Up to 180,000 Homebuyers May Lose Tax Credit if Not Extended

Up to 180,000 homebuyers may lose the tax credit if the deadline is not extended past June 30, 2010 — and not by any fault of those buyers.

NAR reports that in Maryland, that number is around 2,630 homebuyers.

This is due to waiting on short sales, foreclosures, or lender delays, none of which these homebuyers have any control over.

According to NAR President Vicki Cox Golder,

“These are not buyers who just entered into the market. These are buyers who previously met all the qualifications for the tax credit, but find themselves at the mercy of a workflow jam with lenders or other delays such as lapses in the National Flood Insurance Program, Rural Housing Service, and new home construction, and might not be able to complete the purchase of their homes by the current deadline,” said Golder. “It would be a tragedy for them not to be able to complete the purchase in time to claim the credit.”

This is bad news for these qualified buyers who have done everything in their power to meet all deadlines for the tax credit that they are eligible to receive.

Tax Credit Not Extended

The tax credit extension bill did not pass in the Senate today. Those qualifying buyers who wish to receive the credit MUST close by next Wednesday, June 30, 2010.

Senate Votes to Extend Tax Credit Deadline for Settlement to September 30, 2010

The Senate voted and passed a proposal tax credit deadline for settlement for those who were under contract by April 30, 2010 from June 30, 2010 to September 30, 2010.

This is GREAT news for buyers who are facing issues with either financing, short sales, or other issues which could have delayed their closings, due to no fault of theirs, and them possibly missing out on their qualifying homebuyer tax credit.

MSNBC reported this breaking news.

Next, it is Congress’s turn to approve the proposal.

Tax Credit Contract Deadline Passed

The tax credit contract deadline passed last night at midnight, so buyers who may have qualified yet were unable to get a legally binding contract in place are no longer able to get the credit, even if they settle by June 30, 2010.

Though I did see an increase in the Baltimore real estate market in the past two weeks, the interesting thing was that most of those I was working with in buying or shopping for a home were NOT eligible for the tax credit.

There also was not as much of a rush to get the credit right at the end. In searching the MLS, there were not a significantly higher amount of homes going under contract than one would expect at the same time any other year.

The tax credit certainly did its’ job of stimulating the real estate market, but I am finding that it is the low interest rates as well as low house prices that has been enticing people to buy homes, whether or not they were able to take advantage of the credit.

While interest rates and house prices remain low, Baltimore home buyers will continue to purchase — and home sellers will continue to sell their current houses to move up to their next home.

Tax Credit Ending Questions and Concerns

Guest blogger, T Jeremy Loomis, Sales Manager for Wells Fargo Home Mortgage, talks of tax credit ending questions and concerns.

Is it time to change how buyers view contract issues with the tax credit ending?

Probably…

We have seen a market recently that one would call a “buyers market”, where the buyer has more control over the purchase of their new home and the seller may have to make more concessions they would in a “seller’s market”. But with the tax credit ending on April 30th, 2010 (remember a qualifying buyer must be in a binding sales contract by 4-30-2010 and settlement on the new home by 6-30-2010) the sellers will gain the upper hand.

So if a buyer is already in a binding sales contract what do they have to worry about? Quite simply, what happens during the process and after April 30th if issues come up with an inspection, the appraisal report, etc…What happens if a buyer has to negotiate repairs, appraisal issues, or the like once Friday’s deadline passes? A buyer who is vying for the tax credit will need to tread lighter after the 30th as a seller could be less likely to negotiate on a certain area and the buyer really has 2 choices at that time — walk away from the contract and the tax credit (remember you may not have that option at all) or work with the seller to come to a reasonable win-win situation to continue with the contract.

Overall, we will see sellers with a better bargaining position then they have had over the past few years. And we must remember that buyers must remain reasonable with all requests when issues arise and think “what if I was on their side”.

The final question a buyer would have to think about: Is the issue at hand worth losing a tax credit up to either $6,500 (for those “move up” buyer) or $8,000 (first time home buyers)?

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Thank you, Jeremy!

Contact Jeremy and myself for more information on the tax credit deadline!

Homebuyer Tax Credit Expires April 30

The extended homebuyer tax credit deadline expires soon — next Friday, April 30, 2010 to be exact.

So what does this mean? Buyers who qualify and want to take advantage of the homebuyer tax credit need to have a fully executed and agreed contract BY next Friday, and settle by June 30.

I expect this weekend to be a busy one with buyers looking to ensure that their offers are accepted/agreed by next Friday. What if a buyer puts in an offer, it is rejected, and they don’t have one fully executed by next Friday? They are out of luck!

So if you qualify for either the $8,000 first time homebuyer tax credit or the $6,500 homebuyer tax credit and wish to take advantage of this money, you need to GET MOVING!

Nine Weeks Left in Homebuyer Tax Credit Extension — Will It Be Extended Again?

A discussion I have been involved with here in the Baltimore area about the crippling snow and the effect on the Baltimore real estate market has people in the real estate world wondering if the homebuyer tax credit may be extended again.

On Monday, the Wall Street Journal wrote an article about the credit, and how lobbyists are gearing up to try to have it extended.

In the northeast, the sheer fact of houses not being able to be shown for the majority of a month due to the snow is a big part of the issue.

Other areas of the country make the point, as recounted in the Wall Street Journal article, that banks often are often taking a long time to approve short sales. I personally have found that this delay creates the issue of buyers who qualify for the credit not considering these homes as options.

It will be interesting to see if it will happen. Washington stated that it would not be extended further, and I can understand if that does not happen. Without the urgency of it ending, the credit cannot do its’ job, which is to help people get into homes.

The other looming deadline we have right now is the upfront Mortgage Insurance Premium for FHA loans, and the fact that that rate is going up from 1.75% to 2.25% for loans whose case numbers are assigned after April 5, 2010. This means that buyers desiring to use FHA financing should be pushing to have a home under contract by the third week in March, giving them about three weeks from now, to ensure their case number is assigned prior to April 5, 2010.

Two very important deadlines are looming, and I will be following how the Baltimore real estate market responds to them.

Baltimore Real Estate Market Third Week of February 2010

As we enter the fourth and final week of February, I am reminded as to where the market was last year at this time versus this year.

I have seen showings become more frequent in the past week and the excitement over spring’s arrival in the next few weeks definitely brings people out to look.

The snow storms we had this month really put a halt to the market, as some homes were inaccessible (all of them for a long period of time) until just recently.

February is not notoriously a great time to sell your house. Often times people wait “until spring” to make sure the snow is over and the buyers are out looking.

This year we have the First Time Homebuyer Tax Credit end looming, and sellers are taking notice and attempting to get their homes on the market. The other driving force we have right now is the April 5, 2010 deadline for FHA to avoid the higher up front mortgage insurance premium.

It appears that tomorrow we will have heavy rains which should melt a lot of snow, and may cause some flooding. These are issues that sellers most likely usually don’t have to handle, and buyers need to be aware that these are highly unusual circumstances.

Many gutters have fallen, and one of my clients, who is making a claim on his gutter system said that his insurance company told him they are declaring the Baltimore area a “disaster area”. This means that roofers are overwhelmed and not available, which means this rain tomorrow and possible snow Thursday could be big problems for many Baltimore homeowners who no longer have their usual defense against water coming into their basements and main levels on their homes.

Sellers have to be aware of what is happening, and be prepared. Buyers need to be understanding and patient, and realize that these homes most likely do not usually let the elements enter!

Hopefully March will bring us much needed warmer weather so Baltimore homebuyers can get out and take advantage of these credits and lower upfront PMI, and sellers can have their homes returned to their usual states.

Homebuyers Claiming Tax Credit Cannot E-File

Homebuyers who are claiming either the $6,500 move up credit or the $8,000 First Time Homebuyer Tax Credit cannot file electronically, according to the IRS.

One of my past clients let me know of this after she read an article on MSN. (Thank you for the information and link!)

The reason for this restriction is that unfortunately there were many suspicious claims last year, and the government is trying to curtail tax fraud. There is also an additional form and a decent amount of supporting paperwork that needs to be sent in to prove eligibility for the credit.

The additional paperwork First Time Homebuyers claiming the credit need:

For purchasers of conventional homes, a copy of Form HUD-1, Settlement Statement, or other settlement statement, showing all parties’ names and signatures, property address, sales price and date of purchase.

For purchasers of mobile homes who are unable to get a settlement statement, a copy of the executed retail sales contract showing all parties’ names and signatures, property address, purchase price and date of purchase.

For a newly constructed home where a settlement statement is not available, a copy of the certificate of occupancy showing the owner’s name, property address and date of the certificate.

For those long time homeowners who moved and qualify for the $6,500 credit, this is the additional paperwork they will need to submit:

Form 1098, Mortgage Interest Statement, or substitute mortgage interest statements,

Property tax records or

Homeowner’s insurance records.

Here is Form 5405 from the IRS.gov site. For instructions on how to fill it out, click here. For long term owners looking to claim the $6,500, here is Form 1098.

The good news is that homebuyers who are going to claim the credit can still use the electronic tax preparation programs they would to e-file, but instead of clicking a button to submit, they will need to print it, attach the supporting documents, and mail!

(All in all, the few extra steps and the longer time it will take are worth the up to $6,500 or $8,000 credit that the filer will receive!)

Update on Questions on Homebuyer Tax Credit for Married Couples

When the Homebuyer Tax Credit was extended to include long-time homeowners buying new houses and getting a $6,500 credit, a whole new group of questions came into play.

Unfortunately for a few clients of mine (and I am sure many others out there), the answers were not what they were hoping.

• One person owns a house that s/he has lived in for 5 out of the last 8 years. S/he got married in 2009, and the partner has never owned a home. Do they qualify for either credit? Unfortunately, according to the IRS, NO. From the IRS site below, the answer:

A. No. Both you and your spouse must be first-time homebuyers in order to qualify for the first-time homebuyer tax credit. Since you had an ownership interest in a principal residence during the three-year period ending on the date of purchase, neither you nor your spouse qualifies for the credit. Similarly, both you and your spouse must be long-time homeowners of the same previous principal residence in order to qualify for the long-time resident homebuyer credit. Since your spouse is not a long-time homeowner of your current principal residence, neither of you qualify for the credit.

 

• A newly married couple each has owned their own personal residences for 5 out of the last 8 years. Do they qualify for the $6,500 credit? Also, unfortunately, NO. They must have owned the SAME residence together for that time period. From the IRS site below:

A. No. Both spouses must have owned and used the same previous principal residence for five consecutive years out of the eight-year period ending on the date of purchase of the new principal residence to be eligible for the credit. Since you and your spouse owned and used different principal residences, neither of you qualify.

If these couples were unmarried, and co-buying a new house, they would qualify.

For people who are planning to buy something in 2010 and were counting on that tax credit, this is not very helpful. That being said, if you have a house to SELL, you need to keep in mind that the buyers of the house you are SELLING may still qualify, so you should try to sell while people will still be buying.

Many times sellers forget how these credits may impact the sale of their home, because they are only indirectly affected. My thoughts are that if you are considering selling your Baltimore or Towson home in 2010, get the sale in BEFORE the credit runs out. With the number of days on the market averaging 60-180 in some areas of Baltimore and Towson, then that means getting your home ready to sell NOW!

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