Recently, we bought our first home. We have rented in Montclair for the past seven years, with the plans to buy in town when we could afford it. A few years ago with the market at an all-time high, the option in our budget was a shack. Luckily, low-interest rates and the state of the housing market this year made it a perfect time to start looking. The biggest incentive? The $8,000 tax credit for first-time homebuyers.
With the help of our realtor, Roberta Baldwin, we started our search in September with a handful of houses in our price range. We only looked at three houses when we found our home. Although heated bidding wars have waned, foreclosure activity hitting the highest last year since the Great Depression have made it a lot harder to get a loan.
Baldwin recently wrote a blog post called "Managing Expectations" in which she describes the loan process these days:
The other day, a very good mortgage professional we work with sent a "managing expectations" note to one of my clients who is due to close on a home any day. The process has been relentless -- documents required up the wazoo, signatures and double signatures, more proof here, much, much more proof there. Once, it was fine for me to witness clients' signatures on a contract with my own on just one line. Now, for every signature, another line for me to sign.I was rather touched to see the following end-run email from our mortgage friend, which in a few words telegraphed that the next few days would no doubt be harrowing: "Thanks for sending the documentation and working with my associates," he wrote to my prosective buyer. "They will have the documents reviewed by the underwriter and our operations manager to have the loan cleared to closing but please be prepared to give additional documentation all the way to the closing. That is the nature of the mortgage industry now with the large amount of documentation required by FHA, Fannie Mae and Freddie Mac. I tell clients, and especially FHA borrowers, that we will be finished supplying the underwriter with documents when you walk out of the closing. I apologize but that is the state of our industry as we dig out of this foreclosure crisis. Please let me know if you have any questions as we are with you every step of the way."
The buyers were us--the email sent to my husband. In the end, our closing was only pushed back one business day, which is very good. A friend was set to close on a home on October 3 and still hasn't signed those papers.
We moved into our home two weeks ago and, although exhausted, are very happy. What's going to make us happier? That tax credit that we should receive within the next few months. We learned that we didn't have to wait to file it with our 2009 taxes, we could file an amendment to our 2008 taxes on form 5405 and wait for the check to come. Good news for first-time buyers who still haven't found their perfect home-- the deadline has just been extended from the original date of November 30, 2009 to April 30, 2010. So more people can take advantage of the tax credit. With Baristaville taxes, that $8K will come in handy.
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Comments (18)
Warning...amounts may sound larger than they actually are. I sure wouldn't run off to spend $8K as if it was found money. Economics says that with the knowledge of the tax credit, all involved parties are going to find an efficient outcome in splitting that pie. Part of that $8K was already spent in the purchase price of the home. Think of it this way... if the tax credit stopped right now... would home prices fall? I believe they would, indicating that home prices are propped up by that credit. They wouldn't fall the full amount but somewhere inbetween. Regardless, something is better than nothing---just wouldn't go off and have an $8K vacation given the credit.
Had lenders been this diligent during the past decade, the market would not have collapsed.
This tax credit is just a drop in the bucket for houses in Montclair. It is most likely party priced into the amount you are paying anyway. Income limits ar 150K for singles and 225K for couples.
Would you really rush out to buy a house now just because of the credit? Maybe in a lower-priced area, but Montclair? Prices will fall even further if you bide your time. You see more and more forclosures each month in Montclair and houses stagnating on the market for months with price reduction after price reduction. I look at this every week and, aside from a few weeks during the summer, there doesn't seem to be much movement.
Check out www.zillow.com for some interesting stats on the market & the state of home values. If you plug in an address, you can get the recent sale activity, the z-estimate on a homes' worth, property tax, etc. It seems there is an uptick, but I too, would be wary.
And as for jerseygirl's comment
"Had lenders been this diligent during the past decade, the market would not have collapsed."
Lenders sold to unqualified buyers because the government FORCED them to. Everyone in this country is entitled to buy a home, even if they can't afford it, that was the mentality. Lenders/financial institutions were punished if they did not make enough low-income loans -- so to place the blame on lenders is not accurate.
If you want to place the blame on anyone, place it on Chris Dodd and Barney Frank (not to mention Schumer, thank god he's gone) For over a decade legislators kept trying to prevent lenders like fannie & freddie from putting the housing market & economy at risk with oversight regulation -- something Dodd/Frank blocked repeatedly. I know you're a liberal, but dem's the facts!
Georgette,
Congratulations to you and your family. I hope the new place ends up being everything you want it to.
I know what you mean about the change in climate regarding securing a mortgage.
My wife and I were under contract for a place near the end of last year when the deal imploded after the house failed inspection. With that deal, we were pre-approved for a mortgage within 48 hours and only having to submit a few pay stubs and bank statements.
About 6 months later we thought we had found another place only to find out that despite the new house being $20k cheaper and us having several more months of savings; we were no longer able to get a pre-approval letter. Apparently, there is no longer a difference for down payments except for 3.5% or 20% (we were going with 10% down on the first place and closer to 15% when we tried to get pre-approval on the second, cheaper house).
By my math, we'll be able to afford a house (by the new guideline standards) some time around when my now 9-month old is entering Kindergarten.
(of course, that's assuming house prices stay flat for the next 5 years...)
I'm torn by this 8K.
I think if it allows some to work hard to buy a home (which many were probably already planning on) good for them.
But I'm not a fan of the Gov. paying folks to do what they may have done anyway.
But look what happened. What started as a small targeted program has now been expanded to include incomes up to $225 (up from 150k). And a NEW $6,500 credit for those who own a home and are buying a new one. (Does it cover a 2nd home? I have an eye on a condo at the beach...)
As one who struggled like hell to afford his first home-- who did it the old fashioned way without Government help-- this program leaves a bad taste in my mouth.
Oh, well. That's me. God Bless everyone who is using whatever is offered (God knows I would've used it) to buy a home. It makes a difference in your family life and if circumstances are good, and you are smart, it will make a difference in your financial life.
(But don't get me started on Cash for Clunkers!)
The 6,500K tax credit for folks who already own a home and are "moving up" is especially ridiculous because it doesn't reduce home inventory at all. Since it must be a primary residence, they have to sell their old house and buy a new one. Though it may goose "sales" statistics, it does nothing to reduce the inventory of homes for sale. Pretty silly, but that's our government and the real estate lobby. Also, some can use the 8K of the new homebuyer tax credit as a downpayment for their house. how did the 0 downpayment scheme work out last time????!
I hate to break it to you, prof, but the gubmint did help you buy your first home. It's called the mortgage tax deduction.
Isn't there also a post in Baristakids about this? Jeepers, you guys sure know how to reuse material.
Right, Walleroo. People seem to forget about those government reimbursements when it benefits them. Don't forget about getting a deduction for children too.
Cme - no one FORCED lenders to make bad loans and repackage them as securities. The CRA (Community Reinvestment Act) made it illegal for lenders to redline poorer neighborhoods and to mitigate the problems associated with shortages of credit available to moderate and lower income people. It did NOT require banks to make bad loans that required no money down, or convince people to borrow more than they could repay, or provide ARM's with interest rates that start out enticingly low and then skyrocket. The lenders knew they could make bad loans because they could sell them to someone else and would never be left holding the bag. It was a big Ponzi scheme and lots of lenders made off with bucketloads of money before it came crashing down.
Now banks require what they did when I bought my first home - proof of income, standards that ensure that income,combined with any other debt is in line with what the monthly payments will be and a down payment. They got greedy and they got busted.
"attempted to mitigate the problems"
And congratulations, Georgette! I hope you love your new home and will spend many many happy years here.
(I posted this hours ago-- don't know why it's missing.)
Mr. Roo,
Unfortunately, you are very wrong. Because, the mortgage tax deduction can only be used AFTER you purchase your home.
Here, the tax credit can be use BEFORE as a down payment.
BIG difference.
So sorry gurl, no direct Government handout.
Moreover, you cannot compare getting a check from the Government to writing something off on your taxes. For most, cash in hand has greater value, even though writing something off on your taxes may have the same final effect.
But if that were true, why does the Government offer CASH??
Because for most, cash means more (remember you have to earn a certain amount to itemize to realize a credit).
This is basic tax stuff, which I'm sure you already know.
Actually Prof, you cannot get the tax credit to use as a downpayment. You have to close on the home BEFORE you're entitled to the credit.
"It's called the mortgage tax deduction."
Soon to be as extinct as the dodo in the neighbor of marsupial land as is the deduction for state income/real estate taxes. Blueheads being hoisted on their own petards.
AMT anyone? anyone?
"The lenders knew they could make bad loans because they could sell them to someone else"
yes because they were insured by FrankenRaines' Fannie May, the former who said nothing to see here all is well and the latter walking away with 90 million. Otherwise you couldn't have sold them to anyone.
Georgette,
According to the FHA rules, the Tax Credit can be used for a downpayment-- as a second lien (or an on the property. It's complicated, but not impossible.
I suspect since many lenders don't like FHA loans because of the requirements (and paperwork), they may also not be willing to do all that is necessary for the credit to be used for a downpayment.
Again, it's not direct and there are specific conditions-- only certain entities may offer the credit as an advance- but it can be done.
Moreover, as the Times and other media have detailed, many folks have been using this Credit in a manner inconsistent with the rules.
But since no one is minding the store--- folks have been playing.
(Which is how we got into this mess.....)
Oh, yes, that's a HUUUUUGE difference! I'm sure if the Feds removed the mortgage tax deduction it would have no negative effect whatsoever on housing prices and home ownership. It might even help by relieving the poor homeowner of the onerous task of filling out Schedule A. Oh, those deductions are so painful! Stop, please, stop! I'll give you 20 years...