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Dear BuyandHolder,
Last week we discussed the $8,000 homebuyer tax credit that was scheduled to expire by December 1st. But Wednesday, the Senate voted to extend (and expand) the popular tax credit for homebuyers and on Thursday, the House of Representatives voted 403 to 12 in favor of the extension.
Note: The bill also extends unemployment benefits in all states for 14 weeks and for up to 20 weeks in states where the unemployment rate is above 8.5%. In addition, it expands a break for money-losing businesses. (The U.S. unemployment rate is currently at a 26-year high of 9.8%.)
The Real Estate Break
Now, based on the new legislation, if you buy a home before May 1, you can collect up to $6,500 in tax credits, provided you’ve owned your current home for at least five years. (This is subject to income limits.) If you’re a first-time homebuyer, you will get a tax credit of up to $8,000.
The credit is available for the purchase of principal homes costing $800,000 or less and vacation home are ineligible. The credit is phased out for those with annual incomes above $125,000 and for joint filers with incomes above $225,000.
Click HERE to read last week’s column about the basics involved.
To qualify, buyers must sign purchase agreements before May 1 and close before July 1.
Three Savvy Tips
Below are three tips not included in last week’s column that will help you quickly take advantage of these tax breaks. May 1, of next year may seem a long way off, but lining up a mortgage and finding the right home is often a lengthy process.
Tip One. Get pre-approval, not just pre-qualified. A smart seller will want to know you have financing lined up before agreeing to your offer. In fact pre-qualification is a rather empty move. It comes about after you’ve discussed your financial situation with a loan officer and during that discussion you have told him/her the type of house you want, what your income is and other details.
Pre-approval, on the other hand, is much more meaningful. It means your loan officer has studied your application, has verified ALL the necessary information and has made a commitment to you to grant a loan. The loan is, of course, subject to the property being as described.
You will find that many real estate agents do not work with buyers unless they are pre-approved. And, when you have a mortgage pre-approval in hand when you make your purchase offer, it’s more likely it will be accepted quickly.
TIP: Attach your pre-approval letter to your offer.
Tip Two. Establish a deadline. Be firm. Tell the seller you need a response to your purchase offer within a week. This will help you avoid being outbid by another buyer or buyers. This is good advice whether or not your aiming for the $8,000 tax credit.
Tip Three. Be cautious about short sales. These often seem like a bargain, but not if there is a second mortgage. The holder of the second mortgage is unlikely to accept your price because the value of the property has declined. This type of property eventually winds up in an auction. So when looking at a short sale property, find out immediately if there is a second mortgage on the property. If so, move on.
A short sale takes place when a seller who cannot make his mortgage payments sells the property before it is auctioned off in foreclosure. The mortgage is then forgiven and the lender gets rid of the property.
Keep in mind that the closer your offer is to the principal balance left on the loan, the faster the lender will accept the sale.
But “multiple” lenders can complicate short sales. If there’s only one mortgage, then only one lender has to agree to the price.
Bottom Line: Whether or not you are purchasing a home, keep in mind that the extended tax credit means more people will be buying home related products, upgrading and/or adding rooms and improving their lawns, gardens and pools. Publicly traded companies in these sectors may see increased revenues.
Good luck! |
