or "How Home Buyers Can Help Save the Economy"
First time home buyers have been given a once in a life-time opportunity to buy a home and in the process get thousands of dollars back to spend on home improvements. Provisions in the American Recovery and Reinvestment Act signed into law on February 17, 2009 offer unprecedented incentives for qualified buyers to purchase a home in the year 2009. Using existing home loan programs, it is possible to buy a new home with little to no money down plus receive a tax credit of up to $8,000 on which no payback is required.
Yes, it is possible to buy a new home with no money down, and in the process put up to $8,000 of tax-free money into your pocket. Because there is no longer a payback required for this home buyer tax credit, the new homeowners can experience the joy of “found money” as disposable income to spend or save at their discretion.
In addition to the initial savings, forward looking home owners can elect to improve the energy efficiency of their recent purchase with new windows, doors, air conditioning and/or furnace to receive up to $1,500 as an additional credit on their 2009 tax return. To emphasis the benefits of alternative energy, the environmentally conscious have been offered huge tax savings (30%) by purchasing solar or wind turbine products with new and existing tax credits to save an additional $2,000 for each system chosen.
Knowing that this $8,000 yax credit/rebate is coming to them, this lucky homeowner may choose to hurry to buy a plug-in hybrid car this fall. Imagine the possibilities for spending the additional $7,500 tax credit due to them in 2010 from this purchase? Keeping these savings flowing back into the economy in the form of discretionary spending will surely boost our ailing economy. How extremely fortunate for those who qualify!
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How to Make this Work for You!
Learning to build wealth from the ground-springs welling up at your feet is as easy to understand as it is to accomplish. If as a buyer you fit within these parameters, and are creditworthy (probably at least a 580 median credit score without evidence of a trail of NSF checks), you should consider the following as a simple guide to becoming a homeowner before December 1, 2009:
1) Choose a financial institution with which to work on qualifying for a home loan. You will need to know how much home you can afford to buy with your current income, debt load, and credit history. Your banker or mortgage broker will give you a letter stating the maximum amount of home for which you can qualify. This step is critical in its importance, as nothing can be done without knowing and proving your ability to borrow.
Ask your lender to base your qualifications on FHA guidelines with the seller paying your closings costs, and your 3.5% down payment coming from your savings and/or as a gift from a friend, family member or a down payment assistance program. If you live in a qualifying rural area and your earnings are less than the income limitations set to receive Rural Housing Act funds (as of March 2009 may be only slightly lower than the Act’s maximum $75,000), the seller can pay the down payment as well as the closing costs for you.
2) Develop a relationship with a knowledgeable real estate agent. Share with your agent your housing needs as well as the amount you want to spend. Some buyers may qualify for more home than they prefer to spend on their monthly payment. Buying as much home as you can afford within normal debt to income ratios has been traditionally the best way to maximize your home as an investment. Your agent can help you navigate the waters of purchasing a distressed home (short sale or foreclosure) as well as to negotiate the best price for your investment into your home.
3) Shop to find the best home value with regard to size and location available for your market. Currently, property values have fallen to prices similar to those in 2003 – the year the housing market started to grow in leaps and bounds. There are many bargain foreclosure properties for sale at this time but do not feel compelled to buy a foreclosed home. There are many good values among homes for sale by sellers that MUST sell and are willing to negotiate with you.
After you have chosen a great home by making a good offer and you have entered into a contract, you should have ALL normal home inspections performed as well as a survey. Ask your agent to review your title commitment to make sure that there are no exceptions listed on your title policy. In the rush to get properties sold, some title agents are not pointing out the clouds (problems) on some of the title commitments. Agree to close on your home only if you can obtain a marketable title free of liens and other issues.
4) Collect your keys and move in -- it may be just that easy in the year 2009 to begin building your wealth through home ownership!
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Maximize the Tax Credits
Additional savings are available by structuring well-timed purchases with the new tax credits . If a home purchase can be closed before filing your 2008 tax forms, the $8,000 tax credit may be taken on your 2008 tax return. That means the $8,000 tax refund will be available to spend some time in 2009!
If you bought an older fixer-upper and choose to spend the $8000 on home improvements, you can maximize the savings by choosing energy efficient updates such as windows, doors, furnace or air conditioning systems. If $5,000 worth of qualifying fixtures or equipment (labor not included) are purchased, a $1,500 rebate will be seen as a tax credit on your 2010 tax refund as well. The new administration is encouraging consumers to purchase money-saving, energy efficient long term improvements.
The government is promoting savings for other "green" purchases as well. Additional tax credit savings of up to $2,000 each are available for the installation of qualified solar energy systems, geothermal heat pumps, small wind turbines and fuel cell systems. There is also a 30% tax credit (up to $500) for the cost of fuel cells or micro turbine systems in the home.
There is an additional way to be energy conscious if home improvements are not the spending priority. IF you plan to close on a new home before April 15, 2009, you can be one of the first 200,000 people (from each manufacturer) to buy a new plug-in hybrid car with some or all of your 2008 tax refund check with its home buyers tax credit of up to $8,000. The savings continue when you receive a $7500 tax refund in 2010 for the purchase of a plug-in hybrid car.
The purchase of big tickets items like a home, hybrid car, and energy efficient home improvements are now possible with improved and substantial discounts thanks to the American Recovery and Reinvestment Act of 2009. Owning the roof over your head has never been easier or more profitable for knowledgeable first time home buyers or those re-entering after three years without owning a home. Your purchases will serve to bring much needed spending into the retail, auto and home improvement industries – all areas of the economy hardest hit by job losses and the housing crisis.
When the housing market stabilizes, the economy will begin to show signs of recovery as well. Even in the most economically challenged areas, the purchase of a home creates a ground swell of new spending. Eventually this tiny bubbling up from a previously clogged spring will trickle out to form a stream of much needed capital flowing to individuals and businesses. In turn, these people will reinvest their new revenues producing a flow of income to hep turn the tides of a troubled economy.
Receiving government money in the form of tax credits will reintroduce the availability of disposable income into the pockets of some middle class Americans. In turn, discretionary spending in restaurants, hair and nail salons as well as for travel, entertainment and other choices will infuse much needed income to many more mainstream Americans.
Savvy first time home buyers have a genuine opportunity to impact not only their own lives and futures but those of others as well. Best of all, they can help save the economy by buying back into the American Dream of homeownership. Americans need encourage those eligible to take advantage of this unique opportunity offered to them. Preserving our way of life has been placed back into our hands. We need to do our part to help the economy recover. Please spread the word about this fantastic opportunity!
Part 2: A Real Life Example Maximizing the Credits.
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Michael Rodgers
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Comments
People should look at their homes not as places to live, but as "investments" and means for building wealth?
People should buy the maximum amount of home that they can afford (and not the maximum amount of home they NEED, which may well be less)?
Aren't these attitudes part of what got us into this mess in the first place?
A good primary wage in the county in which I live is $15 per hour. If you earn more than that, you are very very lucky, or a professional like a doctor or lawyer. This wage earner is likely a man, with his female counterpart earning 70% less. A top wage for women workers is $12 per hour, most women earn less than $8.00 per hour in this county.
Now leaving out all the sexism and inequity implied in the first paragraph, you need to know that any decent 3 bd/2 bath / 2 car garage home sells for over $125,000. Rentals for a 3/2/2 start at least $750 per month -- most liveable 3/2/2's rent for well over $900. How will this person/family with this level of earnings EVER save enough money for a down payment on a home without help?
There are two programs that help with this issue: FHA and
Rural Housing. I will use Rural Housing for this example as the max income for one person is $49,550, for two people $56,600. In this scenario, if the seller chooses to help, the seller can pay 3% down on behalf of the buyer, as well as 3% toward closing costs.
Using normal ratios, with only one income, this person can qualify for a home witth all other installment and revolving debt included for of no more than $1600 per month.
The payment with taxes and insurance for a mortgage with 3% down on a 30 year fixed rate at 5.5% interest for a home costing $110,000 is about $825 per month. Escrow for taxes and Florida home owners insurance (which is a sin for its costs) is about $225.oo per month; the principal and interest close to $600.
A 3/2/2 home in this area for $110,000 is likely a fixer-upper. It would be VERY hard to find a decent 3/2/2 for that price, although there are many more now thanks to the influx of low-priced foreclosure properties.
If the family wants to squeeze into a newer/nicer 2/2/1 they can do so for $110,000, but might be better off to rent one for less than $750. All is about ratiors and making the numbers work for you when you earn on these levels. Trying to put a roof over your family's heads is a challenge without help. All money that comes into a household with these earnings is hugely important - an $8,000 tax credit is a HUGE windfall.
If this person buys a $110,000 fixer upper in a neighborhood with other less well-maintained homes, how important is that $8,000 to the family to make improvements to help maintain their property value? Very important, as a home that they could afford may need new A/C, updates to appliances, and/or a new roof in the near future.
From my perspective, living in an economically challenged county, this program won't get the people that it is designed for into too much trouble. It will bring money for things that they might not be able to achieve on their own until their children are raised and gone. If the family is close to having a child ready for college, this windfall might help at least one of their children get a much needed degree -- helping at least one family to live and earn on a better level? ($8000 isn't going to do much for college expenses, but it will help.)
Again, once you see the math, it isn't too hard to figure that there is a sector of the population that needs to learn about this once in a lifetime opportunity. Do you begrudge them this chance to benefit themselves? I don't!
The problem I have with the program is that $75,000 as a single person or $150,000 as a couple is a very high maximum income in most of America outside of Manhattan and San Francisco.
The couple in your example (husband makes $15 an hour, wife makes $8 an hour) would have a gross yearly income of $46,000. That's assuming both work 40 hours a week, 50 weeks a year, with no bonuses. I don't begrude them the help.
I do, however, have a problem with giving $8,000 in tax credits to someone who makes $75,000 a year simply because they purchased a house for the first time. Like I said before, unless you are living in a place where the cost of living is EXTREMELY high, if you're raking in that kind of dough you ought to be able to get a house without Uncle Sam's chipping in.
Both sets of my grandparents raised four children--four daughters on my Mom's side, three daughters and a son on Dad's--in homes they built to their own specifications in the mid-to-late 1950s. Both sides also assumed that they would have more children after the homes were built.
Both of these houses had three small bedrooms, 1.5 baths, a living room, a kitchen, an unfinished basement, and a detached one-car garage. These homes were not considered especially modest or cramped then.
Also, in this county, those that earn the most with the professioals are the Realtors. We give a LOT back to the community -- we spend in our own communities, eat in our restaurants and spend money in the salons. They tell us they miss us as we keep in them going. In the meantime, we work for the community doing service. Just now I am working with a group from Relay for Life to organize the tickets and backroom for a Fashion Show that should make $12,000 for the American Cancer Society. Because of the nature of our jobs, we talk with a lot of people, and get to know a lot more.
Society is linked beyond any one program or any one person benefitting from another. Unless it is something negative, I have stopped worrying about who gets what in life. I figure there can be a slice of the pie for anyone that is willing to ask for one. :)
We all gotta eat and put a roof over our heads!
Is the tax credit for the hybrid only available in conjunction with the home purchase? My car lease (yes, I know...never lease) is up in August and I need to figure out what to do - buy it or replace it with a hybrid.
Well done!
I know the way that I wrote this makes it sound like the hybrid rebate is tied to the home loan, but it is NOT!
Actually, none of the other tax credits are tied directly to the purchase. I was just showing how one thing could lead to another one the money starts flowing. I am seriously considering looking into the solar options. We live here in Sunny Florida -- why not?!
On the cars, I think it is a little more confusing. I read that the $7,500 credit is for the first 200,000 for each manufacturer and is based on the size of the battery, or its output -- can't remember just now. Only thing is that the car that gets the best rebate is from Chevrolet, and is coming out this fall.
How to be one of the first 200,000? Do you have to buy the car without test driving it? I really don't know. Someone should research and post about it. I think that there is a link in my post above that has good information on the hybrid car rebate. I skimmed it but there were multiple parts to it. Go for it!
So those solar energy options apply even if you don't buy a home at the same time? I am all over that. I've wanted to add a solar panel or a windmill for awhile (you would not believe the wind we get here on this ridge) so this is something I will definitely check out. Thank you so much!