$8,000 First-time Home Buyers Incentive

The Obama government has provided an incentive for first-time home buyers who purchase homes from the start of the year until the end of November 2009. They may be eligible for a tax credit based on 10 percent of the value of the home or $8,000 (whichever is least). Remember a tax credit is very different from 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 is said and done. So, if a home buyer 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 home buyer can receive a check for the credit if he or she has little income tax liability. For example, if a home buyer 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!

Homes that Qualify

The tax credit is applicable to any home that will be used as a principle 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 principle 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.

Phase-out 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.


As Modified in the American Recovery and Reinvestment Act (Major Modifications Italicized)

February 2009 - Click image to enlarge.

Foreclosure vs. Short Sale

There is a lot of discussion these days about Short Sales and Foreclosures. I think it might be helpful to understand some of the terminology and how each option might impact an owner of a property who is in jeopardy of losing their home. Here's a quick and simple definition of the two and some additional information that helps understand the impact of Foreclosure vs. Short Sale. If you have any questions or would like additional information, please call me.

Thanks for helping me better serve our Real Estate Community.

When a homeowner defaults by failing to make payments on his or her mortgage, the bank or financial institution that holds the mortgage note may foreclose on the property. Foreclosure gives the legal ownership of a property to the bank to allow the bank to recoup its investment. Foreclosure proceedings vary by state but usually involve court appearances to ensure the foreclosure is warranted.

Real Estate Short Sale Definition:
A short sale means that you sell the property. But you get a lower price than what you owe. Then you go to your lender (or both lenders if you have two loans) and get them to approve the sale of your house.

The purpose of a real estate short sale is to avoid expensive foreclosure for the lender and get the borrower out of debt with the least possible credit history damage. Lenders have no interest in owning property as they have to pay property taxes and pay for necessary repairs and borrowers would be happy to walk out free of mortgage debt.

However, lenders may or may not agree to take the short sale as full debt satisfaction. As a result, they could file a deficiency judgment for the remaining loan amount and the borrower's credit and capability of taking another home loan soon after the short sale will be damaged.

Foreclosure vs. Short Sale
Homeowner Consequences



Successful Short Sale

Future Fannie May Loan – Primary Residence

A homeowner who loses his home to foreclosure is ineligible for a Fannie May Backed mortgage for a period of 5 years.

A homeowner who successfully negotiates and closes a Short Sale will be eligible for a Fannie May backed mortgage after only 2 years.

Future Fannie May Loan – Non Primary

An investor who allows a property to go to foreclosure is ineligible for a Fannie May backed investment mortgage for a period of 7 years.

A homeowner who successfully negotiates and closes a Short Sale will be eligible for a Fannie May backed investment mortgage after only 2 years.

Future Loan With Any Mortgage Company

On any future 1003 application, a prospective borrower will have to answer Yes to question C in Section VII of the standard 1003 that asks “Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?” This will affect future Rates.

There is no similar declaration or question regarding a Short Sale.

Credit Score

Score may be lowered anywhere from 250 to over 300 points. Typically will affect credit score for over 3 years.

Only late payments on a mortgage will show and after sale mortgage will be reported as paid or negotiated. This will lower the score as little as 50 points if all other payments are being made. A Short Sale’s effect can be as brief as 12 to 18 months.

Credit History

Foreclosure will remain as public on a person’s credit history for 10 years or more.

Short sale is not reported on a credit history. There is no specific reporting item for “Short Sale.” The load is typically reported as “paid in full, settled.”

Security Clearances

Foreclosure is the most challenging issue against a security clearance outside a conviction of a serious misdemeanor or felony. If a client has a Foreclosure and is a police officer, in the military, CIA, or any other position that requires a security clearance in most cases clearance will be revoked and the position will be terminated.

A Short Sale on its own does not challenge most security clearances.

Current Employment

Employers have the right and are actively checking the credit of all employees who are in sensitive positions. A Foreclosure may be grounds for an immediate reassignment or termination.

A Short Sale is not reported on a credit report and is not a challenge to employment.

Future Employment

Many employers are requiring credit checks on all job applicants. A Foreclosure is one of the most detrimental credit items an applicant can have and can challenge employment.

A Short Sale is not reported on a credit report and is therefore not a challenge to employment.

Deficiency Judgment

In many states, depending on the kind of loan, the bank has the right to pursue a deficiency judgment under the personal covenant on the loan.

Depending on the type of loan some lenders who accept a Short Sale may be able to pursue a borrower for a deficiency judgment. In many successful Short Sales it is possible to convince a lender to give up this right as part of the Short Sale.