Help For California Home Buyers

 

1st time home buyerThink you and your family don’t make enough to buy a home? Worried about your low credit score or lack of down payment? If these issues have prevented you from even beginning to look for a new home, let me assure you that help is on the way.

Most home buyers are not aware that many programs exist to help them  purchase a home. Often, the lenders selected by the buyers or their agents prefer to avoid the extra paperwork and so do  not inform their clients about these programs. Financial aid for home buyers in California comes from cities, counties and the state itself. 

The assistance comes in many forms.Some allow zero down payment. Some are outright grants of money. Some come as “silent seconds” which are only repaid when the home is sold. Some eliminate mortgage insurance. Some are directed towards buyers with low credit scores. Future home buyers in pricey California would do well to find a lender who is conversant with these programs and start the process.

housemoney

 

Here is a sampling of assistance available to first-time home buyers. Note that a “first-time” home buyer is one who has not owned a home in the last three years. 

  • California Housing Finance Authority [CalHFA] requires at least a 640 FICO score, well below average, and when combined with 3% CHDAP, 3% CalPLUS and $6500 Cal Extra allows for ZERO down payment. On a $300,000 property, for instance, $22,000 is available through these programs.
  • Extra Credit Teacher’s Program [ECTP] allows teachers, administrators, employees and staff of high priority schools [ranks 1-5] a deferred loan of up to $15,000 in high-cost areas and $7500 in low-cost areas. If the recipient lives in the house for three years, the loan is forgiven.
  • Southern California Home Finance Authority [SCHFA] requires at least a 640 FICO score and offers a grant, not a loan, of up to 4% of the purchase price to help with the down payment. This program applies to LA and Orange Counties only.
  • CHF Platinum, again requiring 640 FICO,  is a 3-5% down payment assistance grant with a slightly higher interest rate.
  • Mortgage Credit Certificate [MCC] is a 20% tax credit through CalHFA and amounts to average savings of $200/month through the life of the loan and helps borrowers qualify.
  • County of Orange Mortgage Assistance Program [MAP] provides up to $40,000 down payment assistance in 17 Orange County cities. The amount becomes a lien which must be paid back when the property is sold.

Most of these programs are for “low-income” individuals and families, but in Southern California that can mean up to $120,000 or higher family income. Each program is different and attempts to answer different borrower needs.

These are just SOME of the mortgage assistance programs available. Many cities in Southern California also offer some type of aid. It costs nothing to ask and may make the difference between buying and renting.

For further help either with home buying or selecting a lender, feel free to call me, Diane Butler, at 626-641-0346 or email me at drdbroker@gmail.com.

 

Fiscal Cliff Approval and Real Estate

economic_cliff_rect

Real Estate Tax Provisos for 2013

 

Finally, “fiscal cliff” debate is over! For months now, it’s been impossible to turn on the TV or radio without getting an earful of breathless and mostly unwanted information.  Even though most of us now regard Congress as on a par with cockroaches, what happens there does have an impact on our lives. All the more reason for members of Congress to act like grownups, but that’s another topic…

home money

Real Estate Tax Deductions

Rushed through at the last minute, the “fiscal cliff” legislation contains a number of important provisions and none more important than those that relate to real estate.  Here are a few of the most salient.

  • Short sale taxation relief extended for another year until January 1, 2014
  • Deduction of mortgage insurance premium is retroactive to 2012 and extended to 2013 for incomes under $110,000
  • 10% tax credit [up to $500] for energy-saving home improvements retroactive to 2012 and through 2013.
  • Capital gains tax stays at 15% except for those earning over $400,000 [single filer] or $450,000 [joint] and then it’s 20%.
  • $250,000/$500,000 [single/married] exclusion on capital gain from sale of principal residence remains unchanged.
  • Estate taxes on first $5 million for individual and $10 million for family estates are ZERO.  Above those amounts, the rates are 35% and 40% respectively.

Effect of Real Estate Provisos of 2013

Given these provisos, it’s clear that real estate remains in a privileged position as far as federal taxes go. Not only do homeowners get a tax deduction  for the interest in their mortgage payments, which is unheard of in other developed countries, such as Australia and Canada, but we can deduct mortgage insurance premiums which are only applied if the equity in the home is less than 20%. By extending this tax deduction, Congress is implicitly encouraging home ownership among those who do not have the traditional 20% down payment. Is this a good thing? Considering the recent mortgage meltdown, maybe not.  It does help lenders and real estate professionals, though.

Homeowners also get to purchase equipment for their homes and then deduct some of the cost–just so long as it saves energy and fits the criteria.  Naturally, no one can argue that energy-saving is bad, but here the government supports homeowners and no one else.

Additionally, estate taxes on the first $5 or $10 million, depending, amount to nothing. This also supports homeowners since a large proportion of most estates of this size is made up of real estate holdings, both principal residence and investment properties. Again, the tax code is supporting home ownership and investment in property.

Last, but not least, the tax code encourages home ownership by not taxing any capital gain up to $250,000 or $500,000 respectively. This means that home owners can sell their homes frequently, pocket the gain or purchase a more expensive home, without worrying at all about taxes. This has been part of the tax code several decades, though the amounts have increased, and does encourage home ownership. In fact, it encourages or at least does not discourage serial home ownership.  Of course, this benefits those who change jobs and must change jobs, but it also benefits lenders and real estate professionals.

Extending the tax relief to those who short sale their homes is in a different category. So long as underwater homeowners face no tax penalties for short selling their homes,  they will usually prefer it to the foreclosure alternative. At the same time, short sales are a much faster way of  dealing with an inability or unwillingness to pay the mortgage in underwater homes.  Short sales help to clear the vast inventory of underwater property which has been clogging the system for the past few years making it difficult for the real estate industry to recover.

 

California Home Values–Where Are They?

Home Values Are Up

Here’s what’s happening in housing, according to the most recent reports from NAR [National Association of Realtors] and CAR [California Association of Realtors]. Nationally, the number of home sales declines, but in California home sales rose 14% in May 2010 over the previous month and were up a bit over 1% compared to last year. Of course, last year was a terrible year. This shows, though, that things are getting a bit better, though not by much.

California’s median home price also rose 23% compared to last year, May 2009. Last year the median price was $263,440 and this year the new median for May 2010  is $324,430,  almost 6% higher than the previous month of April 2010. This may seem to be a big jump in one month, so, naturally, we might ask the reason. And, the reason appears to be the federal government’s $8000 tax credit which is set to expire at the end of June 2010. It’s very likely sales volume and possibly the median home price will sink back once the buying frenzy has run its course.  New home buying has already snapped back to the doldrums after a busy couple of months.

Will California Home Prices Rise Soon?

Does this mean we’re coming out of it and should see rising prices from now on? It’s possible that prices will continue to inch up in  California, but more likely they will either decline or stay flat for quite some time. Here are several reasons. One is that a record number of foreclosures is slated to hit the market this summer and into the fall. This is the famous “shadow inventory” that banks have purportedly been holding off the market to prevent a steep slide in values.  That strategy works only so long then it gets old fast because neighborhoods and municipalities have  to deal with the consequences of many vacant properties. It’s better to sell them than leave them open to vandals, meth-heads and squatters.

Another reason we most likely will not see a brisk rise in home values in California anytime soon concerns our ongoing budget crisis which does  not instill confidence in the state. But, the  most important impediment is our stubbornly high unemployment rate. A government in crisis  cannot hire new people in the public sector to help the situation. Unemployed people cannot buy homes and, in fact,  may be on track to lose the homes they’ve been hanging onto. Long-term unemployed who may have been making it on unemployment benefits are now about to lose that lifeline as Congress has failed to renew extra benefits.

What Does This Mean To Home Sellers/Buyers?

The bottom line is–if you are underwater and hoping that the equity in your home will increase substantially in the next year or so, you will probably still be substantially underwater one year from today. If you have equity, but are waiting to sell until the prices “come back”, you will most likely be waiting for a number of years.

If you are a buyer, things are looking good. The new affordable median prices mean that a healthy 66% of first-time time buyers can afford the median-priced home. This is a good sign.

I, personally, have faith in the long-term health of the Golden State. Yet, it seems clear to me that all Californians have a lot of work to do before we return to the “good times” when we had good schools, fine universities, excellent local and state governments and rising home values–all with low taxes and little effort on our part.

Buyers’ Tax Credit Now For All Buyers

Announced in November, 2009, new tax credits not only offer first-time  buyers incentives to purchase a new home [up to $8,000], but  all buyers, even those who already own homes.  If you’re seeking to change your house and take advantage of low home prices and interest rates, now’s the time!

Who’s Eligible?

If you’ve owned your principal residence for 5 consecutive years  of the last 8, you’re in. If you’re planning to live in your new home as your principal residence, you’re in.  If you’re single, you can earn up to $125,000 adjusted gross income and still receive the full credit of $6500. For married folks, that’s $225,000 adjusted gross income. Singles earning $125,000 to $145,000 and marrieds $225,000 to $245,000 can still get incrementals of the tax credit.

What’s the Deal?

Your new home cannot cost more than $800,000. Beyond that, I guess the feds’ feeling is you can handle the costs yourself.  And the credit is actually 10% of the purchase price up to a limit of $6500. Your purchase contract must be dated between November 7, 2009 and April 30, 2010. And, you must close on your deal no later than June 30th.

Notice:  Your new home’s price has no relation to your previous home’s value. This tax credit is for move-up buyers, downsizing buyers and relocating buyers. The legislation has no provision regarding the price of the new home.

In case you were wondering, you are not required to sell your previous home.  A detail announced by the IRS, however, states you are not eligible  if you convert your previous home into a rental.  It does seem, though,  you could short sale your previous home and still purchase a new home with the federal tax credit using the special loan mentioned in a previous post. Another detail is that you must live in your new home for which you received the tax credit for 36 months or you might have to repay it.

What’s the Catch?

Really, there’s no catch.  The federal government is trying to send some “stimulus” to the average taxpayer and to the moribund housing industry. As we know, the buyers’ tax credit was extended and this one for move-up buyers added, so there’s little likelihood that this will be extended again…

The main catch to this program is the same for any government program. It requires proper paperwork. Especially this time around, after many proven cases of out-and-out fraud in the buyers’ program, the IRS is determined to make sure all claims are valid.

 So, here’s what you need: a copy of  the HUD-1 settlement sheet from your new property. This gives the sales price and date of closing. You will need some evidence of the 5 consecutive years at the previous property–property tax, homeowners’ insurance or the like. And revised Form 5405 available at www.irs.gov.

That’s it. You’re in business. Now go get that property.

Reblog this post [with Zemanta]

Great Short Sale News. You CAN Buy Another House.

Losing sleep over the precipitous drop in the value of your home? Wondering how you can continue to make payments on that $500,000 loan when the home now seems worth at most $300,000? Casting  jealous glances at the newcomers in your area who are getting bargain prices and bargain rates?

Guess what? Now you can short sell your home AND  buy another house at today’s prices and rates.

Over 14 million loans in the U.S. are now either underwater or in some stage of foreclosure. About half the nationwide sales to new buyers are either repossessions or short sales.  It seems to most underwater homeowners that there ought to be some way to connect the two–now there is. You can short sale your home and buy a similar property for half the price.

Lenders are  now coming out with new programs, many insured by FHA, which make it possible for homeowners to short sale their homes and simultaneously buy another property at today’s prices and today’s rates. Many homeowners have allowed their homes to go into foreclosure or waited helplessly for the loan modifications that never came simply because they couldn’t figure out where they were going to live if they left their homes. Some decided to stick out the school year. Others couldn’t bear to leave the neighborhood. Now they don’t have to.

Here are a few of the guidelines that will allow homeowners to short sale their current home and simultaneously purchase another home. First, they must be current on their mortgages. So, owners who have “let the property go” or who were not financially able would not qualify. Finally, here is some reward for those who have steadfastly made their payments in the face of dropping values.

Second, they must be able to qualify for the new mortgage.That means a FICO of at least 640 and income sufficient to pay for the new mortgage.That’s not as hard as it may seem. If a homeowner can pay the $500,000 mortgage at 6% or 7%, no matter with what great difficulty, think how easy it will be to pay the $300,000 with a 5% mortgage for an identical property.

Third, the buyer must have money sufficient to pay the minimum 3.5% FHA down payment and the accompanying  closing costs. The short seller will get no proceeds from the sale of his property. That’s a given. So, where will the money come from for the new property? If  it’s an FHA loan, the minimum down payment is 3.5% and that total amount can be a gift. Also, the short seller is eligible for the federal tax credit which goes up to $6500 for move-up buyers. That may be applied to the down payment or closing costs, but this is not yet determined.

Finally, some programs require that the new loan cannot be more than the previous loan. So, in this case the new loan cannot be more than the $500,000 which the  buyer was paying on the previous home. With the drop in prices today, in most markets, this will be an easy criterion to satisfy.

Impetus to do short sales just got much bigger. If you’ve been dithering about what to do and how to house the family after a short sale, these new loans could certainly aid in the decision-making process and give you peace of mind. Short selling your home and buying another one at today’s much lower values may, in fact, result in a significant improvement in your housing standards…

When Is the Best Time To Buy?

Every home buyer has had to contemplate this question. Are the prices low enough? Do I have enough down payment? Is there too much competition right now?

Of course, the short answer to the question is–when you are ready. When you are just tired enough of  smelling your neighbors dinner and breakfast and listening to their fights and their tv viewing choices–when you are tired of searching for a parking place or telling friends they better walk over–when you get the latest notice of a rent increase, an annual event or —well there’s any number of things that may tip the scales.

So, what time of year is the absolute best time to buy? That used to be easier to answer than it is today. The advent of year-round schools has changed home-buying patterns which used to peak in the late spring and early summer months as families wanted to “finish out the year.”

To me, the answer is easy. When members of the seller herd start saying, “I’ll put it on the market after the holidays” or when buyers say, “I’ll look again after the New year,” that’s the best time to buy OR sell.

This time of year–fall, especially after Halloween through what we halloween-decor-1laughingly call winter until maybe February is  the best time for buyers and sellers. Why? It’s simple. Most people gradually turn their attention from the hard, concentration of finding that right home to making pumpkin pies and attending holiday parties.  That’s right–the competition thins out–a lot.

This year  the shrinking pool of buyers may be more pronounced than ever unless Congress decides to extend the highly-popular $8000 home buyers’ credit which expires December 1st. If not, buyers you are in luck. The field is more open now as the herds have moved into holiday pasture. Most of them won’t be back until after tax time…

And for sellers, yes, it’s true you have fewer buyers available to you, but your property stands out more, assuming it’s properly priced and prepared, of course. It must be, too, because you wouldn’t have your property out there at this time of year if you were not a very serious seller. Sellers at this time of year don’t put up with the inconvenience unless they are highly motivated–just like the intrepid buyers.

 

 

How Do I Transfer My Tax Base To My New Home?

This is a tricky issue that’s been lurking around ever since Prop 60 and Prop 90 were passed quite a few years ago. We’ve all heard it’s possible to sell a home in one California county and move the property tax base to another home, but the details sometimes get lost in translation. Who’s eligible and how, exactly, does this work?

First, these propositions do allow homeowners to transfer the tax base in one home to a replacement property, but this option is available only to those 55 or older. That’s discriminatory, but these propositions are there to help older citizens afford to stay in California, especially those who want to downsize. Prop 60 helps those who want to move intra-county or within the county and Prop 90 is for people moving outside their current California county. As of this moment, the participating counties are Los Angeles, Orange, Alameda, San Mateo, Ventura, San Diego and Santa Clara. The counties do change, so it pays to check if you are actually planning a move.

This means a qualifying homeowner who bought a home in Claremont, say, for $250,000 in 1988 with a current market value of $950,000, paying about $3500 in property taxes, can sell that home, buy an upscale condo in Pasadena for $700,000 and, using Prop 60, transfer that $3500 tax base to the new home, saving nearly $4000 a year in property taxes!

What kind of property is eligible?Only your principal residence qualifies. The newly-purchased property, either within the county or outside the county, must be either equal or lesser in value than the sold property. The homeowner must apply for the relief of these propostions must be made within 3 years either before or after the purchase.

What type of property ualifies for the purchase? Pretty much any kind of home–single family, condo, unit in planned development, cooperative housing, community apartment, mobile home subject to local real property tax, and living unit within a larger structure consisting of both residential and non-residential units.

So, this is a terrific advantage for seniors, making mdownsizing much more affordable. Of course, up-sizing is not possible. And, newly-married couples with two homes can’t combine the value of both homes….In sum, seniors say, “Thank you, voters of California!”
For further info, check L.A. County Tax Assessor