Home Buyer Tax Credit

90 Day Fix and Flip Rule

You know how fix and flipping works in a cynical world, right? Basically. . . . investors buy a craptacular house at foreclosure auction or elsewhere and do no substantive repairs. They slap a thick coat of paint on everything and install cheap new carpet, then resell it as "Remodeled!" with a seriously  jacked up price.

Traditionally, the FHA had a rule in place stating they would not fund buyers who were purchasing a property the seller owned for less than 90 days. This was designed to protect buyers (and the government backed money they used to purchase) and discourage excess profiteering by fix and flip investors.

Some weeks back, the FHA reversed themselves in this area by announcing a new policy that's generally known in the industry as "The FHA Flipping Waiver."

FHA changed it's policy to help the market in clearing some of the excess foreclosure properties for sale which are often holding down pricing at artificially low levels. I don't know how it worked around the rest of the country, but my opinion is that Fix and Flippers are basically, usually helpful here in metro Phoenix Arizona.

Lenders reserve the right to have additional regulations, above and beyond what FHA guidelines say. It's taken some time for these lender 'overlays' to shake out into a coherent whole but it has finally happened.

What the Heck Does this Mean to Me, A Buyer?

The general rule of thumb if you're shopping for a home and you're looking at fix and flips is this:  you won't be allowed to use an FHA mortgage to buy if the seller of the home you love has

  • Owned it for less than 90 days AND

  • Has jacked up the price more than 20% over his/her purchase price

  • Also, don't have any sort of pre-existing relationship between yourself, the buyer, and the seller

If the investor has owned the home for less than 90 days and it's priced 20% or more over the investor's purchase price, you could potentially still buy the home, but you can't use an FHA mortgage to do it. That means a 'conventional' mortgage, which means a higher down payment than the FHA 3.50%. Plan on 10% to 25% cash down payment if you want that spruced up fixer flipper home.

Home Buyer Tax Credit Law Passed

President Obama signed the Home Buyer tax credit legislation, per the reporting of the United Press International. It's called the Worker, Homeownership, and Business Assistance Act of 2009. The San Francisco Chronicle has an excellent bullet-point breakdown of the fine print of the new law. This is a partial summary...

  • Up to $,8000 federal tax credit available to home buyers who haven't owned in the past 3 years

  • Up to $6,500 federal tax credit available to to people who currently own a home which they've lived in for 5 of the past 8 years, and who purchase a new one to live in

  • As far as applying for the credit, I'm pretty sure it'll just be a line item on your typical federal tax return when you file in April 2010 for tax year 2009

The wonderings:

  • I wonder if the $6,500 was a nod to the homeowners who keep shouting "I was responsible, I put 20% down, I didn't spend all my home equity frivolous things, I paid my mortgage on time.... I did the right thing and where's my bailout?!?!?" (actually this is courtesy of partner Chris Butterworth)

  • I wonder how much impact the new $6,500 credit will have on the 'move up market' of folks who sell their starter home and move up to the newer, bigger, nicer house in the suburbs (so to speak)

  • I wonder if 'home owner' equals someone who owns and lives in their home as of the date the bill became law (i.e. November 6) or as of December 31, 2009?

Home Buyer Tax Credit Extension Is a "Go", Here's Why

Late yesterday the Senate passed a bill that included an extension of the Home Buyer Tax Credit. This morning, the House passed the same bill. For details of what the bill includes/excludes and ideas on whether you qualify, see our broker Jay Thompson's PhoenixRealEstateGuy blog.

Now goes to President Obama for his signature, some expect that to happen as early as tomorrow (Friday, November 6, 2009). Everybody in Big Media says they "expect" the President to sign it. Here's where my predicting comes into play, and where somebody (you, our dear readers) benefits from me being a political junkie.

Prediction: the President will sign the bill. It's a done deal. Home buyers, start your engines. I know, that doesn't seem like I'm going on out a ginormous limb. Let me tell you why, which I assume is why people bother to read blogs: for opinions.

A President's first veto is politically & strategically important. The first veto says something about the President, his agenda, his party and his vision for the country. President Obama isn't going to waste his first veto on this bill because he ultimately supports the idea of it, even if he might have some problems with the minor details. For this President, vetoing this bill would be the height of silly.

Critics of the bill have some valid points:

  • Home can't have a 'natural' recovery as long as the federal government is propping up prices via this tax credit

  • It's expensive and we're spending ourselves into our grandchildrens' wallets

  • etc, ad naseum

Supporters of the bill have some valid points too:

  • A tax credit isn't going to make people who are happy as renters suddenly buy a house

  • New home buyers tend to spend a lot of unexpected money getting the home 'just so' and that spending is by nature consumer spending, which accounts for 70% to 80% of the US economy

  • The tax credit extension will also help the "move up" market which has so far been sluggish

  • etc, ad naseum

So, dear readers, if you were on the fence about buying a home... consider it again. For Pete's sake don't buy a house just because the feds are waving six to eight thousand dollars in your face. But if being a homeowner suits you now, and you expect it will continue to be your cup of tea for 7 to 12 years into the future, maybe it's time.

Start your online property search here. Call/email us to discuss your situation and let us help you decide if buying or moving up is right for you.

Thanks for reading our blog, we hope you enjoy it.

Senate Approves Home Buyer Tax Credit Extension

The New York Times is just now reporting that the US Senate has just voted to extend the Home Buyer Tax Credit.

There's not much meat in the report, which was filed at 5:54pm Arizona time. It makes me wish (yet! again!) that Big Media reporters were required to state the name of the bill or law they're referring to. Because the Senate Bill (#1230) that I linked to earlier today still says it was last acted on in June.

The Senate approved the bill. Visit our broker for a refresher course on how a bill becomes law.  It's gotta get through the House and then our President has to put his cack-handed signature on it (and I mean that Old English-ism in the original Old English sense). It's not quite there yet.

eta - surprisingly, the Arizona Repulsive Republic has more meat in their report:

The legislation would extend the $8,000 tax credit through June of next year as long as the buyer enters into a binding contract before April 30. It doubles the income ceiling for qualification to $125,000 for individuals. The credit is available for homes purchased at under $800,000.

[The bill also includes a] new $6,500 credit for existing homeowners, said Sen. Johnny Isakson, R-Ga., a cosponsor of the measure, "is going to help us boost what is the problem in the U.S. housing market today and that is what is called the move-up market."

11-5-09, edited to add: Readers, don't skip the comments. Comment #1 is from our broker Jay Thompson who's about the most reliable person I know for keeping on top of real-estate related political issues.

Bridge Loans Using $8,000 Homebuyer Tax Credit

Yesterday the FHA released new guidelines designed to further stimulate the struggling housing market.

The FHA (Federal Housing Administration, an arm of the federal Housing & Urban Development department) is now allowing ‘bridge loans.’

What’s A Bridge Loan?

Just like a physical bridge, bridge loan financing gets you from here to there.

Bridge loans are short term financing. In this case, the mortgage company loans the buyer additional money to cover the costs of home buying that are above and beyond the purchase price. In exchange, the buyer turns over his/her federal income tax credit money to the lender.

What Does the New Bridge Loan Cover?

The new FHA guidelines allow first time homebuyers to use bridge loans to cover the following costs:

  • additional cash down payment

  • mortgage interest rate buydown costs

Use Bridge Loan as Down Payment?

Most buyers can’t use bridge loan money as their required 3.50% cash down payment. However, buyers financing through state Housing Finance Agencies and certain non-profits will be able to use the tax credit for their down payments.

Why Is This Good?

The second two bulleted items above can both be great for a buyer. The bigger your down payment, the smaller your monthly mortgage payment. It almost goes without saying that lower interest rates mean lower payments.

Could This Be Bad?

Could be. A bridge loan by another name is often called a Payday Loan and Arizonans learned just how unpopular those are in the past election. The interest rates on short term loans can be sky-high. In addition there is a lot of data that shows mortgage default rates increase as cash down payments decrease. Finally, I haven't seen anything that addresses this situation: buyer borrows $4,000 on a bridge loan to cover closing costs, but is eligible for an $8,000 tax credit. Is the lender required to return the extra, unused $4,000? Presumably lenders will create their own regulations, but I'd advise buyers to read the fine print extra carefully if considering a bridge loan under these circumstances.

More Info for First Time Homebuyers