From the WSJ – Cracking The New Homebuyer Credit
The recently enacted economic-stimulus law contains an unusually attractive new tax break for many homebuyers — if they can only figure out how it works.
The new law sweetens a provision known as the “first-time homebuyer credit.” In essence, if you meet certain qualifications, such as buying a home from Jan. 1 through Nov. 30 this year, you may be eligible for a tax credit of as much as $8,000. You also have a choice of claiming the credit on your federal income-tax return for 2008 or 2009. A credit is typically more valuable than a deduction, since it eliminates your taxes on a dollar-for-dollar basis — and in this case, you may get it even if you don’t owe any taxes.
Hey, a tax credit I may actually qualify for. I am stoked!
Like they say, read the whole thing
Make sure you’re below the income cutoff – esp. if both you and your spouse are working. For most practical purposes, given Long Island prices (STILL!), if you make enough to qualify for a mortgage at reasonable pre-bubble DTI ratios, you probably exceed the income cap to be entitled to the tax credit.
It seem imperative to get those people with no money back into buying houses, and stepping aside while the market corrects prices down to levels they can afford is apparently out of the question.
According to the article, the income limit for the max credit for married couples filing jointly is $150K. I should be under that for 2009 unless I do a lot of freelance web work or have to pull an inordinate number of overtime shifts here at the lab.
I don’t have a lot of debt, so with the low interest rates currently being offered, I could probably qualify for a bigger loan than I would be willing to take on, even under the old 28/36 rules.
$150k AGI * 0.28 front-end housing DTI = $42,000/yr = $3,500 per month allocatable to PITI;
Assume taxes of $10,000/yr = $835/mo
Property Ins. adds another $1,000/yr = $85/mo.
That leaves $2,580/mo to P+I, enough to service a $500,000 30 yr FRM at 5.5% (which actually gets into jumbo territory, meaning higher rates, but the illustration seems valid). It also presumes 20% down, or $100k in the bank, making the purchase price $600k. Conforming limit of $417k applied to an 80% LTV note puts the sale price just aboive a half mil.
If you prefer 15 year, the rate probably drops to 5.125%, making the note $360,000 and the purchase price $450,000.
So maybe a buyer can qualify for a house and take the tax credit. They’d still be paying twice as much as what someone eight years ago paid, meaning the new guy is by definition the richest guy in the neighborhood. I’d rather be the guy that ruins everyone’s comp value.
I’m not looking to spend more than $400K on a house, so I’m fine with any of those calculations.
With interest rates so low, it doesn’t make sense for anyone to take out any kind of a loan except a 30 year fixed.
Good view of current mortgage rates and why rates are likely as good as they are going to get…from today’s Wall St Journal. To put it in total perspective, lowest level of mortgage rates in 30 years…we’re at the bottom đ
http://online.wsj.com/article/SB123750531250489895.html
Fan, please don’t cut and paste entire copyrighted articles. That’s a Bozo Nono.
If there’s an article you want to share, excerpt a paragraph or two and provide a link so that people can read the whole thing if they want to. I’ve edited your comment to reflect HIB’s policy on copyrighted material.
Thanks!
If interest rates being low today means a buyer is justified in overspending for a house because the monthly payment pencils out*, what effect do you suppose higher interst rates will have on prices when today’s buyer needs to sell?
Just like there was a bubble in house prices, there are bubbles in mortgage prices. A wise purchaser is much more concerned with the price than the financing.
* And really, isn’t inordinate focus on the lowest possible payment (meet Mr. Harry Howmuchamonth) – combined with teaser interest rates and neg-am introductory periods precisely how we got from 2002 to 2006?
Interest rate is but one of the factors influencing a purchase decision…a lower rate does not imply permission to overbuy but an opportunity to buy at an optimal time.
I wrote about this very topic last year.
https://homeinbabylon.com/2008/07/27/buy-now-while-rates-are-low/
I’ve modified my thinking a bit on this subject. While Moose is right about prices going down when rates go up, there’s a limit to that sort of price correction. If, as I expect, there’s some significant inflation coming once we get out of this recession, both home prices and mortgage rates will both go up. Does anyone remember that from the 80’s?
I’m thinking that this is going to be a key year to buy a house, even if prices drop a bit afterwards.
Of course, that’s not an excuse to overbuy housing or jump on a price that’s not in line with current house values.
One can mentally masturbate forever and market timing (tops or bottoms)is a fool’s pursuit, honestly.
If you need a house, can afford a house, can qualify for a house, can find a house, then buy a house đ
Fan: It’s only money, right? Well, first of all, as a buyer, it’s MY money – therfore my vote is the only one that matters.
You can just as easily flip your logic around – you have a house, you want to sell a house, the buyer has a breifcase full of money, just sell! Why are sellers vainly clinging to their 2005 pricing? They can just sell and move on with their lives!
Psst, your LIBOR pin is showing.
So don’t buy – If you can’t find a home for the price you think is fair, so be it. But for those who can and do, the prevailing interest rates are a positive factor in executing on that decision. The market forces take care of the unrealistic sellers…put your money under a pillow for all anyone cares. Or just sit there and watch the opportunities pass you by and then cry the blues about the injustice of it all…
Fan,
I know and have worked with salespeople in my life. I’ve observed that, professionally, they are used to frequent rejection that comes for reasons beyond their control. However, they tend to find comfort and self-worth in that percentage of successful sales, rather than the overwhelming number of rejections.
When the number of sales drops by 50% over a period just two years ago (http://njrereport.com/index.php/2009/03/21/north-jersey-febuary-home-sales/), a time when they could remember being too busy to think about the deals they missed, I believe that the rejection does not get them down, because there was always plenty of rejection. Nor is it the even income reduction that accompanies the total evaporation of sales volume, which – more so than ever-escalating prices – was the true nourishment of the enterprise. Rather, it is the realization that their presence and actions, which were once so fabulously successful, are the precise thing that stands in the way of their stated goal of closing the sale. Being so used to overcoming a buyer’s objections, it is crushing to come to grips with the fact that the once indispensable intermediary is now the obstacle to be overcome.
I could easily envision certain such people lashing out; throwing around perjoratives like ‘masturbation’; accusing the buyers, whose trust and favor they once courted and who now spurn them, of financial naivetĂ© like ‘keeping their money under a mattress’, or the emotional weakness displayed by âcryingâ about injustice. Such individuals may helplessly cling to the clichĂ©s that were once all too successful for them, such as âwatching[ing] opportunities pass you byâ, which sounds remarkably similar to the familiar refrain of âBuy now or be priced out foreverâ. It truly is sad, bordering on pathetic.
I understand all that. Iâve heard countless commercials from the NAR touting that home ownership is the path to personal wealth. The objective facts are, Iâm a lot more wealthy right now than a similarly situated person who bought a house in 2005. The difference between my rental payment and their mortgage payment belongs to me, instead of the bank. Their central asset (the house) is worth much less than four years ago â my cash reserves as they existed then have held and grown in value, and the war chest is only bigger for having waited.
The bottom line is that as a buyer, I am acutely aware that none of the entire real estate transaction apparatus would exist but to separate me from my money. The impotence of used house sales people, whether or not you actually are one of them, to achieve that climax, for the reasons that Iâve mentioned above, and that industryâs death throes that have since followed, have been an interesting side show to the housing pop, and one of the few unexpected ones.
So again…don’t buy! Don’t even think about buying! In fact, don’t even talk about why you’re not buying…Lol…
And isn’t the 8k just another reason for sellers to keep their prices artificially and unrealistically high: “Well, I’ll try to sell this at 480k because you’re going to get almost 10k back, so why should I drop the price any lower?”