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The $15k Tax Credit - How Many Homebuyers will Qualify?

I was reading a blog Friday about a lender contacting several leads he had talked to over the last few months and letting them know about the $15k Tax Credit that's passed the House & Senate as part of the latest stimulus package.

He wrote that he was initially excited about telling all these leads, but as the calls wore on, he found that many still couldn't or weren't interested in buying.

Made me start thinking of who and how many people this credit would actually get to buy a home.

So, I started a list I thought I'd share:

- not the almost 10% of homeowners who've already lost their homes to foreclosure.

- not the increasing percentage of homeowners who sold their homes through short sales and have damaged credit.

- not the 25%+ of homeowners who can't sell & upgrade because they're upside down in their homes.

- not the potential homebuyers among the 7.2% unemployed.

- not the potential homebuyers living paycheck to paycheck, with no money to put down.

- not the potential homebuyers laid-off, but who found another job - paying less and causing them to struggle finacially.

- not the potential homebuyers with under 580 credit scores (many lenders now require 620!).

- not the potential homebuyers that think home values will continue to drop in 2009.

- not the greedy potential homebuyers waiting for a 4.5% interest rate or lower.

So, who's left that can/will actually buy?

I'm not sure, but I'm definitely NOT going to stop working hard because the media says the $15k tax credit will bring buyers out in droves.

I also plan to stick with the real estate investors I know. FNMA's increase from 4 financed properties to 10 means they can buy more homes to rent to the people on the list above:)

Drew Sygit is President of The Lending Edge and holds mortgage industry designations CMPS, CMC, CRMS, CMLO, CALO, has an MBA and is an approved industry instructor. He's spoken for HUD, has written numerous articles and is a mortgage industry advocate for loan originator licensing and consumer education. He can be reached at 248-356-3739, dsygit@TheLendingEdge.com or read his blog: http://drewsmortgagenews.blogspot.com.

Enjoy Your Day & Make the Most of It,

Drew Sygit,

CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MMBA Instructor

"Referrals are Sending Someone You Care about, to Someone You Trust!"

Check out my Blog: http://drewsmortgagenews.blogspot.com/

The Lending Edge Team

@ First Michigan Bank

Business: 248-356-3739

Fax: 866-215-3755

Posted by Drew Sygit (The Lending Edge) Real Estate Financing Expert on 02/08/2009 12:17 PM

Comments (15)

mortgage, expert, purchase, refinance, housing, home, property, foreclosure, modification, fnma, fha, short sale, credit

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15 Comments on The $15k Tax Credit - How Many Homebuyers will Qualify?

FEB

Drew... I think your blog is the first that talks about why we don't think this part of the stimulus bill will work. One of my main arguments that you mentioned is that people don't have the adequate savings to buy a new home. I have written that they can reduce their tax withholdings to get some of this money now. But on a $250,000 house, if they need at least 3.5% down, that is $8,750 and people just don't have that kind of money sitting around.

Overall, I truly liked how you laid this out. To me, what you mentioned, is reality... not a smoke screen. Besides, I don't like giving all this money away, not to be paid back. Isn't an interest free loan good enough? I wrote about some of what you mentioned... Should we run our country like a business and not a soup kitchen? Thanks and nice job here.

jeff belonger

Despite the gloomy economic news, there are still plenty of folks on solid financial footing. If someone doesn't have at least $10,000 they should not think about buying a home. If they have so little savings then clearly their current expenses eat up almost all of their income so how can they be expected to increase their monthly expenses as usually is the case when one moves from being a renter to an owner? Answer is they can not.

If people do not have any savings, they should not buy a house PERIOD.

This is what got us into this mess in the first place.

My big question is are their going to be income limits to the credit?

With the current $7,500 credit, the credit disappears for individuals at $95,000 and for couples at $1509,000.

In high cost areas like San Francisco, the income limit on the credit eliminates most home buyers anyway.

@ Arn.... I agree and disagree with your comment. But for the most part, disagree.... but to make a statement that we got into the problem that we are in now, because people didn't have money to buy, is very misleading in my opinion. Do you know exactly how many or what percentage? Do you know that jobs lost is one of the leaders in foreclosures and the mess that we are in. Another reason would be those toxic loans, when people were putting 10% to 20% down and still going into foreclosure. Such programs as the pay option arm, the stated loan, and the no doc loan.

Trust me, I understand your friustration and point, but I have been doing this for 16 years and 90% of my clients have been FHA with 3% down and on refinances, allowed to go up to 97.775%. And out of all those clients in 16 years, I know of 3 that went into foreclosure. And there were a few that got in with no money out of pocket, and they are doing very well. I know this because I keep in touch with many and most companies that I have worked for, let you know when there was a problem. They got quarterly reports. thanks

jeff belonger

Drew , thanks for keeping it real ! Even if we can get some buyers in the market we're still having severe appraisal issues due to lack of comps . I think it will be a speed bump vs. stimulus . I hope I'm very wrong !

FEB

Arn,

you're on the right track, but as Jeff points out most foreclosures are caused by job loss, which is a loss of income.

Most financial advisors recommend having 3 months of income as a cushion. This amount though, won't save many from foreclosure as three months goes by quickly.

Neither of these issues involves the amount of down payment. Even those that put 10% or more down, but chose the wrong mortgage product, are getting foreclosed on.

So what's the real problem? Excessive Debt-To-Income (DTI) ratios and lack of financial discipline. I can't tell you how many first-time homebuyers come in with little to no savings, but want to go from a $900 rent payment to a $1500 house payment!

As a conscientious lender, my first question to them is, "where is the extra $600/month going to come from if you haven't been able to save it?"

The only acceptable answers are that they were paying off debt or just got a new job or raise. Otherwise, it's a recipe for disaster!

Thanks for your comments, I think you, Jeff & I are pretty much on the same page:)

People THAT CAN QUALIFY are buying right now and honestly, this $15K is going to KILL us. Our market is already frenzied with buying activity.

All we can truly hope for is that the positive press associated with this potential bill will make the phones ring with questions and scenario requests. . It will be our responsibility, in the short run, to educate potential customers about how this may or may not benefit them. Either way, if it make s the phone ring, I am for it.

I agree with you yet think it will also affect some markets differently than others. It is still true real estate is local.

FEB

Drew: I appreciate your candor. The way I look at it is that it's good news in that they're trying to jump-start a sick economy. Some, but not all, of this stimulus stuff will work. We're seeing more business lately due to efforts by everyone. Keep your fingers crossed. After all, this is our livelihood! Take care.

FOR THOSE WHO BOUGHT IN JANUARY:
THE HOUSE PASSED THE BILL FOR A $7500 TAX CREDIT THAT DOESN'T NEED TO BE REPAID AND IS AFFECTIVE FOR PURCHASES OF HOMES AFTER 01/01/09.
THE SENATE CHANGED IT TO A $15,000 TAX CREDIT BUT IT IS ONLY AFFECTIVE FOR PEOPLE WHO PURCHASES AFTER IT'S SIGNED.
IF THE SENATE PASSES THERE'S TODAY, THEN THERE WILL BE A MEETING BETWEEN MEMBERS OF THE SENATE AND MEMBERS OF THE HOUSE TO WORK OUT THE DIFFERENCES BETWEEN THE 2 BILLS.
I BOUGHT IN JANUARY SO I OBVIOUSLY WANT THE $15,000 TAX CREDIT THE SENATE PROPOSED BUT WITH THE START DATE THE HOUSE PROPOSED.
YOU NEED TO MAKE YOUR VOICE HEARD AND CONTACT YOUR SENATORS AND HOUSE REPRESENTATIVE. THIS IS AMERICA SO YOUR VOICE IS YOUR POWER. E-MAIL THEM OR CALL THEM. HERE IS A CONVENIENT NUMBER. CALL AND ENTER YOU ZIP CODE AND IT WILL GET YOU IN CONTACT WITH ALL OF YOUR CONGRESSMEN. DECISIONS ARE BEING MADE, DO IT NOW. 1-866-924-NAHB (6242)

FEB

looks like they killed the home buyer credit ...Gotta love Congress! Probably needed the money for their lobby

Drew, I think you kept this real..at the same time I think that it is our responsibility to educate our clients about how this truly will effect them.

FEB

Drew: I love your answer to Arn. I was that first time buyer that lost my head.

When I bought my first house, I went blissfully from rent at $250 to a payment of $350. (babyboomer who first bought in the 70's)

We actually sold our pride and joy, a Corvette convertible to come up with the down payment and emptied out all of our savings and checking accounts. We had no retirement, we were only 23 years old and too proud to ask our parents to help.

We sat down in our newly closed house, a small romantic bungalow on the side of a hill, and after the initial glow of realizing we were homeowners, wondered what had caused us to sacrifice EVERY penny we had to our name just to be HOMEOWNERS!

Would we be eating beans for the next 2 years? LOL

It was all very romantic, and we made it through just fine. It all goes to show you how some things never really change, and how the quest for homeownership is firmly planted in Americans.

Thanks all for the comments:)

Looks like we'll be at a $8k true tax credit. I spoke with 3 prospects today that weren't even aware of it!

So, warm up your databases and start getting the message out to drum up biz!

Drew

This is a great "conversation" and I do agree that job loss is a big trigger NOW for the foreclosures, initilaly the toxic loans adjusting catapulted this issue to the forefront of the news. This credit hopefully will get first time homebuyers slightly more motivated.

I do think the problem is that this is not a cash-ready option, many people do not grasp or want to undersand this is a huge benefit on the tax side, they want the $8000 now. I am putting a simple flyer togther to promote the tax savings they will see in their refunds! Hopefully this will create a less abstract approach for the common lay person.

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