Tax Credit for Homebuyers
First-time homebuyers who purchase homes from the start of the year until the end of November 2009 may be eligible for the lower of an $8,000 or 10% of the value of the home tax credit. Remember a tax credit is very different than a tax deduction – a tax credit is equivalent to money in your hand, as opposed to a tax deduction which only reduces your taxable income.
The tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000. Buyers will have to repay the credit if they sell their homes within three years.
Tax Credit Versus Tax Deduction
It’s important to remember that the $8,000 tax credit is just that… a tax credit. The benefit of a tax credit is that it’s a dollar-for-dollar tax reduction, rather than a reduction in a tax liability that would only save you $1,000 to $1,500 when all was said and done. So, if a homebuyer were to owe $8,000 in income taxes and would qualify for the $8,000 tax credit, they would owe nothing.
Better still, the tax credit is refundable, which means the homebuyer can receive a check for the credit if he or she has little income tax liability. For example, if a homebuyer is liable for $4,000 in income tax, he can offset that $4,000 with half of the tax credit… and still receive a check for the remaining $4,000!
Phaseout Examples
According to the plan, the tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000.
To break down what this phaseout means to homebuyers who are over those amounts, the National Association of Homebuilders (NAHB) offers the following examples:
Example 1: Assume that a married couple has a modified adjusted gross income of $160,000. The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time homebuyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000.
Example 2: Assume that an individual homebuyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.
For those tracking the math in the examples above, you may be wondering where the “$20,000” came from—that is, why you divide “$10,000 by $20,000” in the first example and “$13,000 by $20,000” in the second example. Here’s where the $20,000 comes into play:
The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The tax credit amount is reduced to zero for taxpayers with MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.
In other words:
• $170,000 – $150,000 = the $20,000 in the first example
• $95,000 – $75,000 = the $20,000 in the second example
Remember, these are general examples. You should always consult your tax advisor for information relating to your specific circumstances.
Homes that Qualify
The tax credit is applicable to any home that will be used as a principal residence. Based on that guideline, qualifying homes include single-family detached homes, as well as attached homes such as townhouses and condominiums. In addition, manufactured or homes and houseboats used for principal residence also qualify.
Higher Loan Amounts
More good news – there is an extension on the additional tier of conforming loan amounts which had been first established in 2008. This tier of home loans are those greater than $417,000, and with a maximum that depends on the area, but is not greater than $729,750. These loans will again be eligible for rates that are slightly higher than conforming loan rates, but less expensive than the standard “jumbo” loan rates.
FHFA News Release -
http://www.mortgagemarketguide.com/download/022309_final.pdf
Additional Housing-Related Provisions
Tax Incentives to Spur Energy Savings and Green Jobs — This provision is designed to help promote energy-efficient investments in homes by extending and expanding tax credits through 2010 for purchases such as new furnaces, energy-efficient windows and doors, or insulation.
Landmark Energy Savings — This provision provides $5 Billion for energy efficient improvements for more than one million modest-income homes through weatherization. According to some estimates, this can help modest-income families save an average of $350 a year on heating and air conditioning bills.
Repairing Public Housing and Making Key Energy Efficiency Retrofits To HUD-Assisted Housing—This provision provides a total of $6.3 Billion for increasing energy efficiency in federally supported housing programs.Specifically, it establishes a new program to upgrade HUD-sponsored low-income housing (for elderly, disabled, and Section 8) to increase energy efficiency, including new insulation, windows, and frames.
Expanding Housing Assistance—This provision increases support for several critical housing programs. It includes $2 Billion for the Neighborhood Stabilization Program to help communities purchase and rehabilitate foreclosed, vacant properties.
More Help for Homeowners in the Future
Another thing to keep an eye on in the coming weeks is President Obama’s plan to help struggling borrowers before they are faced with a default on their mortgage.
According to reports, the Obama administration is discussing plans to help borrowers who are struggling to stay afloat, but who have not yet fallen behind on their payments. At this point, details are scarce; however, reports indicate that President Obama is looking to spend approximately $50 Billion to directly help homeowners before they face foreclosure and financial disaster.
While this is good news for individual homeowners, it will likely be good for the housing industry as a whole. That’s because, assisting struggling borrowers before they default should help stop the wave of foreclosures, which are estimated to top two million this year. That, in turn, will help stabilize home prices.
The Economic Stimulus Plan is huge, and impacts a number of industries. I’ve highlighted some of the major provisions that may impact you now and in the future.
As always, if you have any questions or would like to discuss how this may specifically impact you, I’d be happy to sit down with you. Just call or email me to set up an appointment.
Wednesday, February 25, 2009
Wednesday, February 4, 2009
Why the smart people are refinancing and buying NOW!
A great article came my way through email this afternoon. It described exactly what’s going on in the market today with our interest rates and why we might or might not see 4%. The Federal Reserve recently said that it plans to continue purchasing large quantities of Mortgage Backed Securities to provide support to the mortgage and housing markets, and "it stands ready to expand the quantity of such purchases and the duration of the purchase program as conditions warrant".
The statement is true, the concern is as always, the media will take their own spin on the words; telling the customers their own version. Something along the lines as: "Good news, the Fed's words on continuing their purchasing program mean that rates will continue to drop lower, and remain low into the Summer" Some people hearing this will delay and try to wait it out until a “lower rate” comes around. Bad move!
Here's the truth.
Yes, the Fed has been buying Mortgage Bonds, but if you look at what they are purchasing, they are buying a lot of FNMA 30-yr 5.5% and 5.0% Bonds...which won't have much of an impact on present interest rates. Why? First, see the Fed's purchases for yourself by hitting this link: Direct Link to View Fed Mortgage Bond Buying - http://www.newyorkfed.org/markets/mbs/index.html.
So why is the Fed buying these Bonds? Well if you think about it, it's very smart of the Fed...and maybe even a little sneaky...because 5.5% Bonds actually represent outstanding mortgages with rates of 6 - 6.50%, which are precisely the loans being refinanced at today's great interest rates.
Stay with me here...
With rates at present low levels, many of the mortgages in these FNMA 5.5% pools being bought up by the Fed will be refinanced and paid, thus giving the Fed a quick recoup on some of their investment. And this is likely a big reason why the Fed said they could continue this purchasing program beyond June, if necessary. Bottom line, the Fed buying these higher rate coupons will not necessarily help rates to move lower, as their actions do not impact the loans being originated at today's low rates.
Here's the most important part.
Sometimes I talk to clients who are in a situation where it makes sense to refinance right now, and save $250 per month for example. But when they hear the media throwing around teases of lower rates ahead, they decide to hold off on making the decision to save the $250 per month right now, in the hopes of gaining another $30 per month in additional savings with a lower rate than where we stand presently. Now clearly, rates could turn higher, and this window of opportunity could pass them by entirely.
The clincher is this:
Even if those clients ultimately are correct in timing the market, and eventually grab that lower rate and save another $30 per month - think of what they have lost by waiting. While they delayed, they lost the savings they could have gained by taking action sooner - or in the example used, $250 - for every single month they waited. So even if they got lucky and obtained the rate they were looking for, it could take years to make up what they lost by waiting.
I don't want anyone to miss an opportunity by either waiting, or not understanding what is at stake. Let's talk further on this - call or email me and let's discuss what this might mean for you.
Tuesday, February 3, 2009
Friday, January 23, 2009
Demand For Reverse Mortgages Climbs
By JILIAN MINCER
As the credit crisis has worsened, more seniors have turned to federally insured reverse mortgages to tap home equity and, in some cases, to prevent foreclosure.
While still a very small share of the borrowing market, demand for these mortgages climbed in 2008 as credit tightened and retirement savings plunged. The market is expected to grow significantly as loan amounts increase and baby boomers with inadequate savings tap their home equity to fund retirement. Consumer groups, however, warn that fees are high and the cash sometimes is misused.
"Americans have the bulk of their assets tied up in their homes, even now," says Greg McBride, senior financial analyst at Bankrate.com. "The demand for reverse mortgages is increasing by the day."
The Federal Housing Administration approved 115,176 loans in 2008, up 6.4% on a calendar-year basis.
Loan providers expect a jump in closings this year because a bill passed in July by Congress created a nationwide $417,000 equity limit for FHA reverse mortgages, also known as Home Equity Conversion Mortgages (HECMs).
Consulting firm Reverse Market Insight reported that Miami is the No. 1 market for reverse mortgages, followed by Los Angeles, Tampa, Fla., Santa Ana, Calif., and Baltimore.
As the name implies, reverse mortgages enable a person 62 or older to convert home equity into cash without selling a house. The older the person, and the more valuable the home, the more money they could borrow.
"It gives people another lever to pull," says McBride. "Reverse mortgages let you tap into the value of your home."
Peter Bell, president of the National Reverse Mortgage Lenders Association, says, "If the goal is to stay in the home, this is an excellent tool."
Unlike a home-equity line of credit, consumers don't need to have income or high credit score to apply for a reverse mortgage. They must own all or almost all of their home. The amount of money from the reverse mortgage depends on the person's age, appraised value of the home and current interest rates. A person must receive mandatory counseling before applying for the loan to ensure that they consider other options such as selling their home.
Payments can be set up as an annuity or a line of credit. The fees are high, with limits of $6,000 plus closing costs. The FHA guarantees the loans and ensures the homeowner that payments will be made as long as the borrower remains in the home. The FHA also guarantees the lender that it will receive its full payment.
"People who thought their retirements were set are finding out they don't have the resource they thought they would," says Bronwyn Belling, reverse mortgage specialist at the AARP Foundation, an affiliated entity of AARP. "It's a really valuable way to help make ends meet and to stay in their own homes."
But she warns that the decision should be delayed as long as possible and should not be made lightly because the fees are high.
Bell says the current economy has contributed to the demand. There are more cases of people who can't or don't want to sell their homes in the current market.
Today, a growing number of the borrowers are using the federally insured loans to free up monthly cash and to avoid foreclosure. McBride says consumers also use the extra cash for a repair or to pay taxes if they convert a traditional IRA into a Roth IRA.
The credit crisis has dried up the availability of private reverse mortgages with much higher limits, says Bell.
In some places home values have fallen so much that many seniors do not qualify for the loans.
Wealthy homeowners had been using the cash for a variety of reasons including to purchase second homes, distribute assets and purchase insurance policies.
Consumers shouldn't use the loans if they're not going to be in the homes for at least a couple of years because the upfront costs are high. Someone could expect to pay $15,000 or more in upfront fees and then additional monthly costs as well as the interest.
One of the biggest mistakes is using the money too early. The average rate of the borrower has declined to 73.1 years from 76 years in 2000.
"We're also starting to hear more reports that people are being encouraged to use the loan proceeds to invest unnecessarily in long term care insurance, shoddy home repairs or annuities that didn't pay until someone is over age 100," says Belling of AARP.
http://online.wsj.com/article/SB123264214889606533.html
As the credit crisis has worsened, more seniors have turned to federally insured reverse mortgages to tap home equity and, in some cases, to prevent foreclosure.
While still a very small share of the borrowing market, demand for these mortgages climbed in 2008 as credit tightened and retirement savings plunged. The market is expected to grow significantly as loan amounts increase and baby boomers with inadequate savings tap their home equity to fund retirement. Consumer groups, however, warn that fees are high and the cash sometimes is misused.
"Americans have the bulk of their assets tied up in their homes, even now," says Greg McBride, senior financial analyst at Bankrate.com. "The demand for reverse mortgages is increasing by the day."
The Federal Housing Administration approved 115,176 loans in 2008, up 6.4% on a calendar-year basis.
Loan providers expect a jump in closings this year because a bill passed in July by Congress created a nationwide $417,000 equity limit for FHA reverse mortgages, also known as Home Equity Conversion Mortgages (HECMs).
Consulting firm Reverse Market Insight reported that Miami is the No. 1 market for reverse mortgages, followed by Los Angeles, Tampa, Fla., Santa Ana, Calif., and Baltimore.
As the name implies, reverse mortgages enable a person 62 or older to convert home equity into cash without selling a house. The older the person, and the more valuable the home, the more money they could borrow.
"It gives people another lever to pull," says McBride. "Reverse mortgages let you tap into the value of your home."
Peter Bell, president of the National Reverse Mortgage Lenders Association, says, "If the goal is to stay in the home, this is an excellent tool."
Unlike a home-equity line of credit, consumers don't need to have income or high credit score to apply for a reverse mortgage. They must own all or almost all of their home. The amount of money from the reverse mortgage depends on the person's age, appraised value of the home and current interest rates. A person must receive mandatory counseling before applying for the loan to ensure that they consider other options such as selling their home.
Payments can be set up as an annuity or a line of credit. The fees are high, with limits of $6,000 plus closing costs. The FHA guarantees the loans and ensures the homeowner that payments will be made as long as the borrower remains in the home. The FHA also guarantees the lender that it will receive its full payment.
"People who thought their retirements were set are finding out they don't have the resource they thought they would," says Bronwyn Belling, reverse mortgage specialist at the AARP Foundation, an affiliated entity of AARP. "It's a really valuable way to help make ends meet and to stay in their own homes."
But she warns that the decision should be delayed as long as possible and should not be made lightly because the fees are high.
Bell says the current economy has contributed to the demand. There are more cases of people who can't or don't want to sell their homes in the current market.
Today, a growing number of the borrowers are using the federally insured loans to free up monthly cash and to avoid foreclosure. McBride says consumers also use the extra cash for a repair or to pay taxes if they convert a traditional IRA into a Roth IRA.
The credit crisis has dried up the availability of private reverse mortgages with much higher limits, says Bell.
In some places home values have fallen so much that many seniors do not qualify for the loans.
Wealthy homeowners had been using the cash for a variety of reasons including to purchase second homes, distribute assets and purchase insurance policies.
Consumers shouldn't use the loans if they're not going to be in the homes for at least a couple of years because the upfront costs are high. Someone could expect to pay $15,000 or more in upfront fees and then additional monthly costs as well as the interest.
One of the biggest mistakes is using the money too early. The average rate of the borrower has declined to 73.1 years from 76 years in 2000.
"We're also starting to hear more reports that people are being encouraged to use the loan proceeds to invest unnecessarily in long term care insurance, shoddy home repairs or annuities that didn't pay until someone is over age 100," says Belling of AARP.
http://online.wsj.com/article/SB123264214889606533.html
Monday, January 12, 2009
More oil is put into storage...
More oil is put into storage, waiting for prices to rise
Record contango pushes up oil inventories; Cushing stockpiles at the highest
By Moming Zhou, MarketWatch
Last update: 2:01 p.m. EST Jan. 12, 2009Comments: 25NEW YORK (MarketWatch) - A record amount of crude oil has been put into storage as investors and producers waited for oil prices to rise in the following months, in the hope that they can sell their oil at dearer prices.
Futures trading on the New York Mercantile Exchange indicated that a barrel of oil might fetch a much higher price in a few months. At Friday's closing, crude for July delivery was more than $13 higher than February crude, a gap that's never been seen between the two months' contracts.
Contango, or the situation where the price of a far future delivery commodity is higher than a nearer future contract, isn't surprising, with price difference typically representing the cost of storage and the time value of money.
But when the price spread is greater than the storage cost, "there is an opportunity to arbitrage at a profit without risk," said James Williams, an economist at energy research firm WTRG Economics. "Typically contango leads the storage buildup," he added.
Crude prices, currently nearly $110 lower than the record high above $147 hit in July, are expected to rise in the second half of the year as international economic stimulus efforts breathe life into the global economy and major producers cut output, analysts said. Instead of selling oil at a depressed price amid sluggish demand, more producers and investors are hoarding oil for future sales.
"When the market flips into contango, meaning the current month is less expensive than the month going forward, people start putting crude into storage," said Jeff Mower, editor-in-chief at Platts Oilgram Price Report. Contango "creates a financial incentive to store more barrels."
Record crude has been stocked at Cushing, Okla., the delivery point for futures traded on the Nymex. Cushing inventories jumped to 32.2 million barrels in the week ended Jan. 2, more than 9 million, or 40%, higher than a month ago, according to the U.S. Energy Information Administration.
That's the highest level since at least April, 2004, when the EIA started collecting Cushing data.
Super contango
The ongoing economic turmoil has pummeled oil prices and created contango that hasn't ever been seen. On Dec. 19, the expiring January contract ended at $33.87 a barrel, $8.49 lower than the February contract. That's the widest contango between two successive months' contracts, according to energy information provider Platts.
With price gas that big, oil investors can pocket lucrative profits by simply buying the January contract, taking the physical oil delivery and storing it, and at the same time selling the February contract.
Meanwhile, the oil storage business thrived as energy players sock away plentiful crude to wait out the current price trough.
Bruce Macphail, director of contract terminals at Enbridge, said the company's 15.5 million barrel storage capacity at Cushing is nearly full. He said the company holds contracts with a variety of energy companies ranging in length from six months to several years. Read more on oil storage.
As the current contango is expected to widen, Cushing inventories could rise further, analysts said. Storage capacity at Cushing stands at around 42 million barrels, according to Platts.
Rising inventories
Beyond Cushing, oil stockpiles are also on the rise across the nation.
Total U.S. commercial inventories, or oil held by producers, refineries and other users, jumped 6.7 million barrels in the week ended Jan. 2 from a week ago to hit 325.4 million, the highest level since May, 2008.
Refineries, meanwhile, are scaling back their production to wait for demand and prices to rise. U.S. refineries operated at 82.5% of their totally capacity of 17.6 million barrels a day at the end of last year, the lowest utilization rate since October, 2008.
Futures markets indicated gasoline prices will rise in the following months. On the Nymex, the September reformulated crude contract closed at $1.3817 Friday, or 24% higher than the February contract.
At the pump, regular gasoline averaged at $1.79 a gallon Monday, up 13 cents from a month ago, according to AAA's Daily Fuel Gauge Report.
Moming Zhou is a MarketWatch reporter based in New York.
Record contango pushes up oil inventories; Cushing stockpiles at the highest
By Moming Zhou, MarketWatch
Last update: 2:01 p.m. EST Jan. 12, 2009Comments: 25NEW YORK (MarketWatch) - A record amount of crude oil has been put into storage as investors and producers waited for oil prices to rise in the following months, in the hope that they can sell their oil at dearer prices.
Futures trading on the New York Mercantile Exchange indicated that a barrel of oil might fetch a much higher price in a few months. At Friday's closing, crude for July delivery was more than $13 higher than February crude, a gap that's never been seen between the two months' contracts.
Contango, or the situation where the price of a far future delivery commodity is higher than a nearer future contract, isn't surprising, with price difference typically representing the cost of storage and the time value of money.
But when the price spread is greater than the storage cost, "there is an opportunity to arbitrage at a profit without risk," said James Williams, an economist at energy research firm WTRG Economics. "Typically contango leads the storage buildup," he added.
Crude prices, currently nearly $110 lower than the record high above $147 hit in July, are expected to rise in the second half of the year as international economic stimulus efforts breathe life into the global economy and major producers cut output, analysts said. Instead of selling oil at a depressed price amid sluggish demand, more producers and investors are hoarding oil for future sales.
"When the market flips into contango, meaning the current month is less expensive than the month going forward, people start putting crude into storage," said Jeff Mower, editor-in-chief at Platts Oilgram Price Report. Contango "creates a financial incentive to store more barrels."
Record crude has been stocked at Cushing, Okla., the delivery point for futures traded on the Nymex. Cushing inventories jumped to 32.2 million barrels in the week ended Jan. 2, more than 9 million, or 40%, higher than a month ago, according to the U.S. Energy Information Administration.
That's the highest level since at least April, 2004, when the EIA started collecting Cushing data.
Super contango
The ongoing economic turmoil has pummeled oil prices and created contango that hasn't ever been seen. On Dec. 19, the expiring January contract ended at $33.87 a barrel, $8.49 lower than the February contract. That's the widest contango between two successive months' contracts, according to energy information provider Platts.
With price gas that big, oil investors can pocket lucrative profits by simply buying the January contract, taking the physical oil delivery and storing it, and at the same time selling the February contract.
Meanwhile, the oil storage business thrived as energy players sock away plentiful crude to wait out the current price trough.
Bruce Macphail, director of contract terminals at Enbridge, said the company's 15.5 million barrel storage capacity at Cushing is nearly full. He said the company holds contracts with a variety of energy companies ranging in length from six months to several years. Read more on oil storage.
As the current contango is expected to widen, Cushing inventories could rise further, analysts said. Storage capacity at Cushing stands at around 42 million barrels, according to Platts.
Rising inventories
Beyond Cushing, oil stockpiles are also on the rise across the nation.
Total U.S. commercial inventories, or oil held by producers, refineries and other users, jumped 6.7 million barrels in the week ended Jan. 2 from a week ago to hit 325.4 million, the highest level since May, 2008.
Refineries, meanwhile, are scaling back their production to wait for demand and prices to rise. U.S. refineries operated at 82.5% of their totally capacity of 17.6 million barrels a day at the end of last year, the lowest utilization rate since October, 2008.
Futures markets indicated gasoline prices will rise in the following months. On the Nymex, the September reformulated crude contract closed at $1.3817 Friday, or 24% higher than the February contract.
At the pump, regular gasoline averaged at $1.79 a gallon Monday, up 13 cents from a month ago, according to AAA's Daily Fuel Gauge Report.
Moming Zhou is a MarketWatch reporter based in New York.
Subscribe to:
Posts (Atom)
