First-time real estate home buyers to have quicker access to tax credit

President Obama's economic stimulus plan, introduced in February, included a tax credit to the extent of $8,000 for first-time home buyers. However, home buyers could receive the tax credit from the Internal Revenue Service (IRS) only after the tax season or filing an amended return (which costs money and time). In an effort to incentivize home buyers, the Department of Housing and Urban Development has unveiled a policy change which will provide the tax credit up-front. According to the new policy, borrowers who avail mortgages from Federal Housing Administration (FHA) approved lenders can get advances from lenders in order to meet costs associated with home purchase.

This will enable borrowers to receive the tax credit in advance, so they don't have to wait to get the money from the IRS. However, the advance from the lender cannot be used for the 3.5% down payment that borrowers have to make for FHA loans. A typical loan has $3,000 to $4,000 in closing costs, title insurance, and other fees. The advance can be used by borrowers for meeting such costs. Keith Gumbinger of HSH.com, a publisher of mortgage and consumer loan information, says the program "could just grease the wheels for a couple more people to get into FHA." Shaun Donovan, Secretary of Housing and Urban Development, said, "What we're doing today will not only help these families to purchase their first home but will present an enormous benefit for communities struggling to deal with an oversupply of housing."

Foreclosures and delinquencies continue to rise

According to data released by the Mortgage Bankers Association (MBA), foreclosures rose 0.29% in the first quarter of 2009 over the last quarter of 2008. After adjusting for seasonal factors, the delinquency rate rose 1.24% from the last quarter of 2008, to 9.12% of all loans outstanding as of the end of the first quarter. The current delinquency rate, which includes loans that have at least one payment past due, is the highest in the last 36 years. The combined percentage of loans in foreclosure and at least one payment past due, was 12.07% on a non-seasonally adjusted basis, the highest ever recorded in the delinquency surveys conducted by the MBA so far. Jay Brinkmann, MBA's chief economist, said that "the pace of foreclosures has stepped up considerably." Economists have predicted that unemployment will not decline until mid-2010. Since unemployment is a leading indicator of mortgage performance, there may be no significant reduction in foreclosures and delinquencies unti l mid-2010.

Foreclosures add to hurricane hazards

Foreclosed homes, which are unoccupied, run the risk of getting damaged in the event of a hurricane, since there will be no one to secure homes by putting up shutters and battening down garage doors. In addition, damaged homes could pose a hazard to other homes in the neighborhood on account of flying debris. In Florida and coastal counties in Alabama, Georgia, Louisiana, Mississippi, North Carolina, South Carolina, Texas, and Virginia, there were over 280,000 homes in foreclosure as of March. According to the Associated Press Economic Stress Index, which tracks recession in over 3,000 counties in the U.S., the areas that are suffering the most in the current recession are among the most likely to be impacted by hurricanes. In the event of foreclosure, the owner may not have the money or motivation to spend money on securing the property. Julie Rochman, president of the Institute for Business and Home Safety, says, "Spend a little bit of time and money to secure the propertie s to withstand wind and water or not do the right thing and have the homes become damaged and are valued less."

Unemployment at its highest in 25 years

According to a survey conducted by the Bloomberg News, unemployment climbed to 9.2% in May, the highest since September 1983. The survey also highlighted that output from manufacturing and service industries contracted at a slower pace and consumer spending dropped. Steven Ricchiuto, chief economist at Mizuho Securities, said, "The economy is decaying at a slower rate and that is the best you can say. I can't tell you we are out of the woods yet." According to economists, the unemployment rate will get close to 10% by the end of this year and this could impede a consumer spending led recovery that many are hoping for. Workforce reductions have happened across sectors and chief executive officers are not optimistic about the near-term prospects. Jim Owens, the chief executive officer of Caterpillar, said, "We have had to continue reducing employment. We will probably not be able, in a position to, rehire until mid next year as we see these markets begin to recover." Since the recession began in end 2007, over 5.7 million jobs have been lost, making it the worst slump post World War II.

Who will bear the cost of health care?

The Obama administration is planning to finalize health care reform this year. The reform will include specifying requirements for minimum benefits, highlighting conditions for coverage denial, and guarantees for affordable health care. Analysts estimate that it could take well over $1 trillion to overhaul the health care system. How to pay for it without adding to the already big federal budget deficit? Max Baucus, Senate Finance Committee Chairman, is among those grappling with the problem. It is likely that all stakeholders - consumers, employers, health care providers and others in the industry - will be asked to bear the cost. Baucus, in a recent interview, said, "We'll pay for it in a balanced way." Revenue options available to the government include taxing employer contributions to health insurance, imposing Medicare tax on government employees, taxing sugary and alcoholic beverages, eliminating tax breaks in contributions to "flexible spending arrangements" and "healt h savings accounts."

Now on to our real estate investor education tips section...

Quick Tips to Making Money in a Down Economy

Still don't believe real estate is the road to wealth in a down economy? History has demonstrated it time and time again but for those die-hard disbelievers, ask yourself a few simple questions....what else is likely to make money? Manufacturing? Maybe but who has the funds to buy? Retail? Perhaps but discretionary spending is down...and falling fast - so fast in fact, that Americans actually turned a negative three percent savings rate into a positive five percent savings within the past two years. Think the financial market will come to the rescue - that's a bet millions of American's and other nations across the world are increasingly considered one of the most risky bets around.

So, what's left? Well, real estate for one. Yes, it's true real estate has dropped but that is actually the silver lining in what was an otherwise unrealistic pricing cloud. Here is a simple way to start small and build a secondary income, retirement fund or other financial goals for your family's future..

Set aside the funds for your first down-payment. Whether you pull a little extra from savings, work a second job, take out a little loan or sell a few items is up to you...just put your hands on some extra cash that will provide enough to purchase your first short sale property. Not sure where to begin? Try all of the above or take time to evaluate whether or not you have access to any forms of private money - after all, with interest rates paying three percent or less in many instances - there are bound to be a few associates that would love the ability to get a real rate of return on their money.

Make offers - lots and lots of offers. There is an old saying in real estate - "You make money when you buy not when you sell". Beginners to the short sale arena need to have a few solid "wins" under their belt before moving on to "bigger and better" deals. That means buying a major bargain...and buying a major bargain means putting out a lot of offers to see who takes the bait. Learn how to negotiate the right contract for your long term investment goals

Set a profit potential. For example, let's assume you find a motivated seller who purchased a $200,000 home that would fetch a $150,000 once some deferred maintenance and upkeep was performed. Assuming you will have transaction fees and other expenses associated with the sale of the home, determine in advance what percentage of the price you will offer. Common examples are included below:

Private Investment Funds - 30 cents on the dollar. However, these are bundled bids that entail large numbers of properties and streamlined paperwork. Individual investors should not expect this type of extremely deep discount...although you could get lucky once in awhile.

Representative Groups - 50 cents on the dollar. Typically smaller than private investment funds, these are still larger than individual investors and may be able to take advantage of larger group deals.

Individual Investors - 50 to 80 cents on the dollar. Depending upon your total credit score, net worth, number of prior investments etc..

Establish your network. If you intend to hold or rent the property your network of realtors, brokers, tax experts and appraisers may be different than if you intend to flip or rent. Either way, begin establishing a team of trusted advisors and experts you can count on to help before, during and after the sale.
 

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