The U.S. Department of Housing and Urban Development recently announced that eligible borrowers who intend to purchase an FHA-insured home may elect to 'monetize' the first-time homebuyer tax credit and apply those funds toward their down payment or closing costs. Previously, buyers could only receive the credit (up to $8000) by amending their 2008 income tax return or waiting until they file their 2009 return.

Read more about this new program:

HUD news release (opens as a Word document)

IRS tax credit answers

Hud Secretary's announcement of new plan

Here are a few of the rules involved (per HUD's letter) in order to be able to use this credit before you actually purchase your home:

• The tax credit advance, when combined with the FHA-insured first mortgage may not result in cash back to the borrower.
• The second lien may not exceed the total amount needed for the down payment, closing costs, and prepaid expenses.
• Secondary financing may be “soft” (silent) or require a monthly repayment.
• If payments are required, they must be included within the qualifying ratios and, when combined with the first mortgage, cannot exceed the borrower’s reasonable ability to pay.
• Payments must be deferred for at least 36 months to not be included in the qualifying ratios.
• If the tax credit advance loan has a short term for repayment, it must also provide that if the borrower fails to repay by the designated deadline, principal and interest payments begin automatically or the loan converts to a “soft” second.
• The secondary financing may not require a balloon payment before ten years.

So, you have 3.5% of the purchase price saved up to use as your down payment on your FHA loan and you want to use the tax credit you qualify for in order to not have to pay closing costs out-of-pocket. What's the next step? Get your lender to participate in this program. However, most, if not all, lenders are not participating.

You will have a hard time actually using this new program and getting your tax credit up front. As of today, it is near impossible. Why? Lenders want to be able to have borrowers sign a document that would allow the credit to be disbursed directly to the lender when the borrower files their 2009 income taxes, but they are not allowed to do this because the government feels it would not protect the consumer.

As a result, lenders have little to no protection or guarantee that the borrower will send the credit to them next year and have no desire to have these short-term loans convert to secondary liens on homes. If this does not change, it will be yet another example of good idea, bad implementation.

*The above material should be used for information only. Please consult your lender and tax professional with any questions. Maybe your lender will allow you to use this new program. If so, please share your success with me. And, if you are looking to cash in on the tax credit in Massachusetts, let me know and I will provide you with all the information you need to become an educated consumer.

There are resources available to home owners who are falling behind in mortgage payments. A major program has been launched to help people in this situation, or those whose home value has fallen below the amount they have financed.

Visit "Making Home Affordable" to find out if you qualify to either refinance your existing loan(s) or have your lender/servicer modify your loan(s). This site also features answers to frequently asked questions and some other resources that you may find helpful.

If you are falling behind making payments or are struggling to make ends meet in Massachusetts, help is available. Visit your local city/town hall for information, ask a real estate professional, or talk to someone who may know where you can turn. Whatever you do, do not fall prey to the various mortgage protection scams wherein companies promise to rescue you from foreclosure. They simply do not work. We're rooting for you and are here to help.

The image you are looking at is the Hancock Building in downtown Boston. It was sold today at a foreclosure auction. What would you bid for this landmark?

In 2006, this commercial investment was worth around $1.2 billion to a group of investors who purchased it, hoping for a solid CAP rate and increased rents from the various businesses leasing space in the tower. Like many properties purchased before the bubble burst, their goals were not reached, they fell behind on payments, and ultimately ended up in foreclosure.

What did it sell for today? A paltry $660.6 million. In case you don't have your calculator handy, that means the new group of investors purchased the property for slightly more than half price compared with the sale price three years ago. Come back in another three years and we'll check on the market value... Any guesses?

The stimulus package recently signed into law by President Obama, known as the American Recovery and Reinvestment Act, contains some modifications to the tax credit for first-time home buyers that was created last July.

Here are the new details that will help folks that buy in 2009:

* The credit will be the lesser of 10% of the cost of the home or $8000.

* Any single-family, primary, owner-occupied residence is eligible.

* The credit reduces income tax liability by up to $8000. Any portion of the credit that is unused will be refunded to the purchaser.

* Full amount of credit available for individuals with adjusted gross income of no more than $75,000 ($150,000 on a joint return). Phases out above those caps ($95,000 and $170,000).

* Purchaser (and purchaser’s spouse) may not have owned a principal residence in 3 years previous to purchase. * Credit applies to homes purchased on or after January 1, 2009 and before December 1, 2009.

* If home is sold within three years of purchase, entire amount of credit is recaptured on sale. Applies only to homes purchased in 2009.

* The biggest change: this credit will actually be a credit, not an interest-free loan. The credit does not have to be repaid, subject to sale restrictions as listed above.

If you are a first-time buyer thinking about purchasing real estate in Massachusetts, this year is the time to do so. To learn more about the housing market in any town in MA or to set up a time to sit down together to discuss your particular situation, please do not hesitate to call or email. All details discussed will be kept confidential. Since I work only on behalf of buyers and never take listings, you can rest assured I will represent your interests only.

1.800.252.8937 (ask for John) or reach me via email

President Obama announced a plan today designed to help millions of homeowners around the country. While final details and rules & regulations will not be announced for two weeks, we learned some details today. The plan is scheduled to begin March 4.

Some homeowners will be able to refinance their existing mortgages, only on owner-occupied properties. There are several criteria they must meet. Owners must be current on their mortgage payments, must have a conforming loan (less than $417,000) that is owned or guaranteed by Fannie Mae or Freddie Mac, and apparently must owe more than 80% of their home’s value. Currently, lenders are not likely to refinance loans for borrowers who have less than 20% equity in their home. A further caveat: the new mortgage and refinancing costs must be no more than 105% of the current value of the home. Obama’s administration predicts that this plan will help up to five million “responsible homeowners.”

This initiative also aims to bring mortgage payments down to no more than 31% of borrowers’ income. The goal for this portion of the plan is for lenders to reduce interest rates on loans to bring monthly payments down to 38% of income and the government will further subsidize lenders and servicers to bring the ratio to 31%.

Check out this article from CNN for more information on this hot-button issue.

There are plenty of details surrounding this plan that I haven't included, such as the government throwing more money to Fannie and Freddie, etc., with the end goal being to keep mortgage interest rates down for some time.

What do you think? Is the plan going to work? Will it really help millions of at-risk homeowners?

Many common mistakes that buyers of real estate make can usually be avoided. Here are a few mistakes many buyers make, and some ways to avoid them.

#1. Buying before selling. It sounds simple, but the lure of that new house can have an overwhelming effect on your finances. Sell the home you currently own before buying a new one. Sure, bridge loans can be obtained, but in the current buyers’ market, who knows how long your home will be on the market before someone purchases it? Unless you are able to pay cash for that new place, wait until you are certain your home sale will close before placing an offer on another piece of property.

#2. Continuing to look when it’s time to make an offer. This mistake, most often made by first-time buyers, is very common. Many folks think they must look at 30, 40, 50 properties before making a decision. If you see property you like, it fits your budget and needs, and you envision yourself living there, pull the trigger! Assuming your real estate agent is working for your best interests only (as Exclusive Buyer Agents are, hint hint), they should have a good idea of what you are looking for in a home based on your preliminary interview, and should be knowledgeable about what’s on the market as well as what’s not. They are likely to show you the properties that match the majority of your search criteria first. Don’t fall into the trap of feeling anxious because you feel haven’t looked enough. Remember, this is only the first part of a long process. Be grateful it was easy.

#3. Waiting for prices to drop. In most towns, real estate prices have dropped significantly over the past few years and show few signs of increasing. Many buyers fear paying too much for their home. Keep in mind that real estate is cyclical, so prices will move up eventually. There is no failsafe way to ‘time the bottom’, and you should take the long view. If you are planning to spend more than a year or two in the home you are purchasing, don’t worry about short term price changes. Focus on finding a great place that you can afford. Large price drops are very uncommon in the short term, so don’t fret. Either way, it is almost always a better use of your money to make mortgage rather than rent payments. History shows us that real estate has been one of the safest and lucrative investments ever.

I’d be happy to discuss your home buying wants and needs if you are thinking about starting a home search. I work only for buyers and as such have your best interests in mind at all time and my only loyalty will be to you. Call me at 800.25.BUYER (ask for John) or email me.

Check back soon, as there are many mistakes buyers make that I have yet to cover. An educated consumer is the best consumer.

Kathleen M. Howley wrote an interesting article recently. Check it out on Bloomberg.com. Howley's thesis, built in large part upon interviews with Nobel laureate economist Joseph Stiglitz and co-creator of the widely used S&P/Case Shiller real estate price index Robert Shiller, submits that speculators are largely to blame for the current housing recession and these same flippers/professional investors will keep prices down for some time to come.

How did this happen? Flippers bought more than they could afford thanks to no-documentation loans and other risky mortgage products during the housing market bubble in the late 1990s and early 2000s. When many of these loans ultimately went into default and the homes were foreclosed on, the bubble burst. This has been happening for four years now, and prices are still rapidly dropping.

These same speculators have been buying up foreclosures at auction and directly from lenders, which has prevented the housing market from collapsing completely, but Professor Stiglitz contends that speculators may cause a double housing recession. He said, "We’re creating a shadow inventory of homes that will be right back on the market as soon as the economy and the housing market begin to improve."

The problem is huge, and banks (who own at least $11.5 billion of homes, according to the FDIC) also continue to contribute to it. How do you feel about banks, Professor Stiglitz? "...the same banks that created the problems by mismanaging their risk are mismanaging the disposal of their assets."

There is no easy solution to this murky issue, but states will soon receive money allocated from the Housing and Economic Recovery Act of 2008 to purchase & renovate foreclosed homes, then sell them to families who intend to occupy the homes. States have 18 months to use their money or they will lose it. Hopefully this program will be run well by states and community groups so that potential buyers, mostly low-income, can occupy their own home, which will improve communities and settle the housing market. I have seen no indication that this money has been sent to states yet, but it is likely to be soon. Florida, Nevada, California, and Michigan, those most widely affected by foreclosure, need to act quickly and rationally.

If you are interested in purchasing a foreclosure in Massachusetts, feel free to contact me to learn how to do so and avoid potential pitfalls and risks.

800.25.BUYER (ask for John) or email me

Massachusetts Attorney General Martha Coakley, together with several State Senators and Represenatives, has filed two pieces of legislation aimed at reducing foreclosures and negating some of the negative effects of abandoned properties as a result of foreclosures.

What is Ms. Coakley’s hope? According to the AG website,

“We hope that this legislation can provide for Massachusetts some relief while we wait for action at the national level. The effects of the housing crisis have rippled through all sectors of our economy, and until we tackle the underlying problem of the subprime lending crisis, no bail out package, no matter how big, can appropriately stabilize our economy,” said Attorney General Coakley.

If you are interested in reading the full text of these pieces of legislation, please view the ‘press release attachments’ near the top of the page from the link above. If not, read on for a brief synopsis of each.

The first piece of legislation, titled An Act to Require Commercially Reasonable Efforts to Avoid Foreclosure, will essentially force lenders (creditors) to make loan modifications on owner-occupied primary residences. This is aimed in the right direction, and it should bring hard-working homeowners and their lenders together. It remains to be seen whether this legislation will actually reduce the number of foreclosures in the Bay State, but the initial groundwork is being laid.

The second piece of legislation, titled An Act Regarding Community Leadership, Neighborhood Revitalization and Urban Violence Protection, aims to accomplish two main tasks. First, it would create an abandoned & vacant property registry. Owners of such properties (primarily lenders and service companies) would be required to maintain these properties as they are added to the registry. The hope is that this will reduce dilapidation, building code violations, and different types of criminal activity like drug dealing, theft, and arson.

Secondly, it would establish a second-hand metal registry. Currently, thieves target abandoned and under-construction properties to steal and re-sell copper, lead, building materials, etc. Junk dealers and pawn brokers, many of whom are unlicensed, are the buyers. They would be forced to register with the state and obtain a license. With this additional monitoring, Coakley hopes to reduce such thefts. Sounds like bureaucracy in its purest form to me, but hopefully it too will work.

To get more information about these proposed pieces of legislation or learn about buying a foreclosure, feel free to call or email me.

800.25.BUYER (ask for John)

For an interesting read and one broker’s opinion about home buyers this year, head over to REALTYTIMES®. Author Mark Nash, a real estate practitioner in the Chicago area, has done a concise job summarizing what is in and out for home buyers. According to his bio on the site, Nash has been doing his year-end “What’s in, what’s out for homebuyers” series for some years and has been featured on television and in print.

One of the ‘what’s in’ headlines surprises me and I’m not entirely confident it applies to the majority of real estate agents. The headline: Real estate agents as a housing resource, not a salesperson. While we at Buyer’s Choice Realty act as consultants to our clients, there is still evidence that the vast majority of agents care much more about getting sales than helping people, providing them with solid information, and educating them realistically, especially when such information may cause a prospective purchaser to hold off on buying a piece of property.

I hope this trend is changing, because consumers have the right to be educated about purchasing real estate, and need to know that it may not be right for them at this time based on their income, job safety, budgeting, etc.

The National Association of Realtors® reported today that their forward-looking statistic, “Pending Home Sales Index“, based on contracts signed on previously owned homes, is down nationwide. With the economy going down the drain, huge job losses in many sectors, and consumer confidence very low, this number is no surprise.

Here in the Northeast, the numbers are the worst. The index dropped 7.2 percent to 63.2 in November and is 14.6 percent below a year ago.

Is there light at the end of the tunnel? Perhaps. The NAR’s “housing affordability index”, a complicated relationship between prices, mortgage rates, and family income, is approaching record highs not seen since 1972. Housing is actually becoming affordable again.

Real estate prices in Massachusetts show few, if any, signs of increasing for the moment. That could change by the end of this year if soon-to-be President Obama and his team roll out an effective stimulus package that focuses on housing. Financing a home purchase is as cheap as it was in the 1950s & early 60s thanks to the Federal Reserve, but if foreclosure numbers do not decrease soon, prices will continue to fall.

 For more information about your prospects of becoming a home owner in Massachusetts this year, do not hesitate to contact me.