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Volume 3

Issue 10

October 2009

Tax Incentives Lead the Way James N. Barnes

Senior Loan Officer SWBC Mortgage 9600 Great Hills Trail Suite 145E Austin , TX 78759 (512) 531531-1800 Office (512) 228228-8124 Cell

Specializing in  Residential Purchases  Residential Refinances  Commercial Properties  Home Equity Loans

In This Issue


he government is spending tens of billions to incent consumers to spend their money purchasing homes, cars and even energy-efficient improvements to their houses. Certainly we are seeing the results of these programs. Last month the "cash for clunkers" program contributed to a 2.7% gain in retail sales. Existing and new home sales have also been strong for several months now. There is a debate as to the long-term efficacy of these programs.

Witness these conflicting quotes from a recent CNN/Money article: "W her e the r eco ver y package has seen real bang for its buck is in the use-itor-lose-it incentives made available to consumers," said Bernard Baumohl, chief global economist at the Economic Outlook Group. "It's one of the few stimulating programs that has been very successful, because consumers want to take advantage of the deal before they lose it." This quote was added: "I'm troubled by these programs to the extent that they Continued on Page 3

Did You Know… ♦The sale prices of U.S. office properties rose 4.3% in the second quarter, the first increase since the second quarter of 2007, according to a report from Moody’s Ratings Agency. The secondquarter increase is significantly ♦different from what happened in the first quarter when office prices fell 18.6%. Neal Elkin, president of Real Estate Analytics, said he was convinced the second-quarter increase isn't just a temporary blip. He said the improving economy is luring investors to ♦commercial property and persuading companies to reconsider occupancy projections as office prices start to look cheap. Overall, Moody's said ♦commercial property transactions in June rose by 50% from May and that the total transaction volume more than doubled... Source: Financial Times

Selected Interest Rates September 17, 2009 30 Year Mortgages 2009 High (June 11) 2009 Low (April 30) 15 Year Mortgages 5/1 Hybrid ARMs 1 Year Adjustables 10 Year Treasuries

5.04% 5.59% 4.78% 4.56% 4.51% 4.58% 3.39%

Sources: Fed Reserve, Freddie Mac Note: Average rates do not include fees and points. Information is provided for indicating trends only and should not be used for comparison purposes.

P2 New Home Quality Rises || P2 Last Chance for The Tax Credit? P3 New Homes on the Rise || P4 More Incentives on the Way

New Home Quality Rises


uilders may not be putting up as many houses as they did during the boom, but what they are building, they're building better. According to the J.D. Power and Associates 2009 U.S. New -Home Builder Customer Satisfaction Study, overall customer satisfaction increased for the second consecutive year, up 32 points to 811 on a 1,000 point scale. Satisfaction with the quality of the home also grew,

Last Chance for the Tax Credit?


n 2008, Congress enacted a $7500 tax credit designed to be an incentive for first-time homebuyers to purchase a home. For 2009, Congress has increased the credit to $8000 and made several additional improvements. This revised $8000 tax credit applies to purchases on or after January 1, 2009 and before December 1, 2009. Though there are several efforts pending in Congress to extend the tax credit, if you are considering purchasing now would be the time in case these efforts are not successful. Below you will find information that will help you determine your eligibility and how the tax credit may help you.

to 825 up from 799. The rate of customer-reported problems dropped to 9.55 problems per home down from 11.51 problems in 2008. "Fierce competition among home builders has led to a market w here onl y the strongest companies have survived," said Paula Sonkin, Vice President of the Real Estate and Construction Industries Practice at J.D. Power and Associates. "This is great news for new -home buyers since builders are offering unprecedented high levels of quality, value and service at relatively low prices." Phoenix, Tampa and some California markets recorded the greatest gains in overall satisfaction. J.D. Powers rates satisfaction on nine criteria: workmanship/ materials; builder's warranty/ customer service staff; price/ value; builder's sales staff; construction manager; home readiness; recreational facilities provided by the builder; builder's design center; and location... location... Source: CNN/Money

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What is the homebuyer tax incentive? The credit is $8000 and no repayment is required. Any home that is purchased for $80,000 or more qualifies for the full $8000 amount. If the house costs less than $80,000, the credit will be 10% of the cost. Who is eligible? Only first-time homebuyers are eligible. A person is considered a first-time buyer if he/she has not had any ownership interest in a home in the three years previous to the day of the

purchase. How does a tax credit work? Every dollar of a tax credit reduces income taxes by a dollar. Credits are claimed on an individual’s income tax return. Thus, a qualified purchaser would figure out all the income items and exemptions and make all the calculations required to figure out his/her total tax due. Then, once the total tax owed has been computed, tax credits are applied to reduce the total tax bill. So, if before taking any credits on a tax return, a person has a total tax liability of $9500, an $8000 credit would wipe out all but $1500 of the tax due. What happens if the purchaser is eligible for an $8000 credit but his/her income tax liability is only $6000? This tax credit is what is called a “refundable” credit. Thus, if the eligible purchaser’s total tax liability was $6000, the IRS would send the purchaser a check for $2000. The refundable amount is the difference between the $8000 credit amount and the amount of tax liability. Is there an income restriction? Yes. Individuals filing Form 1040 as Single (or Head of Household) are

$8,000 Incentive

Last Chance for the Tax Credit? Continued from Page 2

Tax Incentives Lead the Way Continued from Page 1

eligible for the credit if their income is no more than $75,000. Married couples who file a joint return may have income of no more than $150,000. Do individuals with incomes higher than these limits lose all the benefit? The credit phases-out between $75,000 - $95,000 for singles and $150,000 $170,000 for married filing jointly. The closer a buyer comes to the maximum phase-out amount, the smaller the credit will be. The law provides a formula to gradually withdraw the credit. What’s the definition of “principal residence?” Generally, a principal residence is the home where an individual spends most of his/her time (generally defined as more than 50%). It is also defined as “owner-occupied” housing. The term includes single-family detached housing, condos or co-ops, townhouses or any similar type of new or existing dwelling. Are there restrictions related to the financing on the property? The purchaser can use any legal means to finance the property, including government financing such as FHA or state mortgage bonds. Do I have to repay the tax credit? There is no repayment for these tax credits (unlike 2008). However, if the home is sold within three years, the credit must be recaptured upon sale.

an interest-free loan. All eligible purchasers who claimed the 2008 credit will still be required to repay it over 15 years, starting with their 2010 tax return. Can I use the credit amount as part of my downpayment? Some states and local governments have provided mechanisms to provide for this by providing a loan secured against the credit. Check with your loan officer for such programs. Is there a way to get any cash flow benefits before I file my tax return? Any first-time homebuyers who believe they are eligible for all or part of the credit can modify their income tax withholding or adjust their quarterly estimated tax payments. ... Source: National Association of Realtors ®. To obtain the entire document, please contact us (info below)

mostly just pull purchases forward that consumers would have made anyway down the road," said Dean Baker, coco-director of the Center for Economic and Policy Research. "Some bought items that they wouldn't have otherwise, but just moving up purchases doesn't help us get out of the downturn." There is no doubt that the results are encouraging but will these results help us move out of the recession? The answer we believe is yes. However, these programs will contribute to the slow recovery we are expecting. When incentives end, there will be a drop in demand. The government can't keep up these incentives forever. In the long run, a sustainable recovery is all about a building of c on fid en ce a nd th e incentives should help us do exactly that. Meanwhile, there is still time to purchase a home and take advantage of the tax credit— credit—but time is running short...

“Any home that is purchased for $80,000 for more qualifies for the full $8,000 amount…”

If I purchased in 2008 do I still have to repay my tax credit? The $7500 credit in 2008 was more like Page Three

My goal is to provide expert advice and direction for my clients with an overall goal of providing a real estate finance transaction that exceeds their goals and expectations. — James Barnes Senior Loan Officer

More Incentives on The Way?


bill that helps home buyers afford energy improvements and encourages banks to offer a discount on loans to pay for reducing energy usage passed the U.S. House in June and could pass the Senate in the fall. The American Clean Energy and Security Act of 2009 requires Fannie Mae and Freddie Mac to offer discounts on home loans that include monetary incentives for making a home more energy efficient. These discounts, which are already in effect at some lenders like J.P. Morgan Chase & Co. and Bank of America, include savings on closing costs for homes that have Energy Star appliances. The Federal Housing Administration already offers a plan through its approved lenders that allows borrowers to add the cost of making efficiency improvements into the loan, and the extra money doesn’t count toward determining how much loan a borrower can qualify for. As an example, a borrower who adds $5,000 to a $100,000 loan to afford new Energy Star appliances would only have to qualify for $100,000 – not $105,000... Source: The Wall Street Journal

How to Eliminate Common Problems in Mortgage Transactions James Barnes


Over a Quarter Century of Mortgage Experience Great Rates and Low Fees for Your Clients Online Loan Application and Paperless Loan Processing In-House Processing, Underwriting, Closing and Funding One of Texas Largest Morgage Bankers!

In the many years I have been in the mortgage industry, I am always amazed how many times the same problems come up again. Here are a few things you can do to eliminate headaches. 1. 2. 3. 4.


NEVER schedule a closing after the before the 2nd or after the 25th of the month. You can get any closing time you want and avoid potential problems with RESPA. Contact your homeowners insurance agent early so they can work out any property issues such as previous water claims, hail damage or vicious dogs Get an inspection on the home BEFORE a buyer comes along. The seller needs to know what is wrong now so repairs can be scheduled, assuming he can afford to fix it! Order the title work as a refinance and a payoff after the home is listed so your title is ready. You can eliminate unknown lien issues upfront, prepayment penalty surprises and prepare for a mail out package if there are out of state co-owners. Get a copy of the survey to the title company to see if you will need a new one and resolve easement issues

Please call me anytime and I will be happy to show you how you can increase sales, eliminate headaches and ENJOY being a Realtor!

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