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Is The Home Buyer Tax Credit Working Too Well?

Is The Home Buyer Tax Credit Working Too Well?

Did the government create a program that is working and too many people are taking advantage of it?

That’s the latest concern from the real-estate industry, which says that a last-minute home-buying rush in April created bottlenecks at lenders and real-estate service companies that may not be able to finalize purchases in time for tens of thousands of buyers to receive a tax credit worth up to $8,000.

On Thursday, there were signs that the real-estate lobby had successfully communicated those concerns to Congress.  Senate Majority Leader Harry Reid (D., Nev.) joined Sen. Christopher Dodd (D., Conn.) and Sen. Johnny Isakson (R., Ga.) in sponsoring a measure that would give buyers until Sept. 30 to close on sales that went into contract by April 30. That measure would be attached to a job-related bill before the Senate. It would need House and Senate passage before being signed by President Obama.

Congress last fall extended an $8,000 tax credit for first-time home buyers and added a smaller $6,500 credit for current homeowners. For now, buyers who signed contracts by April 30 have until June 30 to close on those sales in order to claim the tax credit.

One worry has been that short sales, where a lender allows a home to sell for less than the amount owed, won’t receive requisite bank approvals in time to meet the closing deadline. Short sales are “clearly at risk” because agents and loan officers have little control over getting those deals approved, says Tim Wilson, who heads the mortgage and title divisions at real-estate brokerage Long & Foster Cos. “I think you’ll see a lot of those not make the deadline,” he says.

But real-estate agents say that “plain-vanilla” transactions are increasingly at risk because of backlogs at lenders, title companies and appraisal outfits.

At Wells Fargo & Co., employees from other sales divisions are being brought in to handle mortgages, and staffs are working weekends and nights to process higher volumes. “It’s all hands on deck,” said an executive vice president at Wells Fargo Home Mortgage. He says the bank has prioritized “every customer who qualified for the tax credit.”

A spokeswoman for Bank of America Corp. says the lender is also placing “increased priority” on loan applications submitted before the April 30 deadline.

Lenders say that consumers can help speed the process along by being “very responsive to requests for documentation” from lenders. Underwriting standards are much more exhaustive today, and borrowers may not be accustomed to the amount of paperwork required, he says.

Delays have become more common as lenders and third-party firms, such as title companies, ensure that they comply with disclosure and appraisal requirements enacted to correct the excesses of the bubble years. The new regulations have prompted lenders to take extra caution at every step of the process.

The National Association of Realtors says 55,000 to 75,000 prospective buyers are at risk of losing their tax credit, but it’s unclear how many sales would actually fall through for those who miss out on the tax credit. Buyers could be hard-pressed to void signed sales contracts unless they’ve made their closing contingent on receiving the tax credit or are willing to forego any deposits.

Schwarzenegger’s New Homebuyer Tax Credit Starts May 1

April 30, 2010 Real Estate News No Comments
Schwarzenegger’s New Homebuyer Tax Credit Starts May 1

Different Than The Previous First Time Buyer Credit

Gov. Schwarzenegger signed Assembly Bill 183, the Homebuyer Tax Credit legislation, into law last week.

AB 183 will provide $200 million for home buyer tax credits, allocating $100 million for qualified first-time home buyers of existing homes and $100 million for purchasers of new, or previously unoccupied, homes. The eligible taxpayer who purchases a qualified personal residence on and after May 1, 2010, and on or before Dec. 31, 2010, or who purchases a qualified principal residence on and after Dec. 31, 2010, and before Aug. 1, 2011, pursuant to an enforceable contract executed on or before Dec. 31, 2010, will be able to take the allowed tax credit.

The credit is equal to the lesser of 5 percent of the purchase price or $10,000, in equal installments over three consecutive years. Under AB 183, purchasers will be required to live in the home for at least two years or forfeit the credit (i.e., repay it to the state).

The previous federal home buyer tax credit was considered a success as nearly 40 percent of first-time home buyers said they would not have purchased a home if the federal tax credit for first-time home buyers was not offered, according to C.A.R. research conducted last year.  It also ran out of tax credits by the end of June 2009, eight months before it was set to expire and just as housing markets appeared to be turning a corner.  Unlike last year’s legislation, AB 183 adds a tax credit for the purchase of an existing home by a first-time home buyer.

AB 183 will help to incentivize first-time home buyers to purchase homes that have been abandoned, foreclosed upon and returned to the lender, or have been sitting on the market for extended periods of time.

What is still to be figured out is the purchase of new construction or previously unoccupied homes as that extends to any buyer, not just first time buyers.

Home Sales Surge As Tax Credit Deadline Approaches

April 28, 2010 Real Estate News No Comments
Home Sales Surge As Tax Credit Deadline Approaches

But What Will Happen After April 30?

New-home sales jumped in March as buyers rushed to qualify for a federal tax credit and realtors homed in on the soon-to-expire credit as a way to ramp up interest.
Sales of new single-family houses jumped 27% last month to a seasonally adjusted annual rate of 411,000, according to the Census Bureau. That was up from the revised pace of 324,000 for February.
The Census estimate is based on a small sample and is frequently subject to large revisions.
Some economists believe the latest report may overstate the increase in sales activity and that the credit is simply moving sales forward that otherwise would have occurred later in the year.
Still, some home builders say foot traffic at developments has picked up in recent weeks, spurred by buyers hoping to qualify for a federal tax credit. The credit is available to many people who sign a contract to buy a principal residence by April 30 and complete the purchase by June 30.
“The tax credit has been a huge boon to the industry,” said Tim Minton, executive vice president of the Home Builders Association of Raleigh-Wake County in North Carolina. He said inventories of unsold homes in his area have dwindled, and “the national builders are starting to ramp up new production.”
The tax credit can be as much as $8,000 for first-time home buyers and as much as $6,500 for people who already have owned a home for at least five consecutive years during the previous eight years. The credit is available for individual taxpayers with annual incomes of as much as $145,000 or joint filers with incomes as much as $245,000.

First Time Homebuyers Tax Credit Expanded and Extended

November 9, 2009 Real Estate News No Comments
First Time Homebuyers Tax Credit Expanded and Extended
Potential home buyers just got some good news..more money and time is coming their way. Just on Friday, President Obama signed into law a bill that extends the First Time Home Buyers tax credit, which is also being expanded to include benefits for homebuyers who aren’t on the first time around buying a home.Here’s a chart that gives you an idea who can get what.
Tax Credit Rules

Feature Original Program Extension
Deadline Must fund by Nov. 30, 2009 (WFHM deadline was Oct. 30) The measure is written differently so that a sales contract must be in place by April 30, 2010 but homeowners have an additional 60 days to close.
Dollar Amount and Eligibility Up to $8,000 for first-time home buyers (or 10 percent of the purchase price of the residence) if purchased Jan. 1 Dec. 1, 2009

A FTHB was defined as someone who had not owned a home during the previous three years
Up to $8,000 for first-time home buyers


$6,500 for current homeowners who have lived in their current residence for 5 consecutive years and are purchasing their next property
Income Cap $75,000 (individual)

$150,000 (married couples)
$125,000 (individual)

$225,000 (married couples)
Increases in the cap make the measure available to a broader group of customers.
Purchase Price N/A $800,000 or less
Repayment requirement Must live in home for 3 years or be required to repay the credit Same
Documentation to be used Documentation requirements and WFHM process still TBD.

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