Spokane Real Estate and Mortgage Info

This is an update to an earlier post I made on this topic.  Now that the details are published by the IRS it is clear that some clarification is in order.

Why does the heading of the article indicate you may not have to be a first time home buyer in order to qualify for the “first time home buyer” tax credit?

Because the government’s definition of “first time home buyer” is someone who has not owned a principal residence within the last 3 years.  If you’ve been renting for the last three years you are now a “first time home buyer.” If owned a rental property but not a principal residence, you are a “first time home buyer.”

Here are some pitfalls of the program that might trip you up:

• “Purchase date” is defined as the day your purchase closed escrow and recorded. This is typically 30 days or so after you signed the contract to purchase the home and there will be countless stories of people who missed the cut off dates by 1 or 2 days if they or their real estate agents misunderstand this definition.  To meet the November 30, 2009 deadline I'd make sure you are under contract to purchase a home in the Spokane area no later than late October, 2009.
  
• You cannot claim the credit if you purchase the home from a close relative.
  
• You do not qualify if you have recently married and your spouse owned a principal residence within the last three years.
  
• The $7,500 tax credit is advertised as repayable over 15 years (repayment is deferred for first two years) at $500 per year, unless you no longer occupy the home as your principal residence (rent it out, vacate it, or sell). If you do, the remainder of the tax credit is due and payable.
  
• The $8,000 “non-repayable” tax credit IS repayable if you sell the home within the first 36 months of ownership.
  
• If you purchased a home for less than $75,000 (during the 2008 qualifying period) or $80,000 (during the 2009 qualifying period) then the credit will be 10% of the purchase price.
  
• There is an income limit – the credit is phased out for single tax filers whose modified adjusted gross income (MAGI) is over $75,000, and married couples filing a joint return who’s MAGI is over $150,000. The IRS’s definition of MAGI is too lengthy for this article – read page 2 of Form 5405 to get an idea.

The tax credit is an IRS program, not a home loan program, and I am not a tax expert.  The IRS has creeated a great information page that includes many additional details. CLICK HERE to go to the IRS info.

If you qualify as a “first time home buyer,” or know someone that is – you should act quickly. Particularly if you have not yet filed your 2008 tax return. You could purchase a home in the next 30 days, eFile your 2008 tax return, and get a quick $8,000 cash gift from the IRS a couple of weeks later!

To get pre-approved for your first home, give us a call!

Note: At this time the current stimulus plan has only been agreed to by the Senate and the House of Representatives - there has NOT been a final vote yet so details are still subject to change.

 The tax credit (not a tax deduction) will be 10% of the purchase price of a home, up to a maximum of $7,500 or $8,000 depending upon when you purchased. In other words, the government is providing first-time home buyers an interest-free loan to be used for home improvements or any other use.  The confusing part is we will now have two different, but similar, first time home buyer tax credit plans running.

 Is it $15,000, is it $7,500, or...Congress seems to have settled on $8,000 as the amount of the tax rebate for first time home buyers. The other two significant alterations just announced is that the tax credit would be forgiven if the buyer does not sell the home in the first three years, and the opportunity to purchase a home is extended to December 1,2009.

This will mean that first time home owners who purchased between April 9th, 2008 and December 31st, 2008 fall under the rules of the current tax credit plan of $7,500 with repayment required over 15 years.

The NEW plan will apply to those first time home buyers who purchase a home after January 1st, 2009 and before December 1st, 2009. Hey, it's the U.S. Tax Code - did you think this would make sense?

Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.

FAQ's:

1. What is the definition of a first-time home buyer? The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.
   
2. How do I claim the tax credit? Do I need to complete a form or application? Participating in the tax credit program is easy. You claim the tax credit on your federal income tax return. No other applications or forms are required.
   
3. Does the credit amount differ based on tax filing status? No. The credit is in general equal to $7,500 or $8,000 for a qualified home purchase, whether the home buyer files taxes as a single or married taxpayer. However, if a household files their taxes as "married filing separately" (in effect, filing two returns), then the credit of $7,500 or $8,000 is claimed as a $3,750 or $4,000 credit on each of the two returns.
   
4. Are there any circumstances for which buyers whose incomes are at or below the $75,000 limit for singles or the $150,000 limit for married taxpayers might not be able to claim the full $7,500 tax credit? In general, the tax credit is equal to 10% of the qualified home purchase price, but the credit amount is capped or limited at $7,500 or $8,000. For most first-time home buyers, this means they will receive the maximum credit. For home buyers purchasing a home priced less than $75,000, the credit will equal 10% of the purchase price.
   
5. What is the difference between a tax credit and a tax deduction? A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $7,500 in income taxes and who receives a $7,500 tax credit would owe nothing to the IRS. A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $7,500 in income taxes. If the taxpayer receives a $7,500 deduction, the taxpayer’s tax liability would be reduced by $1,125 (15 percent of $7,500), or lowered from $7,500 to $6,375.
   
6. Does the credit have to be paid back to the government? If so, what are the payback provisions? If you purchased between April 9th, 2008 and December 31st, 2008 - Yes, the tax credit must be repaid. Home buyers will be required to repay the credit to the government, without interest, over 15 years or when they sell the house, if there is sufficient capital gain from the sale. For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year. The home owner does not have to begin making repayments on the credit until two years after the credit is claimed. So if the tax credit is claimed on the 2008 tax return, a $500 payment is not due until the 2010 tax return is filed. If the home owner sold the home, then the remaining credit amount would be due from the profit on the home sale. If there was insufficient profit, then the remaining credit payback would be forgiven. If you purchase a home between January 1st, 2009 and December 1st, 2009 - You might NOT have to pay back the credit, if you own the home for at least three years.

Please remember, these are my interpretations of the plan as I understand them – you must consult with your tax accountant to determine how this plan will impact you and your taxes.

 If you, or someone you know is thinking about purchasing their first home, give me a call. Getting pre-approved is easy! 15 minutes on the phone and I'll get you started.

Michael Mullin, WA 510-LO-44740
Branch Manager/Mortgage Consultant
First Priority Financial/Lake Spokane Home Loans
Office: 509-252-9151

Have you given up? Thrown in the towel?

Well Newsweek magazine says you have in their article "The Quitter Economy." I know catchy headlines sell magazines, but this got me riled up this morning - you CAN'T QUIT!! There are families to feed and lives to live.

Of course we're not giving up. And it doesn't take much on your part to do the complete opposite:

• Yesterday I had a lunch with a top producing real estate agent in my area. Janet, I met him via some of that "junk" advertising that Realtors don't respond to.
• This morning I have a scheduled conference call with another local Realtor to discuss some joint marketing.
• Contrary to the Newsweek article, mortgage brokers ARE APPROVING loans. The banks and credit unions may be choking on their limited menu of loan products but mortgage brokers are doing fine, thank you very much. In fact I've spoken to a dozen other brokers in the last two weeks who want to join our firm - yes, we're hiring (as are others). Residential home loans are being approved everyday for people who have jobs, decent credit (not perfect!), and a few thousand dollars in cash.
• Home buyers are getting incredible deals on foreclosed homes, REO's (bank owned properties), and short sales. Coupled with low interest rates, your buying power is pretty good right now.
• Exising home owners are refinancing into lower rates and lower monthly payments, or converting their ARMs and Option ARMs into fixed rate loans.

I don't mean to trivialize the situation of anyone who has lost a job or a home. That IS a difficult situation but you still CAN'T give up.

Have you given up?  Let's talk about it and turn it around for you.

Michael Mullin
Lake Spokane Home Loans
First Priority Financial

Spokane, WA
(509)252-9151
MMullin@TheLoanConsultant.com

A friend forwarded me a story posted by Diana Olick with CNBC titled "What Is Worse - Personal Bankruptcy Or Foreclosure?"

The full article can be read HERE

I thought Diana's post had some valid points but there were some important details missing - so I emailed her.  I'm not sure I should have done that, but I've already hit the Send button in Outlook so it's too  late to take back my rant.

Because my comments are now in the public domain I figured I may as well share them with everyone else -

"Diana, I read your post with interest because I am in the lending industry and am talking to clients every day that are asking me the same question. The problem is that the answer depends upon the borrower’s circumstances, so there is no one answer. IF you want to stay in your home then bankruptcy might be the “best” choice because you may be able to get the judge to reorganize your debts in such as way that you can afford the mortgage payments. The reason the new administration is working on the “cram down” provision for bankruptcy judges is that may be the most effective way to stem the tide of foreclosures. Now, I’m not a proponent of allowing judges to forgive mortgage debt because I think it opens other cans of worms – however, lowering the debt level on a home to the current market value may just give the homeowner the HOPE they need to keep making payments. People are “walking away” from their mortgages because they have no HOPE of ever seeing that money again. When you are $200,000 upside down in a condo it is going to be a very LONG time before you ever get back to even again – so why keep making payments? Every day we see Fortune 500 executives getting “bailout” money from the US Government (yours and my tax money) because they ran their companies into the ground. Why is a corporations' responsibility to manage their finances properly any less than yours or mine? Regarding the FICO rep’s explanation of how a foreclosure effects your credit – he didn’t have the entire story. I’ve personally seen a credit report with a 700 FICO from a loan applicant that had a foreclosure one year prior – so I’m not sure I believe his “200 point drop” comment. However, the mortgage giants (Freddie Mac, Fannie Mae, HUD, and VA) ALL have provisions for dealing with applicants that have had foreclosures on their credit reports REGARDLESS the actual FICO score. In all cases, an applicant will have to wait significantly longer to obtain a mortgage after a foreclosure than after a bankruptcy."

So, what is worse - personal bankruptcy or foreclosure?  You are going to need a CPA to figure the tax consequences and an attorney to truly answer that question. As to which one will be worse for your credit report - I don't think that's very important in light of the other troubles you have.

If you want to talk about how a foreclosure or bankruptcy effects your ability to purchase a home - now that IS something I can help you with.  Give me a call or shoot me an email and we can talk about it.

Well, the Fed has finally done something that should make all homeowners and prospective homeowners happy...they lowered their target for the Federal funds rate to 0%-25% While that does not DIRECTLY impact mortgage interest rates (and it would take pages of economic and fiscal speak to explain why) yesterdays' move HAS had a positive impact. Two weeks ago I was able to offer clients rates in the mid 5% range. This morning I logged into my favorite wholesale lender to see 4.5% with NO ORIGINATION FEE!!!! That's unprecedented.

Who benefits:

Existing homeowners in Spokane, Spokane Valley, South Hill, Mead, Nine Mile Falls, and other neighborhoods in Washington, Idaho, and California need to contact their favorite lender ASAP to see if they can benefit from a refinance. I've seen this refinance rush many times in the past and those that wait to call miss the low rate opportunity as lenders get inundated with loan applications. Keep in mind that lenders have been cutting staff dramatically the last few years so there is a shortage of true mortgage professionals still in business to help.

Prospective homeowners - this may be a once in a lifetime event. You've got foreclosures and FSBO's competing with the normal resale market creating a serious advantage in your favor. Throw in the low interest rates and you've got a unique opportunity that won't last long. If down payment is an issue - no worries. There ARE still some 100% financing options available (limited, I'll admit, but available none the less), and FHA loans only require a 3.5% down payment.

Real estate agents - look like a HERO to your clients! Proactively inform them of this sudden rate drop. If they've already locked in with their lender they need to have a conversation to see what can be done to lower the rate or maybe get a second opinion. If you have a database of past clients - notify them! What better excuse to contact your great clients than to save them some money. Well, I've got to sign off and get to work! Have a great day.  If you have a home loan, you need to consider a refinance as well.

2009 Conforming And FHA Loan Limits

The Federal Housing Finance Agency (FHFA) announced that the conforming loan limit will remain $417,000 in 2009 for most areas. They have designated some areas as "high-cost" where the limits are equal to 115 percent of local median house prices and cannot exceed 150 percent of the standard limit, which is $625,500 for one-unit homes in the continental U.S.

The only counties in WA that have higher limits than $417,000 are San Juan County at $483,000 and King, Pierce, and Snohomish Counties at $506,000.

In Idaho, only Blaine County and Teton County loans can exceed $417,000.

HUD also announced that the FHA loan limit for the Spokane area will remain at $271,050.  For Kootenai County the limit is $286,250.

Click on the links below for more information

FHFA Press Release
2009 High-Cost Area Loan Limits
2009 Loan Limits for All Counties

Keep in mind, these figures are LOAN limits - for a sales price "limit" you would add in the down payment required.

If you are selling or buying a home that exceeds these amounts you need to get with a lender for a mortgage planning session.  Jumbo interest rates are VERY expensive and the 2nd mortgage market has been dramatically curtailed.  In other words, your options for financing a home in the Jumbo price range are very limited.

During the weekend of October 17th, 18th, and 19th about 30 members of area Search and Rescue teams assembled at the Spokane Mountaineers' Chalet on Mount Spokane.

The Mountaineers have an incredible asset in the Chalet and the 40 acres surrounding it - here's a picture from the deck looking towards Idaho -

Participants started arriving Friday evening and settled into a humongous feast of chicken fajitas with all the fixings accompanied by Apple Pie and Cheesecake for desert.  A gigantic THANKS to Karen Coates for putting it all together and allowing your husband Joe to feed us!

Hey!  Two hours of studying FEMA's National Incident Management System (NIMS for short) is very hard work - for those of us that managed to stay awake.

Saturday was Map/Compass/GPS training, Litter Carrying, and Knots - both classroom and field sessions.  The Navigation classes were taught by Phoebe Duke of Intermountain Search Dogs, Scott Foster of SMSAR taught Knots and Chad Skidmore gave the instruction on proper use of the patient litter.

Sunday was another full day with classes on Crime Scene Investigation and Search and Rescue Techniques, taught with skill by Jackie Bell and Andrea Sawyer

Search and Rescue is a fun and rewarding volunteer activity, and there are specialty groups for all outdoor enthusiasts - there are dog, ATV, horseback, snowmobile, dive, climb and ground teams.  You are welcome to participate in one or more!  For a list of all the search and rescue teams in Spokane County CLICK HERE.

If you know of someone who might be looking for an opportunity to help the community while enjoying the outdoors at the same time, shoot me an an email.  I'd love to send you more information.

I'd like to extend an invitation to come out and help a very special young man this Saturday from 8:30am to 3:00pm.

Boy Scout Connor Coates from Nine Mile Falls' Troop 19 will be coordinating a huge clean up project at John H. Shields Park.  For details CLICK HERE.

Part of the work involves sand blasting graffiti that is so far off the ground we will need to access via rope and harness climbing methods.  If nothing else, come out to watch the spectacle!

Please note - do NOT confuse this park with the City of Spokane's Minnehaha Park which is about 2 miles away.  John H. Shields is located on E. 5625 Upriver Drive: 1 mile east of Havana on Upriver Drive, north at City's Upriver Dam site.

Hope to see you there!

I'm going to share a secret with you - my allowance is $60 per month.  That's right - $60 dollars to spend on dinning out, movies, coffee, and anything else I may want to treat myself to.

I wasn't always this frugal. In fact, my family can overspend with the best of them!  Fortunately my wife and I decided to stop the crazy spending and put ourselves on a financial diet.

Should your allowance be $60?  Well that depends.  If you are putting 10% of  your gross income into savings every month and have no credit card debt I'd say you could probably bump that figure up.  If, on the other hand, you have less than 3 months worth of your income sitting in your regular savings account for emergencies, have any credit card balances, or are saving less than 10% of your gross income I'd suggest your number should be less than $60 until you can achieve those three benchmarks.

So how exactly do you get yourself on such a financial diet and then maintain? It's called "CASH ONLY." 

For all your personal expenditures you must pay with cash from your wallet or pocket book.  The amount of your allowance is not the critical part of this diet, it is the use of cash that is key.  Having a finite amount of paper in your pocketbook that you can see every time you reach for some more is the only way to reign in the spending.  

Pay yourself the allowance on the first of every month and then have fun!  Of course, when the cash runs out you are done for that month.  No reaching for the debit or credit card when you run out mid-month.  No cash, no play!

We implemented this for our entire family, including our 13 year old and 10 year old.  It's amazing the choices each individual will make when it is THEIR allowance on the line. There will be times that we drive through McDonalds' because one person wants to waste their money on some fries and the rest of us will not order anything and wait to get home to snack.

For each of the last 6 months I've managed to spend $20 or LESS of my allowance.  

My passion is my involvement with Spokane County Search and Rescue, so I put away $40 per month to buy my SAR toys (er...equipment!).  I never realized I could be THIS frugal until I  had a finite amount of cash in my pocket.

How low do you think you could get your allowance to?

Seems every day brings to light another bizarre angle to this incredible mess - today I was made aware of the web site You Walk Away.

Are they legit and can they help distressed homeowners?  I have no idea!

I can tell you that if you are considering "walking away" from your home you had better consult both an attorney and a CPA. There are gigantic legal considerations and potentially expensive IRS implications as well when you abandon your home and mortgage.

I'm sure most of our brethren East of the great state of Arizona are wondering "why in the heck are these funny Californians and Nevadans walking away from their homes?!"  And why are the foreclosure rates exceeding even the most pessimistic lender's estimates?

I'll tell you why - the erosion of value and long term loss of cash and equity are beyond comprehension and even borrowers with 700+ FICO scores are starting to abandon their homes.

Here's a quick  example - In the summer of 2005, Ms. First Time Move Up Buyer purchases a home for $385,000 in Sacramento California and puts $100,000 cash down from the sale of her first home.  Yesterday she niavely calls her friendly lender (me) to ask about refinancing.  OOPS!!  Current value of her home is only $170,000.

In case you like pictures better than words - here's some data I found on Zillow for a randomly selected property in Northern California.  Just for fun, go to Zillow yourself and type in a random address and look  at all  the "hills" created by tanking values.

Last sale and tax info

Sold 03/29/2007: $465,000

Above data from Zillow web site - CLICK HERE to see full property details

What do  you think went through my client's mind when I told her the news?  First, the shock as she realizes her $100,000 CASH is gone.

Forever.

She's got a loan for $280,000 so she is also at least $125,000 upside down.  There is no loan modification or rate reduction that is going to erase the loss and put the cash back in her pocket.

If she decides to stay and do the honorable thing and pay back her lender she has at least 10 years before she can hope that values will come back enough so  she can sell  and pay off her mortgage.  Maybe.  It might be 15 years.

Or, she can stop making payments now and take the hits to her credit report for a foreclosure.  Then she can go out and lease/option a home that is twice the size of the one she is currently in, and in a better neighborhood for less than the payment she is making now.  In about 3-4 years she'll be eligible for mortgage financing again and can pay off her landlord/lessor.

Why do I think she'll do this - because she asked me if it was possible.

This is just one person and it is a real story.  I spoke to this person Monday.  Now let's multiply her problem ($200,000 plus loss of equity in three years) by EVERY home purchase in California, Nevada, and Arizona from about 2003 to end of 2006.  In California alone they sell about 50,000 homes per MONTH.  So not counting any state but California and ignoring the fact that people who bought in 2001 and 2002 are probably underwater as well - you have almost 2 million families making the same decision my client is, in California.

If Nevadans, Arizonans, Floridians(?) are similar in thought, they'll be "walking" too.

What would (will) you do?

P.S. No comments on how I'm advocating people walking away from their mortgages - I'm just pointing out the obvious.

P.P.S The reporters at the Wall Street Journal agree with me - seems they just published a similar article today.  There stats are even more sobering - almost 30% of  people who bought homes in the last 5 years are underwater.  You need to read this - the foreclosure problem is going to get worse before it gets better.