Congratulations, you missed the $8,000 tax credit

By
Real Estate Agent with RE/MAX Shoreline New Hampshire & Maine

No, I'm not being facetious or implying you're a dummy because you haven't bought a house yet.

knoxville tn real estate houses homes condos and land for sale

 

In fact, just the opposite; waiting until now to buy has saved you thousands of dollars more that than measly 8 grand credit a lot of your friends got earlier this year. Here's how.

Let's take a look at the facts and mortgage market now compared to what they were then.

The $8,000 federal tax credit that got everyone excited earlier this year expired at the end of April, 2010. Buyers that had a contract dated prior to that were able to claim the credit up to the maximum amount of $8,000. and also got a loan with an interest rate around 5.5% or so.

If they bought the median priced house in the Knoxville, TN area, which would have been around $180,000, and got an FHA insured loan with the minimum 3.5% down payment they would have a monthly mortgage payment of $986.25 for their principal and interest. Taxes and insurance are added to that amount.

However, because you waited until now for whatever reason, interest rates have continued to drop. In the current mortgage market you can get an interest rate as low as 4.25% which would lower your monthly principal and interest payment to $854.50 or $131.75 LOWER than your friends who bought earlier this year and got the tax credit.

One huge benefit to you with the lower interest rate is that it's actual cash you're saving each month you can use for savings, bill paying, or whatever you choose.

And if you only own you house 5 years and 1 month and then decide to sell and move up, move down, or whatever, you have then saved $8.036.75 in actual cash payments which puts you Waay ahead of your friends and their $8,000 credit 5 years previously

Finally if you end up keeping your house and paying off your 30 year loan over the whole term you save a whopping $47,430 in actual monthly payments over your friends who bought earlier.

So if anyone tells you that you've missed the boat on that now expired tax credit,just whip out your calculator or this article and explain to them how you decided to wait until conditions were 'more perfect', as they are now, before pulling the trigger on your new home purchase. Then show them how much more they're paying compared to the sweet interest rates you're now able to take advantage of.

In the greater Knoxville, TN are visit www.KnoxvilleHomeCenter.com to see all the area homes for sale.

A little further north, Portsmouth, NH and Seacoast area buyers can visit www.NewHampshireMaineRealEstate.com. The state of New Hampshire also has a stunning 3.5% rate through their New Hampshire Housing program. These are the lowest rates in their 30 year history.

The only dumb question is the one you don't ask; call or email us.

Posted by

Jim Lee , REALTOR®, Certified Residential Specialist (CRS)

http://JimLee.com  RE/MAX Shoreline

100 Market St., Suite #200, , Portsmouth, NH 03801 Phone: (603) 431-1111 x3801

Visit New Hampshire Maine Real Estate.com to search homes, get Seacoast area information, and find out how great living on the New Hampshire and southern Maine Seacoast really is.

 

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Re-Blogged 17 times:

Re-Blogged By Re-Blogged At
  1. Andrea Peters 09/12/2010 10:18 AM
  2. Adam R. Cohn 09/12/2010 12:29 PM
  3. Ruthmarie Hicks 09/12/2010 01:41 PM
  4. Valerie Osterhoudt 09/12/2010 02:32 PM
  5. Mike Russell 09/12/2010 02:42 PM
  6. Mary Macy 09/12/2010 03:34 PM
  7. Ralph Janisch ABR CRS Broker 09/12/2010 03:53 PM
  8. Sharon Alters 09/12/2010 03:54 PM
  9. Pat, Ben and Martin Mullikin 09/12/2010 04:25 PM
  10. Chris Webster 09/12/2010 05:51 PM
  11. Sandy Wagner 09/12/2010 10:22 PM
  12. TheMillsTeam YourSebringRealtors 09/12/2010 11:09 PM
  13. Jackie Connelly-Fornuff 09/13/2010 12:12 AM
  14. Tere Rottink 09/13/2010 04:07 AM
  15. 1~Judi Barrett 09/13/2010 04:11 AM
  16. Rebecca Diamond 09/13/2010 07:04 AM
  17. Bob & Leilani Souza 09/13/2010 12:51 PM
  18. Ann Cummings 09/13/2010 02:18 PM
  19. Ed Silva 09/15/2010 12:28 AM
Topic:
Home Buying
Location:
New Hampshire Rockingham County Portsmouth Little Harbor
Groups:
Posts to Localism
Tags:
knoxville knox county tn tennessee farragut tn
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Rainmaker
600,852
Jim Lee
RE/MAX Shoreline - Portsmouth, NH
Portsmouth NH Realtor, Portsmouth, NH

I'm pretty familiar with the difference between a tax credit and a tax deduction Karen but thank you for the tip.

And just FYI, the best option is not always the lowest payment, i.e. an ARM would give you a lower intiial payment but they tend to adjust in an upward direction most times which would result in an ultimately higher payment a few years later. If your buyer intends to live in the house for a number of years a fixed rate is most often their best option even if the rate might be just a bit higher initially.

And thank you too for your words of encouragement; I do plan to keep on writing. While I was not a math major I do feel qualified to subtract the difference beween a higher number and a lower one.

Christipher I'm personally hoping that Congress and the federal government will just get out of the way and let the market forces work. Just as water always seeks it's own level, housing prices will find their level too if left alone.

If the government intervenes and artificially creates any incentives, the free market will just correct itself once they go away just like it did once the tax credit expired in April. Sales dropped immediately.

Sep 13, 2010 03:29 AM #84
Rainer
153,069
Aaron Seekford
Arlington Realty, Inc. - Arlington, VA
Ranked Top 1% Nationwide 703-836-6116

Wonderfully put, Jim. Those who were kicking themselves for missing the tax credit can find some relief right here!

Sep 13, 2010 03:37 AM #85
Rainmaker
284,816
Tere Rottink
CoastalVa Realty Inc - Virginia Beach, VA

I have told many people this and had been thinking about writing a blog about it.  I have re-blogged it.  Thanks!

Sep 13, 2010 04:08 AM #86
Ambassador
2,303,844
1~Judi Barrett
Integrity Real Estate Services 118 SE AVE N, Idabel, OK 74745 - Idabel, OK
BS Ed, Integrity Real Estate Services -IDABEL OK

Jim,

If only we had a crystal ball.. there are those that think it's going to even save them more money if they wait a little longer.

Great post and a really good read.

Sep 13, 2010 04:09 AM #87
Rainer
366,002
Scott Hayes
(512) 786-8300 - Austin, TX
Realty Austin, Broker Associate
Between the interest rate and price drops, a first time buyer could save over 50k in the life of the loan. Smart post
Sep 13, 2010 04:17 AM #88
Rainmaker
170,083
Wendy Hayden
Photographer, Home Stager, ePRO - Richmond, VA
Chesterfield, Richmond & Powahatan

Makes me feel better about missing out on the tax credit since the house we are building is running behind schedule!

Sep 13, 2010 05:27 AM #89
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

That tax credit was a deliberate manipulation of the housing industry, home buying consumers and sellers.  Little was saved by buyers since they lost negotiating opportunities to rush to the deadline. 

I wonder how many consumers left the market because they "lost" an opportunity for the tax credit???

Oh well.

Sep 13, 2010 06:53 AM #90
Rainmaker
594,057
Neal Bloom
Brokered by eXp Realty LLC - Weston, FL
Realtor CRS-Weston FL Real Estate

Great comparison Jim....I think the public was running to get this tax credit only because when they see the savings they think it's money in their pocket. Mortgage rates were higher so it wasn't such a bad move to wait. I have a feeling that the government planned this.

I just wasn't sold on the original tax credit but it did bring some buyers out of the woodwork and probably injected some money into the system. But I also saw that the people running to the bank were still having issues and it took longer to close.

Sep 13, 2010 07:25 AM #91
Rainmaker
56,137
Dennis Kelley
Keller Williams Western Realty - Ferndale, WA
WA Realtor

Thanks for the post Jim.  Your keen awareness of the benefit of waiting to buy will now be a great selling point for buyers.  With interest rates so low and the upcoming release of shadow inventory from the banks, we should see a buyers market develop like never seen before.  Keep that inventory list close at hand and your buyers even closer.

Sep 13, 2010 07:37 AM #92
Rainer
34,640
Carl Pruitt
FHA Loan Advice - Buford, GA
http://FHALoanAdvice.com

@Mel in #47: You left out the most likely scenario. A huge percentage of the buyers likely used the minimum down payment program then blew through more than $8000 on credit cards and "buy now pay in 12 months" loans and will us their increased tax refund to pay that off...maybe. ;-)

Sep 13, 2010 09:18 AM #93
Rainmaker
835,374
Mel Ahrens, MBA, Kelly Right Real Estate
Kelly Right Real Estate - Hood River, OR
Customized Choices for your Real Estate Needs

Hi Carl (#95) and Cindy (#57) and Jim,

The most likely scenario is some sort of investment as mentioned - almost anything other than burying it in the backyard or under the mattress is investment.

Buying assets/services rather than investing in Treasuries or equities is just another form of investment.  Companies and individuals do it all the time - they spend capital (cash, tax credit, etc..) on assets which they expect (albeit unknowingly) to get a higher rate of return than investing cash. Most people just don't think of it in those terms.

If a buyer used the tax credit for their house down payment or for fixing up the property or buying a riding lawn mower or a vacation, etc.. they were still investing.  Some forms of investment are wiser than others.  Investing takes all forms, from grocery buying to cars to homes, etc... Any purchase is an investment of some sort.

It will be interesting to see how the academic and government economic "studies" of the tax credit "benefits" turn out.

The marketing story/focus should be on the historically low interest rates, not on being better off by not taking the tax credit.  Comparing/subtracting two dissimilar numbers (apples to oranges terminology applies here) and not factoring in basic financial principles (future earnings power of money/assets now, tax impact of cash flow and present value of two different cash flows, etc...) provides a simple answer, but an erroneous one.  The longer the timeframe, the more significant the misstatement.

Non-real estate example:  The Euro is not worth a dollar - one Euro is worth $1.29 as of today. Subtracting 50 dollars from 100 Euros, without converting it to an equivalent value, is not $50 dollars or 50 Euros.  They have to be compared on equivalent basis to be meaningful. 100 Euros = $129 less $50 dollars = $79 not $50. They need to be compared on an equivalent basis, not a numerical basis.

Karen (#81) is correct ("shouldn't provide advice where our specialty does not exist"). Ask a financial advisor or skilled tax preparer.

Mel

Sep 13, 2010 11:50 AM #94
Rainmaker
183,581
Janet Guilbault
Platinum Home Mortgage Company - Walnut Creek, CA
San Francisco Bay Area Direct Mortgage Lender

But, Jim! That person who got the $8k credit will be able to refinance by the end of the year (FHA streamline....probably with no costs)

So if rates stay low, they get 4.5 or lower ...AND the REBATE.

I'm just saying........

 

Sep 13, 2010 11:55 AM #95
Rainer
9,176
Kent Aabye
1866U-Moving - Atlanta, GA

I think the longer you wait the better the deal will be as i think we are in for continued decline in the housing markets with upticks in pricing being driven by temporary artificial influences (such as the tax credits).  Just how many homes have been foreclosed on and never sold?  What happens when that inventory hits the market?

Sep 13, 2010 12:24 PM #96
Rainmaker
1,059,850
Bob & Leilani Souza
Souza Realty 916.408.5500 - Roseville, CA
Greater Sacramento Area Homes, Land & Investments

Jim, this is a terrific evaluation and one I'm going to re-blog! :)

Leilani

Sep 13, 2010 12:49 PM #97
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Jim.. it looks like you have been read the riot act from some... and another good point that I didn't bring up when I made my comment, comment # 44... is that this tax credit actually forced bidding wars which drove some home prices up. Another excellent point.

 

@ Mel comment #47 & 96...  hey, it's great that you look at it this way. I agree with your figures and how you looked at this,, but you forgot one major reality of it all..  most people will not save this money.  Most people will be spending it on the new house, to pay off credit cards, etc, etc.  One important thing that you forgot to mention in your financial analysis... and financial planners will tell you this.. at least the good ones. Let see how we can cut down your debt first, before you start to save money with bonds, stocks, etc, etc.

I will agree.... there should be a disclaimer at the end, saying, speaking to a tax adviser.. a CPA, and a financial planner. But writing a post like this to show another idea?  I have no problem with this. Jim is not acting as an expert in the financial world.If I read this right, Jim is trying to encourage buyers that they didn't miss the boat... that it's still a good time to buy.. and that if you missed the so-called "boat", that it's not as bad as you think it is...

Mel, please read the beginning of my comment, prior to my comment to you.. and my original comment, #44. Something that wasn't part of your number figuring, that Jim didn't mention either, when you have a lower rate.

 

@ Janet # 97...  just a fyi... that was the old FHA streamline. If you aren't sure, here is the new mortgagee letter for FHA streamlines.  ML 09-32. It basically states that there are 2 formulas and in most cases, you will be paying the closing costs out of pocket on a FHA streamline with no appraisal. With a FHA streamline with an appraisal, most people are putting 3.5% down... and you can only refinance up to 97.75%. Even if your house goes up in value, you have to use the lower of the 2 for the first 12 months. The original purchase price or the new appraisal.   So again, this will shoot down most refinances no matter how you look at it. And as a loan officer, it's suppose to be our job to realize all of this and not just say.. "hey Mr. Client...  you can refinance in 6 months.. etc, etc. "  I will be posting about this tomorrow morning, so stay tuned. And Janet...  where do you thinks will be in 3 months?  Mortgage Interest Rates - do you know that they have climed a tad in the last few weeks. Just sayin...

jeff belonger

Sep 13, 2010 02:36 PM #98
Rainmaker
183,581
Janet Guilbault
Platinum Home Mortgage Company - Walnut Creek, CA
San Francisco Bay Area Direct Mortgage Lender

Jeff: #100

My streamline refinances have closing costs with no appraisals. 

 I cover all closing costs (recurring). IMO, the real threat to streamlines is the new increase in monthly MI coming in Oct which will increase the new payment enough that lower rates may not offset the new premium.

Where do I think rates will be in 3 months? Not high enough to offset the benefit of an $8000 tax credit.

Will look forward to your blog about streamlines, since I am unclear about your comments.

 

 

 

Sep 14, 2010 02:42 PM #99
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750,130
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

Janet.... I really don't see what the difficulty is on what I was trying to explain.  You stated this..

"But, Jim! That person who got the $8k credit will be able to refinance by the end of the year (FHA streamline....probably with no costs)"

In my opinion, that makes it sound cheap and easy. First off, read my post, Part 2... but when you get a chance, please read part 1...

FHA streamline refinances - with an appraisal and with no appraisal - But the making it sound easy part.. you can't do a FHA streamline for 6 months...  that means that they needed to actually close in May, because it's 6 mortgage payments, in order to refinance at the end of the year. And you say with probably no costs.

Here is part of your second comment...

"My streamline refinances have closing costs with no appraisals.  I cover all closing costs (recurring)."

Okay, so now you have costs, but you cover them.  Janet, a few things here... first and foremost, one needs to remember that real estate and mortgages are local. A consumer reading your comment who might be living in Florida, this would be unlikely... why do I say that?  The average home prices and loan amounts in most parts of Florida are from $125,000 to $150,000 to maybe the 200's..  you live in a high end area, to where your avg, loan amounts are probably $350,000 +.. or better yet, $400,000 +? 

So let's talk about rebate... let's say you get 3 pts back as a rebate for 4.5%.  Even for a $175,000 loan, that total is $5,250.. and that might be enough to cover the closing costs. But wait, what does the mortgage company get or the loan officer?  Zero?  I don't think you and I work for free...

So, we are now doing a $350,000 loan with a 3 pt rebate..That is $10,500 and let's say total costs are $6,000... well now, that still leaves you $4,000 as profit.  And for both scenarios, the other costs could be covered with the borrower bringing their mortgage payment to the table.

In regards to where rates will be in 3 months?  6 months?  You just don't know..even a 1/4% in change for the worst could throw many out of refinancing. Secondly, one thing that you didn't clarify... These FHA streamlines of yours with no appraisals.. Are they from those that purchased a year ago.. 2 years ago???  My point?  Borrowers, especially with the lower loan amounts, will need to bring money to the table. if they just bought 6 months ago, and now to save another $100 a month, if that, they now need another $4,000... wow, how can it be done?  Lastly, anyone doing a streamline with someone that bought in the last year, with rates of 5% or 5,5% are probably hurting their borrower more.  But then again, how long have they been in that house.

Overall, my points are that there are to many unknowns for the easy to describe comments that you made.. just my opinion, but I would think many loan officers would agree with me on these... and I know because I have talked to them about this and these scenarios. So, maybe I could debate this better and understand your no costs, if you told me the loan amount, when they first bought the house, their current rate, what rate that you are giving them now, what your total costs are... and I am not sure if I am missing something.  That is how I look at this and that even mortgages are local when talking about specifics... thanks

 

 

Sep 14, 2010 07:02 PM #100
Ambassador
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Ed Silva
RE/MAX Professionals, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

Jim a very interesting piece and rather timely considering the lull in the market. Sellers can no longer hold tight because they know the buyer will still get the $8,000 rebate and that they should consider that their negotiation. As we currently sit, prices in our area have come down a bit since the tax break, and there are less active buyers out there. Add in the lowest interest rates in over 30 years, and it is a great time for buyers. I'll take this as a re-blog as well.

Sep 15, 2010 12:26 AM #101
Rainer
41,109
Dominick Gaccino
Dominick gaccino - Peekskill, NY

very well written!!!

 

took the words right out of my mouth

 

and your #'s are based off 180k house in TN...imagine the savings up here in NY. Westchester county has one of the highest home costs in the nation....so more savings

 

even though rates are up by .5% since you wrote this the savings is still HUGE for buyers

 

I pass along the same tool/knowledge to realtors i work with as to get those wishy washy buyers off the fence

Jan 06, 2011 01:22 AM #102
Rainmaker
600,852
Jim Lee
RE/MAX Shoreline - Portsmouth, NH
Portsmouth NH Realtor, Portsmouth, NH

Someone asked who uses the mortgage interest the most; I found the answer:

"January 2, 2011

It’s a common misperception that the mortgage interest deduction benefits primarily the wealthy, as argued in the Washington Post’s January 1 editorial, “Trim the Excessive Tax Subsidy for Real Estate.”

In fact, the MID actually benefits primarily middle- and lower income families. Sixty five percent of families who claim the MID earn less than $100,000 per year, and 91 percent who claim the benefit earn less than $200,000 per year. As a percentage of income, the biggest MID beneficiaries are younger middle-class families."

 

Jan 06, 2011 01:58 AM #103
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Jim Lee

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