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Is This The Right Time To Buy Your First Home?

by TeamForYOUrDreams

 The old saying “Buy Low, Sell High” sure sounds like obvious advice.  How can a first time homebuyer tell when to buy real estate?  

 

There are two fundamental considerations, for all buyers:

-          Can you afford the home now?

-          Will you stay in it long enough to justify the initial costs?

 

The first point includes consideration of mortgage rates.  This point also means you need to consider your income, assets, and other debt – can you make the commitment to buy and maintain a home now?

 

The second point recognizes that there are some significant one-time costs when you buy, and when you sell, so doing both quickly is a bad idea.  It is typically recommended that a buyer feel sure they will stay in the home 2-3 years, minimum, but situations do vary. 

 

First time homebuyers have two huge advantages right now:

-          You don’t have to sell another home first!

-          You can get up to $8,000 from the government!  Not a loan, but free money!

 

We are in a slower market than we are used to, meaning there are more homes for sale now than usual, and fewer qualified buyers.  That, combined with the low interest rates available, defines this as a Buyers Market.  As a non-homeowner, that means you get the benefit of buying in a Buyers Market without the penalty of selling in one too.

 

So, if you can buy now, should you?

-          Larger than usual inventory of homes for sale means more to choose between

-          Low interest rates mean you can get more home for the same money

-          A Buyers Market means you have more clout than in a Sellers Market

-          The government’s $8,000 gift expires Dec. 1

 

That adds up to making this an unusually good time to buy a home anywhere from Cary to Wake Forest or any other part of the Triangle in North Carolina.

 

For a more detailed discussion on this topic, please visit http://solonglandlord.com/steps-for-first-time-home-buyers-to-take/should-first-time-homebuyers-buy-now.

New Loan Limits are Coming

by

Posted by Tim Burrell - As a part of the new stimulus package recently signed by President Bush, the loan limits for Fannie Mae, Freddie Mac and FHA loans were increased to 125% of the median price of a home in the area, up to an amount of $729,750.    The Department of Housing and Urban Development has released the increased limits for the state of California yesterday, and the limits for other states are expected to follow in short order.   The new loan limits are set county by county for the entire state.

What does this mean for North Carolina, particularly Triangle real estate?  The initial projections were that it would probably mean very little.  Most of the counties in North Carolina have homes where 125% of the median price is still under the old limit of $417,000.  All of the four counties in the Triangle fit into this category. 

However, it just came out today that the loan limits for Wake County went up from $224,000 to $295,000 and the loan limts for Durham County was raised to $331,000.  So, there are more homes that can use FHA, Fannie Mae and Freddie Mac loans (called GSE loans).  This will help Triangle real estate, particularly Wake County real estate and Durham county real estate, as homes that are priced near $300,000 to $350,000 will have better financing available to encourage their sale.

 

  

Posted by Tim Burrell - The pain may have been lessened for some "short" sales.  One of the problems with a "short" sale used to be that a seller had to pay income tax on the amount the payment was "short".  A "short" sale is where a home is sold and the seller does not repay the full amount of the mortgage, i.e. the payment is "short".  So, if you owed the bank $300,000 and you paid $250,000 when the sale closed, the $50,000 that you are short is taxed as ordinary income.  That could cost you $14,000 to the IRS and more to the state taxing authorities.

The Mortgage Forgiveness Debt Relief Act of 2007 was just signed into law eliminating the income tax for some sellers whose sales close between January 1, 2007 and January 1, 2010.   There are several requirements:

1. The property sold must be your principal residence, as defined in section 121 of the Internal Revenue Code.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

2.  The debt that is forgiven must be  "Qualified Principal Residence Indebtedness", i.e. the money used to acquire a principal residence.

3. There is a limit of Two Million Dollars for the amount of non-taxable Debt Forgiveness, a limit that will not affect anyone in the Triangle.

These rules raise some questions. The biggest one is what is Qualified Principal Residence Indebtness.   The law says "For purposes of this section, the term `qualified principal residence indebtedness' means acquisition indebtedness . . . with respect to the principal residence of the taxpayer."  So, if you refinanced the house for more than what you owed and took money out to spend on other things, that additional amount is not covered by this law.  For example, you had a loan of $200,000 when you bought the house.  You refinanced it with a loan of $400,000, and used the additional money to pay off your other debts.  If you sell the home and pay $350,000 instead of the $400,000 debt,  this new law does not protect you from paying income tax on the $50,000 that was "short".  If you take out a mortgage to buy the house, refinance it for the amount owed on that mortgage (and no more), then your payment to pay off the mortgage is $50,000 short, you will not pay tax on that amount.

Another question is do you need to have lived there for 2 years out of the five years before your home is sold, as that requirement exists to establish a home as your principal residence in order to avoid paying tax on the gain when you sell your primary residence.   It does not make sense to impose that requirement based on the purpose and intent of the legislation, but there is a lot of the Internal Revenue Code that does not make sense.

One more question is what happens if you refinance the home and use the additional funds to remodel the home.  Normally, that would increase your basis in the home, so it would decrease your tax liability if you sold the house.  So, it would be logical to allow this type of refinancing to be subject to the protection of the new law.  Again, it is hard to rely on logic when dealing with the IRS, so I hope there are some regulations developed to interpret this situation.

The amount of forgiven debt that is not taxed is subtracted from the basis of your next house, so that when you sell it, you have to recognize more gain on that sale.  For example, you go short by $75,000 when you sell a home, you buy another one later for $400,000.  Your basis is not $400,000, but $325,000 as the $75,000 is subtracted from your basis.  So, when you sell it, you will have $75,000 more gain.  Remember, there is an exemption from tax for $500,000 of gain for a married couple filing jointly, so this amount of additional gain could be covered by this exemption.  Even if it is not, if you make more than $500,000 in gain and have to pay some tax, you should not cry.

One other good thing this law did was to extend the deduction for the payments for Mortgage Insurance to 2010.  We used to avoid Mortgage Insurance in sales that did not have 20% down payment, as it was not deductible.  Now it is.

It is hard to find the text of the law, but here is a link to how it looked when it passed, so you can read it for yourself. http://tinyurl.com/2qdnwj .   This law is so new, and in need of interpretation, that if you find yourself in this situation, you need to consult a tax professional before you sell.

So, for people who bought a home, did not refinance it for more, and sold it for less than they owed, there is no income tax due on the short sale, so long as the sale is less than two million dollars short.  This legislation eliminates one of the most miserable parts of a short sale, as it was obnoxious for a homeowner to loose all their equity, have to sell their house, and then get a tax bill.

If you have any thoughts on this, I enjoy comments.

Posted by Tim Burrell.  Many articles are appearing that analyze the Bush Administrations proposal to stimulate the economy.  Virtually all of the articles miss the most important point, which is the same point that the stimulus package misses.  It is claimed that the biggest problem in the economy is the sub-prime loan fall out, and its effect on limiting the availability of financing, which in turn effects the real estate market.  Without financing, would be buyers cannot buy the homes that are increasing the inventory of homes for sale,  particularly in areas other than the Triangle.  When the inventory is too large, the real estate market is out of balance and prices decline.  These other areas have an indirect effect on sales in the Triangle, as people trying to move here from depressed areas have a hard time selling their homes, so they cannot buy homes here.
 
Since the problem is a lack of financing, the solution is to provide more financing.  New regulations proposed by Congress restrict the type of financing that can be sold easily, basically eliminating sub-prime loans, so that most lenders and brokers favor loans associated with FHA and similar organizations.  The loan limit for these conforming loans is $417,000, which is too low to help the markets like California where foreclosures are high and the inventories have dramatically increased.  So, raise the loan limits for these loans at least to $625,000,  as suggested by the National Association of Realtors.  This will allow more loans to be available, which will allow more people to qualify for financing, and allow more homes to be sold.  It will cost the taxpayers nothing, instead of the $150 Billion proposed by the Bush Administration.
 
The House of Representatives has passed legislation that would allow this to happen.  The Bush Administration indicates it will only support this legislation if it includes a change in the way the FHA is run, and provide for more oversight.  The Senate is so opposed to this idea that the legislation needed to finish what the House of Representatives started has not even been introduced.  This ideological dispute over a theoretical problem is preventing a no cost solution from going forward.  So, people lose their homes to foreclosure, homeowners watch their equity erode, banks get into financial trouble as their inventory of Real Estate Owned (REO), as the administration and the Senate debate over this unimportant issue.  This reminds me of the debate in the 1960's over the shape of the table at the negotiations to end the Vietnam War.  While the politicians debated whether the table should be round or square (and they would not start negotiating until they agreed on the shape of the table), soldiers and civilians died in continued fighting.   Similarly, while the Bush Administration tries to force its agenda of FHA oversight on the Senate, the housing market in many areas of the United States suffers. 
 
It is hard to see how you can stimulate the real estate market using the indirect approach of giving consumers a tax rebate, which is a small amounts of money to millions of consumers, expecting they will spend it immediately.  Consumers will spend these little amounts on little things, for which WalMart and Best Buy will be thankful.  If there is a boom in Big Box stores, there may be more sales clerks hired, and maybe some of the new hires will make enough money to buy a house, but not in California or other high cost areas that are in the most need of assistance.
 
The best approach is to Keep It Simple.  If you want to help the real estate markets that are out of balance, do something that costs nothing which directly aids those markets by correcting the shortage of financing.  If you are a politician you might like the Administration's proposal as it may get you the vote of the consumer who just bought a big screen TV.  But it would be wiser to do a great deal more to solve the problem by providing more financing, and the most acceptable financing is FHA loans.  
 
We are fortunate in the Triangle that most of the homes can be purchased with a loan of $417,000 or less.  We are also fortunate that the real estate market in the Triangle is good, particularly for homes priced under $417,000.  But, it would be nice if the politicians stopped their petty squabbles to help the rest of the United States.
 

Baseball in the Triangle

by Team for YOUr Dreams

Submitted by Tim Burrell - The Triangle area has two minor league baseball teams, the Carolina Mudcats and the Durham Bulls.  The Durham Bulls got a great deal of publicity from the 1988 Movie,  Bull Durham with Kevin Costner and Susan Sarandon.  So, I went to see the more country Team, in a more country setting, the Carolina Mudcats, and affiliate of the Florida Marlins.

Five County Stadium is well east of Raleigh, in Zebulon.  As the name implies, it is near the junction of five different counties, most of them full of people enjoying country living.  For example, when the Public Address system played Lynyrd Skynyrd's "Sweet Home Alabama", everyone around us sang along.  The stadium is easy to get to, as the new Interstate 540 and the Highway 64 Bypass take you there in minutes.   The game honored the 100 birthday of the City of Zebulon, so three past Mayors threw out ceremonial first pitches, and they served free birthday cake after the fourth inning.

I grew up in Los Angeles watching the Dodgers at Dodger Stadium.  The Mudcats are much more fun.  The stadium is much more intimate, so that nearly all the seats are good.  Get some Nachos with Chili and Cheese and you can sit at picnic tables on the first level near home plate and watch while you eat.  Of course, no one hogs the seats, as that would not be Southern, and they leave when their snack is through.  Cute Kids cary trays of lemonade, orangade and cotton candy through the stands yelling out their products to the audience.

The Mudcats have their mascot, Muddy, a catfish, and his side kick Little Muddy.  Muddy arrived on a four wheeler, racing in from the outfield, to shoot T-shirts into the stands.  In between innings, Muddy presided over a gunny sack race and a contest to toss bean bags over your head to be caught by your partner in a skillet.  Then, he raced a brother and sister Team (who looked to be about 5 and 7 years old) around the bases, and luckily enough Muddy lost to the children so they could get their prize.   The stands were full of families with children of all ages.  Most of the people in the rows around us knew each other.  There were a few groups with three generations of family, down to the three year old who danced to all the music and said "Muddy Funny" after one of the mascot's performances. 

The junior high school girls behind us had a thing for Mudcat player number 7, aptly named Chase.  When Chase trapped an opposing player off base in a run down, they screamed their lungs out, until Chase dropped the ball after the tag, so they made excuses for his error.  The level of play is not the Dodgers, which makes it more exciting.  In the big leagues, if they can touch it, they catch it.  Not at Five County Stadium, so the suspense lasts until the play is finished.  That is what I loved about Little League, you were not sure if they would catch it until it landed in their glove and even then you had to wait a few seconds to see if it would stay there.

I do not think I will go back to the big leagues.  The Mudcats are much more fun.  I even got an official hat, in the right size for my large head, so I can be properly dressed when I return.  If you want to see more about the Team, click here .  By the way, the Mudcats beat the Tennessee Smokies by a score of 6 to 5, with two big comeback innings.   The crowd loved it.

One of the joys of living in the Triangle and selling its Real Estate is that you are in a sophisticated group of cities, with every high tech job and gadget readily available.  But, you are only minutes from the country and a different style of living.

Displaying blog entries 1-5 of 5

Contact Information

Photo of Team For Your Dreams, Inc. Real Estate
Team For Your Dreams, Inc.
REMAX United
7721 Six Forks Road, Suite 110, Raleigh, NC 27615
Raleigh NC 27615
919-846-3272
919-812-5111
Fax: 310-347-4041