7 Tips If You're Thinking of Buying A House, Condo or Investment Property in 2010

Tired of that leaky shower in your apartment that goes unfixed? Sick of paying one third of your salary to your landlord every month? Been thinking about buying, but always felt the market was too "hot"?

Many renters have been sitting on the sidelines for years. But with the market at or near the bottom (in our opinion), there's no better time to put together a buying action plan so you are ready to take advantage of an opportunity when one presents itself.

Here are seven tips to put you on track so you can move from renter to owner:

1. Review your objectives -- Ask yourself, why am I buying? "To make money" was the default explanation for most of the past decade. But with no guarantee of instant returns, think of why you want to buy a home. "Not throwing money away on rent" and "owning the roof over my head" and "living in a place that I love" are some of the best reasons. For many people , it's easier and more desirable to rent -- make sure you're not one of these people
   
2. Review your finances -- Where are your downpayment and closing costs going to come from? There are some low-downpayment loan programs (FHA loans require as little as 3.5% downpayment), but you will need some reserves to buy a property. If you own stocks, consider your plan for liquidating them into CDs or money market funds so you can "move" in a timely fashion if you find a property that interests you. If you are going to borrow or be gifted funds, make sure this cash is at your disposal when you need it.
   
3. Review your credit report -- Your credit score will determine your ability to qualify for a loan and the interest rate you'll get on that loan. Go to AnnualCreditReport.com to get a free copy of your credit reports from the three credit ratings agencies. Review all information and make sure it is accurate. Dispute anything that is incorrect. A cardinal rule is to keep your credit usage on revolving accounts to less than 30% of your credit limits. Credit scores fluctuate from day to day, and you'll be surprised at how paying down debts or deleting a settled dispute can boost your credit scores quickly.
   
4. Get pre-approved -- Contact a direct lender or a mortgage broker who can review your finances and write you a pre-approval letter. Direct lenders include the national chains -- Citibank, Wells Fargo, Chase or community banks. You may want to start with the bank where you do your checking. Mortgage brokers, who can shop among many loan products, may be able to provide you the best match and best rates. Find out the fees associated with loans (1 "point" or "discount point" = a fee of 1% of the loan amount). Make sure the loan officer has the experience necessary to close a deal -- underwriting is very complicated these days.
   
5. Enlist an agent -- We perhaps have a biased view of this, being in the business of brokering. But you should value knowledge, experience and service when looking for an agent. You are entrusting this person to help you purchase of the largest asset you will likely own, make sure your attitudes and interests are aligned.
   
6. Research the market -- Are you looking for a condo? House? The hills? The beach? The Valley? Define what you are looking for and familiarize yourself with the market. Check out open houses and drive through neighborhoods, look at MLS listings, shop around. There is no substitute for being "up to speed" on the market you plan to buy in. You'll know a good deal when you see one.
   
7. Go for it -- If you love it, write an offer. It may be the first place you've seen -- or the hundreth. There's a tendency to feel paralyzed by the "infinite" choices that the market presents. The reality is -- the good properties go fast. And if it seems like a really good deal, it probably is, so you may have to pay full price.

Those seeking to benefit from the $8,000 homebuyer credit need to get their action plan together. To benefit from this tax break, you must be in contract by April 30, 2010 and close by June 30, 2010.

9 Things You Should Know About the $8,000 (or $6,500) Home Buyer Credit Straight From the IRS

Trying to figure out whether you qualify for the new $8,000 or $6,500 home buyer credit? Formal guidelines will be published at the end of December in IRS Form 5405, known as the "Worker, Homeownership and Business Assistance Act of 2009". We just call it an excellent homebuyer credit and here are 9 things you should know about it:

1. Buyers of a primary residence are offered an $8,000 tax credit subject to income/price limitations
2. "Move-up" buyers who already own a primary residence are offered a $6,500 tax credit subject to income/price limitations
3. Offer is good for homes purchased through April 30, 2010 and that close by June 30, 2010
4. Single filer income limits: eligible under $125,000; phased out between $125,000 - $145,000
5. Married filer income limits: eligible under $225,000; phased out between $125,000 - $145,000
6. If two unmarried individuals purchase a property and one is eligible for the tax credit, the entire credit can be allocated to that individual
   
7. Home must cost $800,000 or less; credit amount cannot exceed 10% of purchase price
   
8. If you purchased a home after November 6, wait until the new Form is published by the IRS at the end of Decmber before filing
9. No one under 18 is eligible -- so all those tweens who plan on "flipping" houses -- don't expect a hand-out from Uncle Sam!

Los Angeles Times: IRS updates home buyer tax credit

$8,000 Tax Credit for Homebuyers Extended

It looks as though the $8,000 tax credit for first-time home buyers, which was scheduled to expire November 30, will be extended.

The tax-credit will also be expanded to those buyers who have lived in their residence for more than 5 years and are purchasing a new residence.

Additional details of the plan:

• Income limits have been increased. The credit is now available to individuals earning $125,000 and couples earning $250,000 (from previous limits of $75,000 for individuals and $150,000 for couples)
• To be eligible, properties must be in contract by April 30, 2010 with closing to take place by June 30, 2010
• For "move up" buyers who previously own a home, the tax credit will be limited to $6,500

Although widely anticipated, this extension should give continued "legs" to the housing recovery. To date, 1.2 million homebuyers have taken advantage of the tax credit and $8.5 billion of $13.6 billion stimulus monies allocated for this purpose have been spent. [Bloomberg]

Updated 11-20-09

Here is the CAR (California Association of Realtors) full explanation on the tax credit:

H.R. 3548 provides both for the extension of the first-time homebuyer tax credit and expansion of it to qualified non-first-time buyers as well. A few of the provisions of this new law include the following:

(1) Both the $8,000 first-time homebuyer tax credit and the $6,500 tax credit for “move-up” buyers (see 4 below) would sunset on April 30, 2010. However, purchasers who have binding contracts as of April 30, 2010 (before May 1, 2010), would still qualify for the credit as long as they complete the transaction within 60 days (or June 30, 2010).

(2) The amendment establishes income limits of $125,000 for an individual or $225,000 for a couple for both credits.

(3) The cost of the home being purchased cannot exceed $800,000 for both categories in order to be eligible for the credit.

(4) “Move up” buyers (an individual or his/her spouse, if married) are qualified if he/she “has owned and used the same residence as such individual's principal residence for any 5-consecutive-year period during the 8-year period ending on the date of the purchase of a subsequent principal residence.”

For purchases made in 2010, taxpayers would be able to claim the credit on their 2009 income tax return. Homebuyers would not have to repay the credit, provided the home remains their principal residence for 36 months after the purchase date. However, this recapture provision would not apply in the case of a member of the Armed Forces, military intelligence or Foreign Service who is on qualified official extended duty. In addition, members of the military who have been deployed overseas for 90 days or more in 2008 or 2009 would have until April 30, 2011, to claim the homebuyer tax credit.

The amendment also includes anti-fraud language that gives the IRS the authority to do greater oversight during the processing of the return rather than waiting for an audit situation. The amendment requires the taxpayer claiming the credit to be 18 or older and requires a HUD-1 settlement statement to be attached when claiming the credit.

HST and real estate

Is HST going to be applied to the purchase of newly built real estate? Will Buyers of new development after mid 2010 have to pay 12% HST on the purchase price instead of the current 5%GST? I hope Real Estate organizations will be able to negotiate an exemption of the additional 7% tax on purchases of newly built real estate as the restaurant owners have done for their purchases/sales.

California Ends $10,000 Tax Credit for New Construction

As of Thursday, California will no longer be accepting applications for the $10,000 tax credit for new construction. $100 million was allotted for this buyer incentive. Over 12,000 applications are expected in total. [Los Angeles Times]

$18,000 in Tax Credits for California Homebuyers

Are you eligible for $18,000 in tax credits available to California homebuyers?

The $8,000 Federal tax credit is available to first-time homebuyers and is subject to certain income limits.

See the IRS's Questions & Answers about whether you're eligible for the $8,000 first-time buyers credit.

The $10,000 California credit is for previously unoccupied properties -- and is intended for any buyer -- but the funding has a $100 million cap.

Read about the California $10,000 Tax Credit.

Update July 4, 2009: As of July 9, 2009, the Franchise Tax Board will no longer be accepting applications for the credit. Over 12,000 applications have been received to date.

Check out this matrix for a simple explanation of the tax credit programs. [CAR]

Remodeling Tax Credit For Homeowners

A little known part of the Economic Stimulus Package is a tax credit for homeowners who make their properties more energy efficient. The current version of the tax credit is a “sweetened” version of an initial remodeling credit introduced last fall.

Under the old remodeling credit, which was part of the economic rescue package enacted last fall, homeowners could claim a credit equal to 10% of the cost of energy-efficient windows, doors, roofing, insulation, furnaces, air-conditioning systems and heat pumps. They could claim 10% of the cost of each product, up to a lifetime cap of $500.

Remodelers maintained that the energy credit wasn't sufficient to persuade owners to make upgrades.

So Congress upped the ante, raising the per-item credit to 30% of the cost and boosting the lifetime ceiling to $1,500. It also extended the deadline for making the improvements to the end of 2010.

The stimulus package also expanded the list of permissible improvements by including solar-energy panels and water heaters, geothermal heat pumps, small wind-energy systems and fuel cells. Moreover, while the 30% credit applies to the added products, there is no cap on their cost, and the credit is available through 2016. [Los Angeles Times]

Get those Energy Star appliances – it’s on Uncle Sam!

Lower Your Property Taxes: Have Your Property Reassessed

Declining homevalues in Los Angeles County may translate into lower tax bills for homeowners. The Los Angeles County Asssessor’s office is initiating a massive reassessment of up to 500,000 single family homes in Los Angeles County.

See if your home is under review for reassessment.

Download a Decline in Value Reassessment Application.

Is My Property Being Reviewed for a Decline-in-Value?

It has been widely reported that the property values of single-family homes and condominiums throughout most of the State have been declining. While the declines in Los Angeles County have not been as dramatic as those in other parts of the State, property values have dropped in most areas of Los Angeles County.

How does this impact your property taxes? In 1978, California voters passed Proposition 8, a constitutional amendment that allows a temporary reduction in assessed value when a property suffers a "decline-in-value." A decline-in-value occurs when the current market value of your property is less than the assessed value as of January 1. The assessed value is the value shown on your most recent property tax bill.

Typically, an application is required to initiate a review of your property’s value by the Assessor. However, in 2008 the Los Angeles County Assessor’s Office did a proactive review of those single-family homes and condominiums that were purchased between July 1, 2004 and June 30, 2007. 318,000 properties were reviewed, resulting in lower assessments on 128,000 homes and condos. The average reduction in assessed value was about $73,000, amounting to an average property tax savings of $750. With the market still declining, we will again initiate a review in 2009. The number of properties in this review may approach 500,000 as we look at homes that sold between July 2003 and June 2008. In some areas, earlier purchases will be looked at. After April 1st, owners will be able to check this website to see if their home is part of the review. [Source: Los Angeles County Assessor's Website]

Cut the Mortgage Deduction? Not So Fast!

The Obama administration's budget threatens to cut a benefit many Americans view as practically a right -- the mortgage interest tax deduction -- and powerful real estate interests are fighting back.

The move would affect only households earning $250,000 or more, but opponents say it could prolong the housing crisis by slowing already torpid home sales and deal another blow to home values ravaged by the market crash.

Under the budget plan, households now subject to 33% and 35% rates would be able to claim deductions only at a 28% rate. So for every $1,000 in deductions, a top-bracket household would save $280 in taxes, down from $350.

If approved by Congress, the new rules would go into effect in 2011.

A Realtors association analysis of Internal Revenue Service data found high-income taxpayers who claim the mortgage interest deduction comprise about 2% of tax filers. But a disproportionate number – about one sixth – are in California.

The half-million Californians who would be affected by the Obama tax change are by far the largest total of any state. [Source]

The Obama Administration’s plan to increase revenue by taxing top earners takes shape in this proposed reduction in the mortgage interest deductions for the “top 2%”.

Although this amounts to a reduction and not an elimination of the tax break, the proposed measure comes at a time when the upper brackets are feeling the pinch of reduced wages, higher health care costs and plummeting net worth. Not surprisingly, it's being received like a bucket of cold water.

Until now, the mortgage interest tax deduction – the pillar in the cult of homeownership in America – had been untouchable. However, someone has to pay for the wealth destroyed in the recent housing and banking debacles. Legislators have determined these funds will come from the only ones who have money left in their pockets, those at the top of the economic ladder.

$8,000 Home Purchase Tax-Credit Explained

Now that Congress has fixed the crucial flaw in last year's home-purchase tax credit, who will be able to make use of the new and improved version? And what about timing: How long do buyers have to find a house and close the deal to qualify?

These are just two of the flurry of questions surrounding the $8,000 housing credit for 2009 authorized in the sprawling, $789-billion stimulus plan.

In formulating the final terms of the bill, congressional negotiators added $500 to last year's $7,500 credit and eliminated the repayment requirement from the 2009 version.

Unfortunately, qualified buyers who closed in 2008 will not reap the benefits of the 2009 amendments. They're stuck with the old model, and will have to pay back the credit -- more correctly an interest-free loan from the government -- over the coming 15 years.

So, only buyers who close between Jan. 1 and Dec. 1 of this year may qualify for the new, no-repay credit. But they'll still have to pass most of the eligibility tests imposed under the 2008 program.

For example, they must be "first-time" buyers under the 2008 definition: Either you've never owned a house before, or you haven't owned or co-owned one during the three years preceding the date you close on your 2009 purchase.

Carefully planning the timing of your closing could be worth thousands of dollars to you. [More]

The final version of the home-purchase tax credit is an improvement over the 2008 $7,500 credit-you-pay-back-to-the-IRS (which feels more like a gift and clawback) but will not provide the stimulus of the original proposed Senate Bill that gave any buyer a $15,000 credit.

In high-cost areas such as Los Angeles, the bill will have a muted effect. But in the half of the country where homes are priced less than $175,000 (the median US home price in February 2009), the $8,000 credit amounts to a significant buyer incentive and could boost sales by qualified first-time buyers.

$8,000 First-Time Buyer Credit Part of Stimulus Package

There's a nice windfall for some homebuyers in the economic stimulus bill awaiting President Obama's signature on Tuesday. First-time buyers can claim a credit worth $8,000 - or 10% of the home's value, whichever is less - on their 2008 or 2009 taxes.

A big plus is that the credit is refundable, meaning tax filers see a refund of the full $8,000 even if their total tax bill - the amount of withholding they paid during the year plus anything extra they had to pony up when they filed their returns - was less than that amount.

To qualify for the credit, the purchase must be made between Jan. 1, 2009 and Nov. 30, 2009. Buyers may not have owned a home for the past three years to qualify as "first time" buyer. They must also live in the house for at least three years, or they will be obligated to pay back the credit.

Additionally, there are income restrictions: To qualify, buyers must make less than $75,000 for singles or $150,000 for couples. (Higher-income buyers may receive a partial credit.)

Applying for the credit will be easy - or at least as easy as doing your income taxes. Just claim it on your return. No other forms or papers have to be filed. Taxpayers who have already completed their returns can file amended returns for 2008 to claim the credit.[Source]

The final version of the tax credit for homebuyers is a watered-down version of the House proposal to give any buyer a $15,000 tax credit. This proposal is not intended to investors, but for bona-fide "middle class" homebuyers. Of course, an $8,000 tax credit is only a fraction of the price of a Los Angeles starter home. Nevertheless, an $8,000 credit is better than no credit at all. The $15,000 credit for any buyer could have risked creating speculation (and abuse) that would ultimately be to the long-term detriment of the fragile, recovering real estate market.

Jamie Adner
http://www.adnergroup.com/

Senate Votes $15,000 Tax Credit for Buyers

"The Senate voted yesterday to expand the economic stimulus package with a tax credit for homebuyers of up to $15,000. This tax credit, unlike others proposed previously, is a real tax credit, as long as it is claimed within two years. There is no automatic recapture of this money unless the buyer sells the property within two years of purchasing it. The National Association of Homebuilders (NAHB) also confirms that there are no qualifying criteria for receiving the credit and any homebuyer is eligible for it, whether he or she is buying a single-family or multifamily property."

- Multi-housing News, February 5, 2009

www.adnergroup.com