeltdown.blogspot.com
-Jerry
310-228-8856
Second Title Wave of Foreclosures to hit the Westside Later this Year
Notice of Defaults (NODs) in California hit an alarming 135,431 during the 1st quarter of 2009. An all time high. That's up 80% from 75,230 during the 4th quarter of 2008. This is primarily due to a foreclosure moratorium by banks, to keep their losses from snowballing. Now we are back to normal, with excess homes piled up in the foreclosure pipeline.
What is different now however, is the type of loans that will be heading toward foreclosure. Up through 2008 we saw the Subprime Wave hit the lower tier of housing . Mainly the outlying areas of Los Angeles were affected like Riverside, San Bernadino, Palmdale, and Lancaster, where lenders could prey on subprime buyers. The proverbial bottom of the Real Estate Food Chain. Many of those homes are now selling at a 50% discount or more . The next wave to hit will be concentrated in the Alt-A, Option ARM and Prime arenas. These loans are much larger in size and include mainly higher end properties. $300,000,000,000 alone are in California and begin resetting in the 3rd and 4th quarter of 2009. The peak of loan resets will be from December 2009 through August 2010. Even though the peak will last through next year, it will remain highly elevated until 2012. This is disaster waiting for the Westside. Many of the Westside loans made from 2004 and on, are Alt-A, Option ARM or Prime and begin resetting in 2009. Especially those 5/1 ARMs that became so popular. As prices have already sunk to 2005 and 2004 in some places, homeowners will already be underwater once their payments increase. If they bought with little or no down payment, walking away from a mortgage becomes a no-brainer.
In addition, we are now seeing accelerated layoffs and some will be forced to sell. With many Westside households requiring 2 incomes, the job loss threat is magnified. Sure, you will hear pundits, realtors, banks, economists preaching now is the time to buy while interest rates are 4-5%. And some will think, they want to get "in" before prices go back up. Don't make that mistake. It is better to buy when prices are lower and interest rates higher. Then you have a chance of rates coming down. Can you imagine trying to sell a property at bubble prices with higher interest rates?
The Westside is down about 20-25% and the downside risk of losing another 20-25% is increasing every day. Smart money is waiting for 40-50% declines before buying. If you read between the irresponsible headlines, you can see that. The bulk of the sales activity is distressed sales. They're few "organic" sales right now. With down payments of 10-25% required to purchase property, you stand a good chance of losing your entire down payment in a year or two.
Now is the time to clean up your finances, get familiar with areas you like and watch the Westside market change this summer. Take a look around during late summer, after the traditional selling season for signs of distress. Later this year should be a possible entry point for some properties on the Westside.
Above all, be patient. There is absolutely, no hurry now.
Tuesday, May 5, 2009
From LA TIMES: House Hunting? It's Not a Buyer's Market Everywhere
The median price in Southern California may have plummeted, but in more desirable neighborhoods, home buyers are still engaging in bidding wars.
By Chip Jacobs
(Link to Article Download)
6:15 PM PDT, May 2, 2009
The confident smile Sam Rivero wore as he hunted for his first house had a lot to do with the buzz thumping in his ears. Ever since home values began sinking, pundits have touted the juicy opportunities for aspiring buyers priced out of the market before, and the young business-development executive heard that cue like a sonic boom.
Out he ventured into Mount Washington, Glassell Park, Eagle Rock, Montecito Heights and other desirable middle-class communities northeast of downtown Los Angeles, searching for a bargain in the $400,000 range. Candidates came and went, and Rivero, who is getting married, was upbeat. Considering the pulverized housing values, with the median price of a Southland home today -- $250,000 -- at half of its 2007 level, the properties should come gift-wrapped, right?
As the Glendale resident and his fiancee, a makeup artist for the television show "Entourage," discovered, the supposedly wondrous buyers' market seems more consumer myth than easy pickings.
They bid $50,000 over asking price for a "great" four-bedroom contemporary in Valley Village, only to lose out to one of the 16 other offers tendered, Rivero, 33, said. A North Hollywood house he had been eager to see attracted so many people walking around with sales fliers that he couldn't find parking and drove off from the "vultures" who got there first.
"Every open house I've been to has been a zoo," said Rivero, who has examined 35 properties during the last three months. "If you follow what the [general] media say, you'd think sellers are desperate to sell a house, but when you get there it's totally the opposite."
So what's going on?
Real estate brokers and investors say would-be buyers misunderstand how the drop in housing prices has affected desirable neighborhoods. Just because an abandoned house in a troubled part of San Bernardino County might be going for $200,000, it doesn't mean you can get a nice place in Sherman Oaks for that amount -- or even twice that amount.
House hunters are trying to pounce on deals from sellers they expected to be frantic -- if not curled in the fetal position. What they're finding instead are bidding wars as low interest rates and pent-up demand in traditionally stable or chic areas have kept prices up -- not as high as the market's peak, but not nearly as low as they had hoped.
"The biggest problem," said agent Phyllis Harb, "is that people are overreacting to housing statistics, thinking they can come in and make an offer 20% below price."
As sales figures and home buyers' anecdotes are underscoring, when the residential real estate bubble burst, it set off several distinct sprays that created false hopes and confusion.
Though nearly 20,000 homes in Southern California sold in March, a 52% jump from a year earlier, a sizable number of those transactions occurred in Riverside and San Bernardino counties, where foreclosures exploded. In the region overall, foreclosure sales accounted for 55% of March's deals.
Bank-owned or not, the cheaper properties are dominating the sellers' block in the notoriously expensive L.A. County real estate market. In March, 2,871 homes under $300,000 were sold compared with only 734 a year earlier, according to real estate information firm MDA DataQuick.
At the higher end, just 202 homes priced above $1.2 million changed hands last month, compared with 354 in March 2008.
Houses priced from $400,000 to $800,000 represented less than a quarter of the market in March, down from about 45%, meaning fewer offerings for would-be buyers in that mid-market or pickier sellers, according to DataQuick.
Mark down Nicky and Bunny DeMarinis as frustrated. They offered about $1 million for a 3,300-square-foot traditional in the Los Feliz area. Though it boasted a magnificent view, the house was an ode to passe, with cheesy frescoes, gold trimming and 1970s-era kitchen appliances, they said. For all the updating it required, the owner came down only a fraction from his $1.7-million asking price and passed on the DeMarinises.
The couple, who own Nicky D's Wood-Fired Pizza in Silver Lake, have seen about 50 houses so far. They don't know where to vent their anger: lenders demanding higher down payments and less-favorable terms, talking heads distorting the market with oversimplifications or listing agents itching for bidding wars.
"You get out there and think you can grab something at a fantastic price, but that's not the case," Bunny DeMarinis said. "Each time we look at a house and see these inflated prices and our offer is rejected, we feel rejected too. We had an unrealistic portrait of what was really happening. It's disillusioning."
It's becoming a populist theme among potential local buyers and a contentious topic on websites devoted to the post-bubble market.
Real estate investor Burt Slusher said home shoppers should disregard the broad trends and focus instead on nuances and inventory in finely drawn areas.
Take the 40% jump in L.A. County home sales in March compared with a year earlier. In studying the data, Slusher said, he found that a large batch of those deals transpired in Palmdale, Compton, Inglewood and other communities that suffered as a result of "treacherous subprime mortgages."
People interested in properties in coveted niche markets such as Pasadena, Culver City and Santa Monica have read or heard too much about frenzied activity in the bottom of the market, he said, without comprehending that it held little relevance for them.
Slusher's advice is to muster patience, because he believes there's still an over-inventory of mid- and upper-priced properties that will drive overall prices down into 2011.
"Buyers hear about foreclosures and bank sales and a bad economy and think they can offer a beer price for a wine home," Slusher said. "But the market is not a homogenous place, where everything is the same."
In classic economics, buyers should have a decided advantage in neighborhoods in which supply dwarfs demand. Where there's typically a six-month inventory of houses for sale in coveted Beverly Hills, Pacific Palisades and West Hollywood, for instance, there's a year to two years' worth today, agent Christopher Hain said.
Hain has a theory about why all that supply hasn't translated into blocks full of delirious new homeowners. He calls it the "sucker syndrome," in which buyers are nervous about overbidding when nobody truly knows whether Southland home values have reached their bottom.
Said Slusher, "Nobody wants to be the sucker who paid too much, so they combat that fear by offering unrealistically low amounts. But if you're trying to time the bottom, you're going to end up with junk. It's always the best houses and cheapest houses that sell first."
More should be known about the market for more-expensive properties when "jumbo" loans -- ones exceeding $417,000 -- become available this summer, according to DataQuick. In a sign of how locked-up conditions are, jumbo loans represented 40% of all Southern California purchases in 2007. In March they accounted for 10% of the activity.
On a recent Sunday, an open house for a vintage 3,159-square-foot Craftsman near Occidental College in Eagle Rock drew 105 people in the first hour despite sweltering temperatures, a Lakers playoff game and a list price of $699,000. Never mind the hilly curb appeal or the aroma of freshly baked cookies that listing agent Tracy King baked. There was plenty of head-shaking among would-be buyers about the absence of bargains.
Jose Mares, 38, a Huntington Park police officer, said he'd been searching for eight years for a house. To him, the dark-shingled house needed too much renovation to justify the tab. He thinks he knows why it's priced where it is: There's not a glut of quality competition close by, and the owner and listing agent know their edge.
"Some want to charge $550,000 for a starter house," Mares said.
King, the agent, said she'd heard earfuls about that, and noted that this was not your father's housing crash. Today, everyone is savvier, able to analyze properties with a few keystrokes or see a street view using Google.
Instant information, though, also means fiercer competition and fewer hidden gems. As an example, King cited a 1,625-square-foot, midcentury-style fixer-upper in La Crescenta priced at $299,000. Forty people were standing on the front lawn within an hour of its listing, she said. Ultimately, there were 80 bids, 15 of them exceeding $400,000. The winning bid was $480,000.
"What I'm seeing is that perceived bargains are going in multiple offers for more than the asking, and buyers are very disappointed," King said. "Real estate is hyperlocal, so a [regional] $250,000 median price is meaningless here."
Predicting where values are headed is hardly a science either, no matter what the cable-TV experts or the galaxy of websites with every imaginable statistic say. For one thing, people selling costlier homes tend to have deep pockets buffering them from needing a fire sale to stay afloat. If they don't like the bids, they can pull their property off the market.
Banks are an even bigger X factor, and not just because of their stricter lending requirements and bailout havoc. USC real estate professor Tracey Seslen said she'd heard that lenders were carefully timing the release of homes they'd repossessed to avoid further flooding the market and driving prices down more. Those institutions also know that a fresh avalanche of foreclosures from people with resetting loans may be looming.
"So the banks are playing this game too," Seslen said. "They're keeping prices artificially high."
Rivero, the soon-to-be-married business-development exec, wishes that weren't so, and hopes his tenacity pays off.
"We've learned not to get our hopes up because it sets us up for heartbreak," he said. "What's driving me is that I actually want a house."
realestate@latimes.com
By Chip Jacobs
(Link to Article Download)
6:15 PM PDT, May 2, 2009
The confident smile Sam Rivero wore as he hunted for his first house had a lot to do with the buzz thumping in his ears. Ever since home values began sinking, pundits have touted the juicy opportunities for aspiring buyers priced out of the market before, and the young business-development executive heard that cue like a sonic boom.
Out he ventured into Mount Washington, Glassell Park, Eagle Rock, Montecito Heights and other desirable middle-class communities northeast of downtown Los Angeles, searching for a bargain in the $400,000 range. Candidates came and went, and Rivero, who is getting married, was upbeat. Considering the pulverized housing values, with the median price of a Southland home today -- $250,000 -- at half of its 2007 level, the properties should come gift-wrapped, right?
As the Glendale resident and his fiancee, a makeup artist for the television show "Entourage," discovered, the supposedly wondrous buyers' market seems more consumer myth than easy pickings.
They bid $50,000 over asking price for a "great" four-bedroom contemporary in Valley Village, only to lose out to one of the 16 other offers tendered, Rivero, 33, said. A North Hollywood house he had been eager to see attracted so many people walking around with sales fliers that he couldn't find parking and drove off from the "vultures" who got there first.
"Every open house I've been to has been a zoo," said Rivero, who has examined 35 properties during the last three months. "If you follow what the [general] media say, you'd think sellers are desperate to sell a house, but when you get there it's totally the opposite."
So what's going on?
Real estate brokers and investors say would-be buyers misunderstand how the drop in housing prices has affected desirable neighborhoods. Just because an abandoned house in a troubled part of San Bernardino County might be going for $200,000, it doesn't mean you can get a nice place in Sherman Oaks for that amount -- or even twice that amount.
House hunters are trying to pounce on deals from sellers they expected to be frantic -- if not curled in the fetal position. What they're finding instead are bidding wars as low interest rates and pent-up demand in traditionally stable or chic areas have kept prices up -- not as high as the market's peak, but not nearly as low as they had hoped.
"The biggest problem," said agent Phyllis Harb, "is that people are overreacting to housing statistics, thinking they can come in and make an offer 20% below price."
As sales figures and home buyers' anecdotes are underscoring, when the residential real estate bubble burst, it set off several distinct sprays that created false hopes and confusion.
Though nearly 20,000 homes in Southern California sold in March, a 52% jump from a year earlier, a sizable number of those transactions occurred in Riverside and San Bernardino counties, where foreclosures exploded. In the region overall, foreclosure sales accounted for 55% of March's deals.
Bank-owned or not, the cheaper properties are dominating the sellers' block in the notoriously expensive L.A. County real estate market. In March, 2,871 homes under $300,000 were sold compared with only 734 a year earlier, according to real estate information firm MDA DataQuick.
At the higher end, just 202 homes priced above $1.2 million changed hands last month, compared with 354 in March 2008.
Houses priced from $400,000 to $800,000 represented less than a quarter of the market in March, down from about 45%, meaning fewer offerings for would-be buyers in that mid-market or pickier sellers, according to DataQuick.
Mark down Nicky and Bunny DeMarinis as frustrated. They offered about $1 million for a 3,300-square-foot traditional in the Los Feliz area. Though it boasted a magnificent view, the house was an ode to passe, with cheesy frescoes, gold trimming and 1970s-era kitchen appliances, they said. For all the updating it required, the owner came down only a fraction from his $1.7-million asking price and passed on the DeMarinises.
The couple, who own Nicky D's Wood-Fired Pizza in Silver Lake, have seen about 50 houses so far. They don't know where to vent their anger: lenders demanding higher down payments and less-favorable terms, talking heads distorting the market with oversimplifications or listing agents itching for bidding wars.
"You get out there and think you can grab something at a fantastic price, but that's not the case," Bunny DeMarinis said. "Each time we look at a house and see these inflated prices and our offer is rejected, we feel rejected too. We had an unrealistic portrait of what was really happening. It's disillusioning."
It's becoming a populist theme among potential local buyers and a contentious topic on websites devoted to the post-bubble market.
Real estate investor Burt Slusher said home shoppers should disregard the broad trends and focus instead on nuances and inventory in finely drawn areas.
Take the 40% jump in L.A. County home sales in March compared with a year earlier. In studying the data, Slusher said, he found that a large batch of those deals transpired in Palmdale, Compton, Inglewood and other communities that suffered as a result of "treacherous subprime mortgages."
People interested in properties in coveted niche markets such as Pasadena, Culver City and Santa Monica have read or heard too much about frenzied activity in the bottom of the market, he said, without comprehending that it held little relevance for them.
Slusher's advice is to muster patience, because he believes there's still an over-inventory of mid- and upper-priced properties that will drive overall prices down into 2011.
"Buyers hear about foreclosures and bank sales and a bad economy and think they can offer a beer price for a wine home," Slusher said. "But the market is not a homogenous place, where everything is the same."
In classic economics, buyers should have a decided advantage in neighborhoods in which supply dwarfs demand. Where there's typically a six-month inventory of houses for sale in coveted Beverly Hills, Pacific Palisades and West Hollywood, for instance, there's a year to two years' worth today, agent Christopher Hain said.
Hain has a theory about why all that supply hasn't translated into blocks full of delirious new homeowners. He calls it the "sucker syndrome," in which buyers are nervous about overbidding when nobody truly knows whether Southland home values have reached their bottom.
Said Slusher, "Nobody wants to be the sucker who paid too much, so they combat that fear by offering unrealistically low amounts. But if you're trying to time the bottom, you're going to end up with junk. It's always the best houses and cheapest houses that sell first."
More should be known about the market for more-expensive properties when "jumbo" loans -- ones exceeding $417,000 -- become available this summer, according to DataQuick. In a sign of how locked-up conditions are, jumbo loans represented 40% of all Southern California purchases in 2007. In March they accounted for 10% of the activity.
On a recent Sunday, an open house for a vintage 3,159-square-foot Craftsman near Occidental College in Eagle Rock drew 105 people in the first hour despite sweltering temperatures, a Lakers playoff game and a list price of $699,000. Never mind the hilly curb appeal or the aroma of freshly baked cookies that listing agent Tracy King baked. There was plenty of head-shaking among would-be buyers about the absence of bargains.
Jose Mares, 38, a Huntington Park police officer, said he'd been searching for eight years for a house. To him, the dark-shingled house needed too much renovation to justify the tab. He thinks he knows why it's priced where it is: There's not a glut of quality competition close by, and the owner and listing agent know their edge.
"Some want to charge $550,000 for a starter house," Mares said.
King, the agent, said she'd heard earfuls about that, and noted that this was not your father's housing crash. Today, everyone is savvier, able to analyze properties with a few keystrokes or see a street view using Google.
Instant information, though, also means fiercer competition and fewer hidden gems. As an example, King cited a 1,625-square-foot, midcentury-style fixer-upper in La Crescenta priced at $299,000. Forty people were standing on the front lawn within an hour of its listing, she said. Ultimately, there were 80 bids, 15 of them exceeding $400,000. The winning bid was $480,000.
"What I'm seeing is that perceived bargains are going in multiple offers for more than the asking, and buyers are very disappointed," King said. "Real estate is hyperlocal, so a [regional] $250,000 median price is meaningless here."
Predicting where values are headed is hardly a science either, no matter what the cable-TV experts or the galaxy of websites with every imaginable statistic say. For one thing, people selling costlier homes tend to have deep pockets buffering them from needing a fire sale to stay afloat. If they don't like the bids, they can pull their property off the market.
Banks are an even bigger X factor, and not just because of their stricter lending requirements and bailout havoc. USC real estate professor Tracey Seslen said she'd heard that lenders were carefully timing the release of homes they'd repossessed to avoid further flooding the market and driving prices down more. Those institutions also know that a fresh avalanche of foreclosures from people with resetting loans may be looming.
"So the banks are playing this game too," Seslen said. "They're keeping prices artificially high."
Rivero, the soon-to-be-married business-development exec, wishes that weren't so, and hopes his tenacity pays off.
"We've learned not to get our hopes up because it sets us up for heartbreak," he said. "What's driving me is that I actually want a house."
realestate@latimes.com
Bank Foreclosure Sales: Differences and Risks between Auction and REO-sales
Hi Everyone!
A new client of mind found a home on Realtytrac.com the other day and emailed me to get more information and see if I could represent him. For those who don't know Realtytrac.com is not a listing portal, it is an information and public records database (that is somewhat deceptively presented as a homes listing website). Most of the homes on Realtytrac are not actual listings, but rather bank notices for Auctions. Traditional brokers do not work with Auctions because there is (1) too much liability, (2) No ways to protect clients with inspection and loan contingency periods, and (3) Auctions are not commissionable.
Below I will explain the difference between Auctions and the normal REO-foreclosure sales that we as realtors work with.
-Jerry
310-228-8856
A new client of mind found a home on Realtytrac.com the other day and emailed me to get more information and see if I could represent him. For those who don't know Realtytrac.com is not a listing portal, it is an information and public records database (that is somewhat deceptively presented as a homes listing website). Most of the homes on Realtytrac are not actual listings, but rather bank notices for Auctions. Traditional brokers do not work with Auctions because there is (1) too much liability, (2) No ways to protect clients with inspection and loan contingency periods, and (3) Auctions are not commissionable.
Below I will explain the difference between Auctions and the normal REO-foreclosure sales that we as realtors work with.
-Jerry
310-228-8856
What is RealtyTrac.com and how is it different than other Websites (i.e. Trulia, Zillow, etc)?
When RealtyTrac posts information about a home, it is an AUCTION. An auction means, the private owner still owns the home unto the day of the auction. The auction is most likely being scheduled by the bank without the private owner's consent (though legally, he likely must oblige) He can still get the property re-instated back up to this day. This happens quite often. For these properties, the extent I can help you is by pulling title and contact information. Because of liability, I’m not allowed to advise you beyond that.
The reason I warn people about spending too much time spinning there wheels about homes on Realtytrac is that the auction process is the most difficult and the most risky of all home purchases. You will compete with auction professionals in a very fast paced environment, and often you need all cash to purchase the homes.
Differences Between REO's and Auctions
In January, I discussed exactly what REO's (the ones realtors work with) are and how they are different than normal sales: http://newhomesla.blogspot.com/2009/01/buying-from-bank-vs-buying-from.htmlToday, I wanted to explain the differences that make Auctions so much more risky that REO's. They are not the same. REO's are homes that have been bought back by the bank and the bank is now selling. AUCTIONS are homes that are still owned by the trustee (private party) who is in default, and the trustor(bank) is now auctioning it off.
Hypothetically speaking, if you decided you wanted to start pursuing AUCTIONS, a popular way to do this would be to join a membership with a public information database such as RealtyTrac.com. However, please note, that websites like RealtyTrac have a reputation for deceptive practices and if you do a google search on “RealtyTrac” or “RealtyTrac Scam”, you will find a lot of information about this.
Once you found a property with Notice of Trustee Sale that you were interested in, you would call the trustee number and reference the corresponding order number. Usually there will be an automated line that will tell you (a) the status of the property and (b) The date, time and location of the auction.
On the day of the auction, you must show up with 10% cashier’s check for your purchase price. Keep in mind, this is a live auction, so you must bring increments for every increased bid you will be making. Without a 10% cashier’s check you will not get the property. The bidding begins at the minimum reserve price. The auction will likely be filled with professional investors and saavy auctionees, so don't expect it to be a walk in the park. If that price is not met, the bank buys and takes ownership.
You must bring the remaining 90% of the funds within a timeframe set by the auctioners - usually between 10 to 30 days. There is no contingency. You don't close on time, you lose your deposit and the property. For this reason, it is very important that if you bid on an auction property, it probably best if you have the ability to pay all cash just in case.
You should be aware that Auctions are the RISKIEST of all types of foreclosure purchases. There are no real estate agents to advise clients, just saavy auction investors. You won’t get a title report, inspections, contingencies, or guarantees that the seller can actually sell, that they are not bankrupt, that there aren’t liens on the home, or that the owner hasn’t wrecked the home (which you probably haven’t had access to see).
I found this article online, and if you're more interested in learning about the risks involved with each kind of purchase, feel free to check it out: http://www.creonline.com/money-ideas/mm-056.html
I don’t want to discourage you from pursuing an auction, but the risks are worth understanding.
Thursday, April 23, 2009
President Obama's First Time Home buyer $8000 Tax Credit Questions - ANSWERED!
Greetings!
As you know, one of the biggest benefits of buying a first home now is Obama's Tax Credit. Many of my clients have been asking me for details about this. The most common question I get is "Can I still get a credit if I make over $75,000?" Here are your answers.
-Jerry
310-228-8856
President Obama's $8000 Tax Credit to First Time Home Buyers for 2009
TABLE OF CONTENTS
I. Introduction
II. American Recovery and Reinvestment Act
A. First-Time Homebuyer Tax Credit (Questions 1 to 20)
B. FHA, FANNIE MAE, AND FREDDIE MAC Loan Limits (Questions 21 to 27)
C. Other Provisions of the Recovery Act (Question 28)
I. INTRODUCTION
It was a big week in February for the California REALTOR® who keeps watch over legislative change. On Tuesday, February 17, 2009, a $787 billion economic stimulus package became law, including several important housing stimulus provisions. The next day, President Barack Obama announced a $275 billion Homeowner Affordability and Stability Plan for restructuring and refinancing mortgage loans for at-risk homeowners. By Friday, February 20, 2009, California passed a state budget which also included new laws to stimulate housing.
The scale of the lawmakers’ efforts in these three laws is massive. Both the federal and California government have enacted unprecedented measures aimed at stimulating the housing market and protecting homeowners from foreclosure.
II. AMERICAN RECOVERY AND REINVESTMENT ACT
On February 17, 2009, President Barack Obama signed into law a $787 billion economic stimulus package. This enormous 1,071-page legislation is called the American Recovery and Reinvestment Act of 2009 (ARRA) (H.R.1). It includes $575 billion in government spending and $212 billion in tax cuts. It aims to, among other things, create and preserve millions of jobs, build infrastructures, redevelop communities, increase consumer spending, improve energy efficiency and science, invest in education, transportation, and health-care projects, and assist the unemployed.
A centerpiece of the Recovery Act is for the federal government to carry out the law in full transparency and accountability. To track the progress of the economic recovery under the Recovery Act, go to www.recovery.gov. This website also contains the full text of the Recovery Act.
The major housing stimulus provisions of the Recovery Act are, among other things, the first-time homebuyer tax credit (see Questions 1 to 20) and the increase in FHA, Fannie Mae, and Freddie Mac loan limits (see Questions 21 to 27). Although the primary thrust of the Recovery Act is stimulating employment not housing, the creation and preservation of jobs under the Recovery Act may help jumpstart the housing market. Job loss has caused homeowners to lose their homes in foreclosure and their neighborhoods to become distressed. Job loss and the mere fear of job loss have also hindered potential homebuyers from acquiring their piece of the American dream. Stimulating and stabilizing the employment sector can stimulate housing.
A. FIRST-TIME HOMEBUYER TAX CREDIT
Q 1. What, in a nutshell, is the $8,000 tax credit for first-time homebuyers under the new law?
A A first-time homebuyer as defined may receive a refundable tax credit up to $8,000 for purchasing a principal residence in the U.S. from January 1, 2009 to November 30, 2009, inclusive (see Questions 5 to 16). No repayment is required if the buyer owns and occupies the property for 36 months (see Question 17). This new law enhances the preexisting $7,500 tax credit enacted in 2008 which still applies for purchases from April 9, 2008 to December 31, 2008 (see Questions 18 and 19).
Q 2. How will the new $8,000 tax credit affect REALTORS® and their clients?
A The new $8,000 tax credit provides a monetary incentive for first-time homebuyers to purchase homes. First time homebuyers represent a significant segment of U.S. homebuyers. According to the U.S. Department of the Treasury, nearly half of the homebuyers in 2008 were first-time homebuyers. Hence, the new tax credit for first-time homebuyers, along with affordable home prices and historically low mortgage rates, should help spur the housing market.
Q 3. What is a tax credit?
A A tax credit is a dollar-for-dollar reduction of tax owed. In contrast to a tax credit, a tax deduction is merely a reduction of taxable income. Hence, a tax credit is generally more valuable to the taxpayer than a tax deduction. To illustrate, an $8,000 tax deduction for a taxpayer in a 25% tax bracket would only save the taxpayer $2,000 in taxes, whereas an $8,000 tax credit would save the taxpayer $8,000 in taxes.
Q 4. What is the significance of a “refundable” tax credit?
A That a tax credit is “refundable” means that any credit amount not used to reduce the tax owed may be added to the taxpayer’s tax refund check. In other words, a taxpayer may receive a tax credit even if he or she has no tax liability to offset that credit.
As an example, let’s say a taxpayer filing his tax returns on April 15 would have owed $2,000 to the IRS. If the taxpayer can now claim an $8,000 refundable tax credit, he can expect to receive a refund check from the IRS for $6,000.
Q 5. Who is eligible as a “first-time homebuyer” for the $8,000 tax credit?
A For purposes of the $8,000 tax credit, a “first-time homebuyer” is defined as any individual (or spouse) with no present ownership interest in a principal residence during the 3-year period ending on the date of the purchase of the principal residence to which the tax credit applies (26 U.S.C. § 36(c)(1)). For income restrictions, see Question 9.
As an example, an unmarried buyer who closes escrow on a purchase on June 30, 2009, would qualify as a “first-time homebuyer” as long as the buyer did not own a principal residence during the period from July 1, 2006 to June 30, 2009. Even if the taxpayer owned another principal residence in the past, he or she can still qualify as a “first-time homebuyer” as long as the taxpayer transferred off title to that other home over three years ago.
Q 6. What constitutes a “principal residence” under the $8,000 tax credit?
A A “principal residence” is generally the home the taxpayer lives in most of the time (26 U.S.C. § 121). It can be a house, condominium, townhome, manufactured home, or similar type of property located in the U.S. To qualify for the federal $8,000 tax credit, the property can be new construction or a resale. It cannot, however, be a vacation home or rental property.
Q 7. What constitutes a “purchase” to be eligible for the $8,000 tax credit?
A A “purchase” for purposes of this tax credit is defined as any acquisition, except as set forth in Question 15 (26 U.S.C. § 36(c)(3)). For a home that the taxpayer constructs, the purchase date is the date the taxpayer first occupies the home (26 U.S.C. § 36(c)(3)(B)).
Because a purchase is defined as an acquisition, it generally occurs when escrow closes and title to the property transfers to the buyer, and not when the underlying purchase contract is signed. To illustrate, a buyer who enters into a contract to purchase a property on November 13, 2009, but closes escrow on December 23, 2009, would not qualify for the $8,000 tax credit because, based on the law as it is currently written, acquisition does not occur before the law expires on November 30, 2009.
Q 8. How is the amount of the tax credit calculated?
A The maximum tax credit for an individual first-time homebuyer is 10 percent of the purchase price, not to exceed $8,000 (26 U.S.C. § 36(b)(1)(A)). For married individuals filing separate tax returns, the tax credit is capped at $4,000 (26 U.S.C. § 36(b)(1)(B)).
For a purchase price over $80,000, as is often the case in California, the first-time homebuyer tax credit will be capped off at $8,000. “Purchase price” under this law is defined as the adjusted basis of the principal residence on the date such residence is purchased (26 U.S.C. § 36(c)(4)).
Q 9. Is there an income restriction to be eligible for the $8,000 tax credit?
A Yes. The first-time homebuyer tax credit may be restricted by the taxpayer’s income. The tax credit starts to phase out for an individual taxpayer with a modified adjusted gross income from $75,001 to $95,000 (or $150,001 to $170,000 for joint filers). The tax credit is eliminated entirely if an individual’s modified adjusted gross income is over $95,000 (or $170,000 for joint filers). (26 U.S.C. § 36(b)(2).)
Q 10. What is a modified adjusted gross income?
A First, a modified adjusted gross income or MAGI is a taxpayer’s adjusted gross income (AGI) plus certain items, such as IRA deductions, student loan deductions, higher education costs, foreign income, and foreign housing deductions, among other things. Second, an adjusted gross income (AGI) is a taxpayer’s gross income minus certain deductions, which are often called “above the line” deductions. Most tax deductions are “above the line” deductions, except itemized deductions from Schedule A and personal exemptions.
Q 11. When must a first-time homebuyer purchase a property to qualify for the $8,000 tax credit?
A To be eligible for the $8,000 tax credit, a first-time homebuyer must purchase a principal residence from January 1, 2009 to November 30, 2009, inclusive (26 U.S.C. § 36(f) and (h)). The deadline is November 30, 2009, and not December 31, 2009. That the deadline is not at the end of the year may work as a trap for unwary buyers.
For the first-time homebuyer tax credit for acquisitions from April 9, 2008 to December 31, 2008, see Question 18.
Q 12. When can a taxpayer claim the $8,000 tax credit?
A According to an IRS announcement on February 25, 2009, first-time homebuyers who qualify for the $8,000 tax credit by purchasing a home before December 1, 2009 have a special option of claiming the tax credit on either their 2008 or 2009 tax returns (IR 2009 14).
Q 13. Does a married person qualify for the $8,000 tax credit if his or her spouse has owned a principal residence in the last three years?
A No. For a married taxpayer to qualify for the $8,000 tax credit, both spouses must be “first-time homebuyers” as defined in Question 5. In other words, neither spouse qualifies for the $8,000 tax credit unless both of them have not owned a principal residence over the last three years.
Q 14. Are two unmarried individuals both eligible for the first-time homebuyer tax credit if they buy a house together?
A Yes. Two or more unmarried individuals can buy a principal residence together, but the maximum tax credit for all of them is only $8,000. If all co-owners qualify as first-time homebuyers, they must allocate the $8,000 tax credit between themselves in any reasonable manner. According to the IRS, a reasonable method is any method that does not allocate all or a part of the credit to a co-owner who is not eligible to claim that part of the credit (see IRS Form 5405).
Q 15. Who cannot claim the first-time homebuyer tax credit?
A The first-time homebuyer tax credit is not allowed under any of the following circumstances:
• The property is acquired from a related person as defined (26 U.S.C. § 36(c)(3)(A)) (see Question 16);
• The property is acquired by gift or inheritance (26 U.S.C. § 36(c)(3)(A));
• The buyer is a nonresident alien (26 U.S.C. § 36(d)(1)); or
• The buyer disposes of the property (or the property ceases to be the principal residence of the buyer and, if married, the buyer’s spouse) before the end of such taxable year (26 U.S.C. § 36(d)(2)).
Q 16. What acquisitions from related persons do not qualify for the first-time homebuyer tax credit?
A A buyer is ineligible for the first-time homebuyer tax credit if the property is acquired from certain related persons, including, but not limited to, the following:
• The buyer’s spouse, ancestors (such as parents and grandparents), or lineal descendants (such as children or grandchildren);
• A corporation in which the buyer owns more than 50% of the outstanding stock; or
• A partnership in which the buyer owns more than 50% interest.
(26 U.S.C. § 36(c)(3)(A) (citing §§ 267 and 707).)
Q 17. Is a first-time homebuyer required to repay the $8,000 tax credit?
A No, the tax credit need not be repaid if the buyer owns and occupies the property for at least 36 months. If, however, the buyer disposes of the property or it ceases to be the buyer’s principal residence within 36 months of purchase, the buyer may be required to repay the tax credit (26 U.S.C. § 36(f)(4)). This includes situations where the buyer sells the home, converts it into a rental property or business, or the home is destroyed, condemned, or disposed of under threat of condemnation. In these situations, the tax credit must generally be repaid by including it as additional tax for the year the home ceases to be the buyer’s principal residence (26 U.S.C. § 36(f)(4)(D)).
Q 18. What is the $7,500 first-time homebuyer tax credit for a principal residence purchased in 2008?
A With certain exceptions, a first-time homebuyer may receive a 10% tax credit not to exceed $7,500 for purchasing a principal residence from April 9, 2008 to December 31, 2008 (26 U.S.C. § 36(a) and (b)). This tax credit was enacted as part of the federal Housing and Economic Recovery Act of 2008. As with the $8,000 tax credit discussed above, the $7,500 tax credit phases out if an individual’s modified adjusted gross income exceeds $75,000 (or $150,000 for joint filers) (26 U.S.C. § 36(b)(2)). The $7,500 tax credit phases out completely if an individual’s modified adjusted gross income exceeds $95,000 (or 170,000 for joint filers) (26 U.S.C. § 36(b)(2)).
The $7,500 tax credit must generally be repaid like an interest-free loan in equal annual installments over a 15-year period, or in full if the homebuyer sells the property for a gain (26 U.S.C. § 36(f)). For example, to repay a $7,500 tax credit for 2008, about $500 should be added to the buyer’s income tax liability every year for 15 years starting 2010.
Q 19. What are the major differences between the new $8,000 tax credit and the previous $7,500 tax credit?
A The $8,000 tax credit is $500 more and applicable to first-time homebuyers who purchase a principal residence from January 1, 2009 to November 30, 2009. The $8,000 tax credit need not be repaid if the buyer stays in the property for 36 months.
On the other hand, the $7,500 tax credit applies to first-time homebuyers who purchased a principal residence from April 9, 2008 to December 31, 2008. The $7,500 tax credit must generally be repaid over 15 years.
Q 20. How does a first-time homebuyer apply for the tax credit?
A A first-time buyer may claim the tax credit on their federal tax returns using IRS Form 5405, which is available at http://www.irs.gov/pub/irs-pdf/f5405.pdf.
B. FHA, FANNIE MAE, AND FREDDIE MAC LOAN LIMITS
Q 21. What are the loan limits under the Recovery Act?
A The Recovery Act has increased the maximum conforming loan limit from $625,500 to $729,750 for FHA, Fannie Mae and Freddie Mac loans. These higher loan limits are intended to ease the mortgage crisis of the late 2000s by helping homeowners and homebuyers get more affordable mortgage loans.
As background, the $729,750 loan limit was originally established in 2008, but dropped down to $625,500 on January 1, 2009. The new law reinstates the conforming loan limit to 125% of the 2008 local area median home price, not to exceed $729,750.
Q 22. What are the FHA loan limits in California?
A The new FHA loan limit is 125% of the 2008 local area median home price or $271,050, whichever is greater, but not to exceed $729,750 for one-unit properties. The higher FHA loan limit will assist REALTORS® and their clients to obtain safe mortgage loans with fixed interest rates, low down payment requirements, and other affordable terms.
Counties in California at the maximum FHA loan limit of $729,750 are Alameda, Contra Costa, Los Angeles, Marin, Monterey, Napa, Orange, San Benito, San Francisco, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, and Ventura. The FHA loan limits for the other counties in California range from $271,050 to $679,500. For FHA’s Mortgage Limits List, go to https://entp.hud.gov/idapp/html/hicost1.cfm.
The Secretary of the Department of Housing and Urban Development (HUD) has the discretionary authority to increase the FHA loan limit for any sub-area smaller than a county if the median home price in that sub-area warrants a higher loan limit.
Q 23. Which loans qualify for the new FHA loan limits?
A The new FHA loan limits apply to loans for which credit is approved for the borrower in the calendar year 2009 (until December 31, 2009).
Q 24. Where can I obtain more information about FHA loans?
A For more information about FHA loans, go to HUD’s website at http://www.hud.gov/fha/choosefha.cfm or the FHA’s website at http://portal.hud.gov/portal/page?_pageid=73,1&_dad=portal&_schema=PORTAL.
Q 25. What are the Fannie Mae and Freddie Mac loan limits in California?
A The new Fannie Mae and Freddie Mac conforming loan limit is 125% of the median home price or $417,000, whichever is greater, but not to exceed $729,750. Counties in California that are at the maximum loan limit of $729,750 are Alameda, Contra Costa, Los Angeles, Marin, Monterey, Napa, Orange, San Benito, San Francisco, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, and Ventura. The loan limits for the other counties in California range from $417,000 to $679,500.
For more information about Fannie Mae and Freddie Mac, including lookup tables for the loan limits for specific counties and high-cost areas in California, go to the website of the Office of Federal Housing Enterprise Oversight at http://www.ofheo.gov/regulations.aspx?nav=128.
The director of the Federal Housing Finance Agency (FHFA) has the discretionary authority to increase the Fannie Mae or Freddie Mac loan limit for any sub-area smaller than a county if the median home price in that sub-area warrants a higher loan limit.
Q 26. Which loans qualify for the new Fannie Mae and Freddie Mac loan limits?
A The new Fannie Mae and Freddie Mac loan limits apply to all loans originated in 2009. They also apply to loans purchased in 2009 that were originated from July 1, 2007 through December 31, 2008.
Q 27. Where can I obtain more information about Fannie Mae and Freddie Mac loans?
A For more information about Fannie Mae and Freddie Mac, go to the website of the Federal Housing Finance Agency at http://www.fhfa.gov/. Fannie Mae’s website is http://www.fanniemae.com/index.jhtml. Freddie Mac’s website is http://www.freddiemac.com/.
C. OTHER PROVISIONS OF THE RECOVERY ACT
Q 28. What are the other housing stimulus provisions or provisions of interest in the Recovery Act?
A A brief summary of some of the remaining provisions of the Recovery Act that stimulate housing or may otherwise be of interest to REALTORS® are as follows:
• Making Work Pay Credit: Both wage earners and self-employed workers will receive a work credit of 6.2% of earned income or $400, whichever is less, for individuals earning up to $75,000 (or $800 for married couples earning up to $150,000). Wage earners will generally receive about $8 to $13 per week more on their paychecks as a result of a reduction in their FICA withholdings. Self employed workers can receive this work credit by claiming it on their tax returns. This program ends on December 31, 2010.
• Neighborhood Stabilization Program: $2 billion will be added to the Neighborhood Stabilization Program. This program provides funds to state and local governments for stabilizing and reviving distressed neighborhoods, rehabilitating affordable housing, improving public facilities, and other community development efforts.
• Net Operating Loss Carryback for Businesses: This provision allows eligible businesses with a net operating loss for 2008 to carry back the loss to offset profits earned over the past 5 years.
• Bonus Depreciation for Businesses: This provision allows businesses to deduct a 50% first-year bonus depreciation for new equipment purchased in 2009.
• Vehicle Sales Tax Deduction: Taxpayers may deduct state, local, and excises taxes on the purchase of a new car, light truck, or other vehicles in 2009 for individuals earning less than $150,000 (or $250,000 for joint filers). The deduction cannot exceed the tax for the first $49,500 of the vehicle’s purchase price.
• Energy-Efficient Homes and Buildings: Clean-energy provisions include $16 billion to make homes and buildings more energy efficient, such as a 30% tax credit to homeowners who purchase new furnaces, windows, and insulation.
• Rural Housing Service: $500 million will be used to fund federal loan programs for rural housing.
• Lead Hazard Reduction: About $100 million has been allocated for HUD’s lead based paint and hazard reduction and remediation activities.
• Section 8 Assistance: $2 billion will be used to fund Section 8 project-based housing contracts for 12 months.
• Emergency Shelter for Homeless: $1.5 billion has been earmarked to help homeless persons and families in shelters.
Readers who require specific advice should consult an attorney. C.A.R. members requiring legal assistance may contact C.A.R.'s Member Legal Hotline at (213) 739 8282, Monday through Friday, 9:00 a.m. to 6:00 p.m. C.A.R. members who are broker-owners, office managers, or Designated REALTORS® may contact the Member Legal Hotline at (213) 739 8350 to receive expedited service. Members may also fax or e-mail inquiries to the Member Legal Hotline at 213.480.7724 or legal_hotline@car.org. Written correspondence should be addressed to:
CALIFORNIA ASSOCIATION OF REALTORS®
Member Legal Services
525 South Virgil Avenue
Los Angeles, California 90020
As you know, one of the biggest benefits of buying a first home now is Obama's Tax Credit. Many of my clients have been asking me for details about this. The most common question I get is "Can I still get a credit if I make over $75,000?" Here are your answers.
-Jerry
310-228-8856
President Obama's $8000 Tax Credit to First Time Home Buyers for 2009
TABLE OF CONTENTS
I. Introduction
II. American Recovery and Reinvestment Act
A. First-Time Homebuyer Tax Credit (Questions 1 to 20)
B. FHA, FANNIE MAE, AND FREDDIE MAC Loan Limits (Questions 21 to 27)
C. Other Provisions of the Recovery Act (Question 28)
I. INTRODUCTION
It was a big week in February for the California REALTOR® who keeps watch over legislative change. On Tuesday, February 17, 2009, a $787 billion economic stimulus package became law, including several important housing stimulus provisions. The next day, President Barack Obama announced a $275 billion Homeowner Affordability and Stability Plan for restructuring and refinancing mortgage loans for at-risk homeowners. By Friday, February 20, 2009, California passed a state budget which also included new laws to stimulate housing.
The scale of the lawmakers’ efforts in these three laws is massive. Both the federal and California government have enacted unprecedented measures aimed at stimulating the housing market and protecting homeowners from foreclosure.
II. AMERICAN RECOVERY AND REINVESTMENT ACT
On February 17, 2009, President Barack Obama signed into law a $787 billion economic stimulus package. This enormous 1,071-page legislation is called the American Recovery and Reinvestment Act of 2009 (ARRA) (H.R.1). It includes $575 billion in government spending and $212 billion in tax cuts. It aims to, among other things, create and preserve millions of jobs, build infrastructures, redevelop communities, increase consumer spending, improve energy efficiency and science, invest in education, transportation, and health-care projects, and assist the unemployed.
A centerpiece of the Recovery Act is for the federal government to carry out the law in full transparency and accountability. To track the progress of the economic recovery under the Recovery Act, go to www.recovery.gov. This website also contains the full text of the Recovery Act.
The major housing stimulus provisions of the Recovery Act are, among other things, the first-time homebuyer tax credit (see Questions 1 to 20) and the increase in FHA, Fannie Mae, and Freddie Mac loan limits (see Questions 21 to 27). Although the primary thrust of the Recovery Act is stimulating employment not housing, the creation and preservation of jobs under the Recovery Act may help jumpstart the housing market. Job loss has caused homeowners to lose their homes in foreclosure and their neighborhoods to become distressed. Job loss and the mere fear of job loss have also hindered potential homebuyers from acquiring their piece of the American dream. Stimulating and stabilizing the employment sector can stimulate housing.
A. FIRST-TIME HOMEBUYER TAX CREDIT
Q 1. What, in a nutshell, is the $8,000 tax credit for first-time homebuyers under the new law?
A A first-time homebuyer as defined may receive a refundable tax credit up to $8,000 for purchasing a principal residence in the U.S. from January 1, 2009 to November 30, 2009, inclusive (see Questions 5 to 16). No repayment is required if the buyer owns and occupies the property for 36 months (see Question 17). This new law enhances the preexisting $7,500 tax credit enacted in 2008 which still applies for purchases from April 9, 2008 to December 31, 2008 (see Questions 18 and 19).
Q 2. How will the new $8,000 tax credit affect REALTORS® and their clients?
A The new $8,000 tax credit provides a monetary incentive for first-time homebuyers to purchase homes. First time homebuyers represent a significant segment of U.S. homebuyers. According to the U.S. Department of the Treasury, nearly half of the homebuyers in 2008 were first-time homebuyers. Hence, the new tax credit for first-time homebuyers, along with affordable home prices and historically low mortgage rates, should help spur the housing market.
Q 3. What is a tax credit?
A A tax credit is a dollar-for-dollar reduction of tax owed. In contrast to a tax credit, a tax deduction is merely a reduction of taxable income. Hence, a tax credit is generally more valuable to the taxpayer than a tax deduction. To illustrate, an $8,000 tax deduction for a taxpayer in a 25% tax bracket would only save the taxpayer $2,000 in taxes, whereas an $8,000 tax credit would save the taxpayer $8,000 in taxes.
Q 4. What is the significance of a “refundable” tax credit?
A That a tax credit is “refundable” means that any credit amount not used to reduce the tax owed may be added to the taxpayer’s tax refund check. In other words, a taxpayer may receive a tax credit even if he or she has no tax liability to offset that credit.
As an example, let’s say a taxpayer filing his tax returns on April 15 would have owed $2,000 to the IRS. If the taxpayer can now claim an $8,000 refundable tax credit, he can expect to receive a refund check from the IRS for $6,000.
Q 5. Who is eligible as a “first-time homebuyer” for the $8,000 tax credit?
A For purposes of the $8,000 tax credit, a “first-time homebuyer” is defined as any individual (or spouse) with no present ownership interest in a principal residence during the 3-year period ending on the date of the purchase of the principal residence to which the tax credit applies (26 U.S.C. § 36(c)(1)). For income restrictions, see Question 9.
As an example, an unmarried buyer who closes escrow on a purchase on June 30, 2009, would qualify as a “first-time homebuyer” as long as the buyer did not own a principal residence during the period from July 1, 2006 to June 30, 2009. Even if the taxpayer owned another principal residence in the past, he or she can still qualify as a “first-time homebuyer” as long as the taxpayer transferred off title to that other home over three years ago.
Q 6. What constitutes a “principal residence” under the $8,000 tax credit?
A A “principal residence” is generally the home the taxpayer lives in most of the time (26 U.S.C. § 121). It can be a house, condominium, townhome, manufactured home, or similar type of property located in the U.S. To qualify for the federal $8,000 tax credit, the property can be new construction or a resale. It cannot, however, be a vacation home or rental property.
Q 7. What constitutes a “purchase” to be eligible for the $8,000 tax credit?
A A “purchase” for purposes of this tax credit is defined as any acquisition, except as set forth in Question 15 (26 U.S.C. § 36(c)(3)). For a home that the taxpayer constructs, the purchase date is the date the taxpayer first occupies the home (26 U.S.C. § 36(c)(3)(B)).
Because a purchase is defined as an acquisition, it generally occurs when escrow closes and title to the property transfers to the buyer, and not when the underlying purchase contract is signed. To illustrate, a buyer who enters into a contract to purchase a property on November 13, 2009, but closes escrow on December 23, 2009, would not qualify for the $8,000 tax credit because, based on the law as it is currently written, acquisition does not occur before the law expires on November 30, 2009.
Q 8. How is the amount of the tax credit calculated?
A The maximum tax credit for an individual first-time homebuyer is 10 percent of the purchase price, not to exceed $8,000 (26 U.S.C. § 36(b)(1)(A)). For married individuals filing separate tax returns, the tax credit is capped at $4,000 (26 U.S.C. § 36(b)(1)(B)).
For a purchase price over $80,000, as is often the case in California, the first-time homebuyer tax credit will be capped off at $8,000. “Purchase price” under this law is defined as the adjusted basis of the principal residence on the date such residence is purchased (26 U.S.C. § 36(c)(4)).
Q 9. Is there an income restriction to be eligible for the $8,000 tax credit?
A Yes. The first-time homebuyer tax credit may be restricted by the taxpayer’s income. The tax credit starts to phase out for an individual taxpayer with a modified adjusted gross income from $75,001 to $95,000 (or $150,001 to $170,000 for joint filers). The tax credit is eliminated entirely if an individual’s modified adjusted gross income is over $95,000 (or $170,000 for joint filers). (26 U.S.C. § 36(b)(2).)
Q 10. What is a modified adjusted gross income?
A First, a modified adjusted gross income or MAGI is a taxpayer’s adjusted gross income (AGI) plus certain items, such as IRA deductions, student loan deductions, higher education costs, foreign income, and foreign housing deductions, among other things. Second, an adjusted gross income (AGI) is a taxpayer’s gross income minus certain deductions, which are often called “above the line” deductions. Most tax deductions are “above the line” deductions, except itemized deductions from Schedule A and personal exemptions.
Q 11. When must a first-time homebuyer purchase a property to qualify for the $8,000 tax credit?
A To be eligible for the $8,000 tax credit, a first-time homebuyer must purchase a principal residence from January 1, 2009 to November 30, 2009, inclusive (26 U.S.C. § 36(f) and (h)). The deadline is November 30, 2009, and not December 31, 2009. That the deadline is not at the end of the year may work as a trap for unwary buyers.
For the first-time homebuyer tax credit for acquisitions from April 9, 2008 to December 31, 2008, see Question 18.
Q 12. When can a taxpayer claim the $8,000 tax credit?
A According to an IRS announcement on February 25, 2009, first-time homebuyers who qualify for the $8,000 tax credit by purchasing a home before December 1, 2009 have a special option of claiming the tax credit on either their 2008 or 2009 tax returns (IR 2009 14).
Q 13. Does a married person qualify for the $8,000 tax credit if his or her spouse has owned a principal residence in the last three years?
A No. For a married taxpayer to qualify for the $8,000 tax credit, both spouses must be “first-time homebuyers” as defined in Question 5. In other words, neither spouse qualifies for the $8,000 tax credit unless both of them have not owned a principal residence over the last three years.
Q 14. Are two unmarried individuals both eligible for the first-time homebuyer tax credit if they buy a house together?
A Yes. Two or more unmarried individuals can buy a principal residence together, but the maximum tax credit for all of them is only $8,000. If all co-owners qualify as first-time homebuyers, they must allocate the $8,000 tax credit between themselves in any reasonable manner. According to the IRS, a reasonable method is any method that does not allocate all or a part of the credit to a co-owner who is not eligible to claim that part of the credit (see IRS Form 5405).
Q 15. Who cannot claim the first-time homebuyer tax credit?
A The first-time homebuyer tax credit is not allowed under any of the following circumstances:
• The property is acquired from a related person as defined (26 U.S.C. § 36(c)(3)(A)) (see Question 16);
• The property is acquired by gift or inheritance (26 U.S.C. § 36(c)(3)(A));
• The buyer is a nonresident alien (26 U.S.C. § 36(d)(1)); or
• The buyer disposes of the property (or the property ceases to be the principal residence of the buyer and, if married, the buyer’s spouse) before the end of such taxable year (26 U.S.C. § 36(d)(2)).
Q 16. What acquisitions from related persons do not qualify for the first-time homebuyer tax credit?
A A buyer is ineligible for the first-time homebuyer tax credit if the property is acquired from certain related persons, including, but not limited to, the following:
• The buyer’s spouse, ancestors (such as parents and grandparents), or lineal descendants (such as children or grandchildren);
• A corporation in which the buyer owns more than 50% of the outstanding stock; or
• A partnership in which the buyer owns more than 50% interest.
(26 U.S.C. § 36(c)(3)(A) (citing §§ 267 and 707).)
Q 17. Is a first-time homebuyer required to repay the $8,000 tax credit?
A No, the tax credit need not be repaid if the buyer owns and occupies the property for at least 36 months. If, however, the buyer disposes of the property or it ceases to be the buyer’s principal residence within 36 months of purchase, the buyer may be required to repay the tax credit (26 U.S.C. § 36(f)(4)). This includes situations where the buyer sells the home, converts it into a rental property or business, or the home is destroyed, condemned, or disposed of under threat of condemnation. In these situations, the tax credit must generally be repaid by including it as additional tax for the year the home ceases to be the buyer’s principal residence (26 U.S.C. § 36(f)(4)(D)).
Q 18. What is the $7,500 first-time homebuyer tax credit for a principal residence purchased in 2008?
A With certain exceptions, a first-time homebuyer may receive a 10% tax credit not to exceed $7,500 for purchasing a principal residence from April 9, 2008 to December 31, 2008 (26 U.S.C. § 36(a) and (b)). This tax credit was enacted as part of the federal Housing and Economic Recovery Act of 2008. As with the $8,000 tax credit discussed above, the $7,500 tax credit phases out if an individual’s modified adjusted gross income exceeds $75,000 (or $150,000 for joint filers) (26 U.S.C. § 36(b)(2)). The $7,500 tax credit phases out completely if an individual’s modified adjusted gross income exceeds $95,000 (or 170,000 for joint filers) (26 U.S.C. § 36(b)(2)).
The $7,500 tax credit must generally be repaid like an interest-free loan in equal annual installments over a 15-year period, or in full if the homebuyer sells the property for a gain (26 U.S.C. § 36(f)). For example, to repay a $7,500 tax credit for 2008, about $500 should be added to the buyer’s income tax liability every year for 15 years starting 2010.
Q 19. What are the major differences between the new $8,000 tax credit and the previous $7,500 tax credit?
A The $8,000 tax credit is $500 more and applicable to first-time homebuyers who purchase a principal residence from January 1, 2009 to November 30, 2009. The $8,000 tax credit need not be repaid if the buyer stays in the property for 36 months.
On the other hand, the $7,500 tax credit applies to first-time homebuyers who purchased a principal residence from April 9, 2008 to December 31, 2008. The $7,500 tax credit must generally be repaid over 15 years.
Q 20. How does a first-time homebuyer apply for the tax credit?
A A first-time buyer may claim the tax credit on their federal tax returns using IRS Form 5405, which is available at http://www.irs.gov/pub/irs-pdf/f5405.pdf.
B. FHA, FANNIE MAE, AND FREDDIE MAC LOAN LIMITS
Q 21. What are the loan limits under the Recovery Act?
A The Recovery Act has increased the maximum conforming loan limit from $625,500 to $729,750 for FHA, Fannie Mae and Freddie Mac loans. These higher loan limits are intended to ease the mortgage crisis of the late 2000s by helping homeowners and homebuyers get more affordable mortgage loans.
As background, the $729,750 loan limit was originally established in 2008, but dropped down to $625,500 on January 1, 2009. The new law reinstates the conforming loan limit to 125% of the 2008 local area median home price, not to exceed $729,750.
Q 22. What are the FHA loan limits in California?
A The new FHA loan limit is 125% of the 2008 local area median home price or $271,050, whichever is greater, but not to exceed $729,750 for one-unit properties. The higher FHA loan limit will assist REALTORS® and their clients to obtain safe mortgage loans with fixed interest rates, low down payment requirements, and other affordable terms.
Counties in California at the maximum FHA loan limit of $729,750 are Alameda, Contra Costa, Los Angeles, Marin, Monterey, Napa, Orange, San Benito, San Francisco, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, and Ventura. The FHA loan limits for the other counties in California range from $271,050 to $679,500. For FHA’s Mortgage Limits List, go to https://entp.hud.gov/idapp/html/hicost1.cfm.
The Secretary of the Department of Housing and Urban Development (HUD) has the discretionary authority to increase the FHA loan limit for any sub-area smaller than a county if the median home price in that sub-area warrants a higher loan limit.
Q 23. Which loans qualify for the new FHA loan limits?
A The new FHA loan limits apply to loans for which credit is approved for the borrower in the calendar year 2009 (until December 31, 2009).
Q 24. Where can I obtain more information about FHA loans?
A For more information about FHA loans, go to HUD’s website at http://www.hud.gov/fha/choosefha.cfm or the FHA’s website at http://portal.hud.gov/portal/page?_pageid=73,1&_dad=portal&_schema=PORTAL.
Q 25. What are the Fannie Mae and Freddie Mac loan limits in California?
A The new Fannie Mae and Freddie Mac conforming loan limit is 125% of the median home price or $417,000, whichever is greater, but not to exceed $729,750. Counties in California that are at the maximum loan limit of $729,750 are Alameda, Contra Costa, Los Angeles, Marin, Monterey, Napa, Orange, San Benito, San Francisco, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, and Ventura. The loan limits for the other counties in California range from $417,000 to $679,500.
For more information about Fannie Mae and Freddie Mac, including lookup tables for the loan limits for specific counties and high-cost areas in California, go to the website of the Office of Federal Housing Enterprise Oversight at http://www.ofheo.gov/regulations.aspx?nav=128.
The director of the Federal Housing Finance Agency (FHFA) has the discretionary authority to increase the Fannie Mae or Freddie Mac loan limit for any sub-area smaller than a county if the median home price in that sub-area warrants a higher loan limit.
Q 26. Which loans qualify for the new Fannie Mae and Freddie Mac loan limits?
A The new Fannie Mae and Freddie Mac loan limits apply to all loans originated in 2009. They also apply to loans purchased in 2009 that were originated from July 1, 2007 through December 31, 2008.
Q 27. Where can I obtain more information about Fannie Mae and Freddie Mac loans?
A For more information about Fannie Mae and Freddie Mac, go to the website of the Federal Housing Finance Agency at http://www.fhfa.gov/. Fannie Mae’s website is http://www.fanniemae.com/index.jhtml. Freddie Mac’s website is http://www.freddiemac.com/.
C. OTHER PROVISIONS OF THE RECOVERY ACT
Q 28. What are the other housing stimulus provisions or provisions of interest in the Recovery Act?
A A brief summary of some of the remaining provisions of the Recovery Act that stimulate housing or may otherwise be of interest to REALTORS® are as follows:
• Making Work Pay Credit: Both wage earners and self-employed workers will receive a work credit of 6.2% of earned income or $400, whichever is less, for individuals earning up to $75,000 (or $800 for married couples earning up to $150,000). Wage earners will generally receive about $8 to $13 per week more on their paychecks as a result of a reduction in their FICA withholdings. Self employed workers can receive this work credit by claiming it on their tax returns. This program ends on December 31, 2010.
• Neighborhood Stabilization Program: $2 billion will be added to the Neighborhood Stabilization Program. This program provides funds to state and local governments for stabilizing and reviving distressed neighborhoods, rehabilitating affordable housing, improving public facilities, and other community development efforts.
• Net Operating Loss Carryback for Businesses: This provision allows eligible businesses with a net operating loss for 2008 to carry back the loss to offset profits earned over the past 5 years.
• Bonus Depreciation for Businesses: This provision allows businesses to deduct a 50% first-year bonus depreciation for new equipment purchased in 2009.
• Vehicle Sales Tax Deduction: Taxpayers may deduct state, local, and excises taxes on the purchase of a new car, light truck, or other vehicles in 2009 for individuals earning less than $150,000 (or $250,000 for joint filers). The deduction cannot exceed the tax for the first $49,500 of the vehicle’s purchase price.
• Energy-Efficient Homes and Buildings: Clean-energy provisions include $16 billion to make homes and buildings more energy efficient, such as a 30% tax credit to homeowners who purchase new furnaces, windows, and insulation.
• Rural Housing Service: $500 million will be used to fund federal loan programs for rural housing.
• Lead Hazard Reduction: About $100 million has been allocated for HUD’s lead based paint and hazard reduction and remediation activities.
• Section 8 Assistance: $2 billion will be used to fund Section 8 project-based housing contracts for 12 months.
• Emergency Shelter for Homeless: $1.5 billion has been earmarked to help homeless persons and families in shelters.
Readers who require specific advice should consult an attorney. C.A.R. members requiring legal assistance may contact C.A.R.'s Member Legal Hotline at (213) 739 8282, Monday through Friday, 9:00 a.m. to 6:00 p.m. C.A.R. members who are broker-owners, office managers, or Designated REALTORS® may contact the Member Legal Hotline at (213) 739 8350 to receive expedited service. Members may also fax or e-mail inquiries to the Member Legal Hotline at 213.480.7724 or legal_hotline@car.org. Written correspondence should be addressed to:
CALIFORNIA ASSOCIATION OF REALTORS®
Member Legal Services
525 South Virgil Avenue
Los Angeles, California 90020
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