The Tax Credit for Home Buyers under The Housing and Economic Recovery Act of 2008

There is a great incentive for FIRST TIME HOME BUYERS and/or people who have not owned a home in the last three years in the form of a Tax Credit provided by the Housing and Economic Recovery Act of 2008.

How does it work? I will try to make it as simple as possible

1. House must be purchased between 4-9-2008 and 7-1-2009
2. The house must be a primary residence
3. House ownership of spouse will affect your qualification
4. Income: Single: up to $75,000; Joint Filers: up to $150,000 (Singles earning up to $95,000 and Joint Filers earning up to $170,000 can get a partial credit)
5. The credit for Singles and Joint Filers is $7,500. The credit cannot exceed more than 10% of the sales price of the home.
   
6. The credit may be deducted on the 2008 or 2009 return depending on when the house is purchased
7. This credit is deducted from TAXES OWED and not from GROSS INCOME
8. If the credit is more than taxes due, you will get a refund of the credit amount
   
9. This credit is not a gift
10. The credit must be repaid, interest free over 15 years beginning two years after purchase of house
11. If the house is sold, the full balance of the credit must be paid off at the time of settlement

Anyone, who qualifies, should take this credit even if they are going to put the money into savings account. It is interest free and payable over 15 years.

Expectations a Buyer Should Have When Buying a Row House

The first thing to remember when buying a row house is that the property is not new. The next thing to consider is the location. In the city of Philadelphia, what is essentially the same house can be $20,000 or $250,000. It all depends on where it is located.

Now, I would point out the description of the property being sold, and the price. If the property is being touted as A "REHAB", and the price is at the top for the area, you should expect a new rubber roof, a new soil line, up to date electric, GFCI outlets in the kitchen and bathroom, new kitchen with at least a garbage disposal, new bathroom, hookups for washer and dryer, new heater, new water heater, central air, new floor coverings, new paint, new or doors in good condition, a well maintained front and back, an acceptable chimney liner, the yard surface should be sound as well as the walls of the alleyway. Even though the house may be 50 or 100 years old, it should appear to be a new house.

Now, if the property is being sold as a "REHAB" and the price is not at the top of the market, then I would not expect to get a house with the full list above. You may find that there is no central air, the heater or water heater was not replaced, etc.. You should expect that in your first few years of ownership that you will be spending some money to do some of the improvements that were not done by the previous owner. These improvements should not exceed the difference in price between this house and the house described in the above paragraph.

Then, there is the property that needs "UPDATING". This phrase can mean all sorts of things. This property can be the "bargain" or a "disaster". I like, in this group, what I call Grandma's House. It is the property that has been paid attention to by the current owner for the last 30 or 50 years, but has not been redecorated. The systems, the roof, the appliances, the bathroom tile have been continuously maintained or updated, but the house still has drop ceiling and paneling. In this house the paneling and drop ceilings were decorating choices and not put up to cover anything, but perhaps, wall paper. You will find, when you go through this house that is is clean and always has a clean, well organized basement. Even though this house needs work to make it "look" up to date. It generally provides an attractive price and a livable house, which can be updated and decorated as you go.

There is another house that needs "UPDATING". This house is not like the one above. Generally, it is livable, but almost everything is suspect. You may find a 50 year old heater, water stains on the ceilings, old soil lines, out of date electric, and a "real" need to do something about the cosmetics. This house is fine to buy if you get it for a price at the lower end of the area and have the ability to do the improvements, and are aware of approximately what it will cost to do the improvements. Do not buy this house if you think you will not be able to afford the improvements or cannot live through the improvement process. You will be miserable.

Then, there is "AS IS". "AS IS" can mean all sorts of things. It generally means that the seller will not do any improvements or give you a credit as per the results of the home inspection. Some "AS IS" properties are actually in great condition and some are not. I think this is a situation of "Buyer Beware". Even though it is "AS IS", make sure that you have a HOME INSPECTION CONTINGENCY AND A WOOD INFESTATION CONTINGENCY to make sure that you know exactly what you are buying or not buying. If in this situation, the seller has put something in the disclosure like a new roof that does not exist, I would expect at least a partial credit for the roof even if the seller is calling the sale "AS IS". You, however, may not get the credit.

Therefore, when buying your row house consider the following:

1. Location vs. price
2. Condition vs price

Be honest with yourself. Are you a person that is handy? Do you like doing the repairs? Do you mind living through the work process? You must be honest with yourself when making this decision. If you are a first time or second time buyer, make sure you can afford your monthly payment and make sure you can afford to make the improvements that will be needed as you go along.

Realtor Recommended Home Inspectors

I am responding, in this post, to the credit counselor I mentioned in the GRANTS AND CREDIT COUNSELING post.

He accused Realtors and Real Estate Agents of Recommending Home Inspectors that just pass houses without disclosing the "real" condition of the property so that the deal goes through. It is a ridiculous accusation.

In my office, agents use and recommend different home inspectors. I have had buyers go out and hire their own. I attend all of the inspections so I can be informed and witness any problems, which may exist with the exception of the roof. I attend the inspections to help my client's bargaining position and to ask questions, which my clients do not necessarily have the experience themselves to ask. I do not go on the roof, however.

What I am looking for in a home inspector, which I said before is one who will take the risk to provide estimates and also take pictures. I want a home inspector, who is patient with my buyer and will answer their questions. I want good service. Why?

1. To let the buyer know what the actual conditions of the property are,
2. To give my buyer negotiating leverage,
3. To give my buyer the ability to get out of the contract and retain their deposit money,
4. And to make my buyer's home purchasing experience a good one.

There are two things to remember. First, the home inspector is a licensed person and has potential liability. They generally look for everything! They do not want any stone unturned. Yes, sometimes they scare the buyers, and sometimes that is a good thing! Sometimes the buyer should get out of a contract.

Second, your Realtor is a licensed person, and has liability if they are not representing your interests. Further, reputation is everything to a Realtor. If you bought a house, and your Realtor worked in cahoots with the home inspector to hide the real condition of the property, would you recommend that person? No, of course not. Referrals are the life blood of a Realtor, and what this credit counselor accused us of is absurd!

Grants and Credit Counseling

I don't know how it works in other parts of the country, but in Philadelphia, there are multiple types of Grants for which a buyer can qualify. Most of them are income related. Some come from the City of Philadelphia, Some from the State of Pennsylvania, and some from lenders.

What a buyer must be aware of is that the ones from the State and City require credit counseling. In fact, the counseling must be done before an offer is submitted. Thus, if you are low income or moderate income and pursuing one of these grants for closing costs, you must be very proactive and get in to meet with a credit counselor. The lenders may also require credit counseling, however, that must be determined on a grant by grant basis. In Philadelphia, there are many of these groups, which provide the counseling. There are too many to list here. Some are quite good and responsive, and some are not. Either way, be pushy and get in to see the counselor so that you can get on with buying real estate.

An agent in my office recently submitted an offer without realizing the counseling had to be done. So far, they are okay. Her buyer is on top of everything and the two have been scurrying to get everything done. They called all over to get the counseling done. They finally found a counselor who would meet with them Saturday night. She had to drive her client to the appointment so she ended up in attendance.

She said the Credit Counselor was very bright, but spent a good deal of time bashing Realtors. Misrepresented what we make. In fact, doubled it (what we make). Told the buyer not to tell the Realtor if they really liked a property. Told the buyer not to use a home inspector recommended by the Realtor, because they would just pass the house in order to get the sale pushed through. Also, told the buyer not to sign a buyer broker agreement. I have so many issues with what this man said and I was not there! I will address these issues in separate entries!

"AS IS"

We had a discussion today in the office as to what "AS IS" means. We agreed, as per our discussion, that it could have a couple of different meanings in a real estate transaction.

First, it could mean that what you see at "offer time" is what you are buying. Therefore, make sure you make a good visual survey of the property before making an offer, or perhaps, do a property inspection prior to making an offer, or bring a trusted, licensed and insured general contractor through for a good look at property and get his/her estimate for needed items and improvements wanted.

Or Second, it could mean that you still have the right to do inspections, but no ability to negotiate price based on the findings on the inspection(s). In this case, you would include a contingency or contingencies in the contract, which allows you to either accept, or decline as a result of the inspection and get your deposit monies back. So, you would hire a home inspector to inspect the property. When the report(s) comes back, you have a chance to review it/them and sign an acceptance or declination of the contract. If you decline, you are to get your deposit money back. If you accept, you will not be allowed to negotiate the price or assist based on the results of the home inspection.



Thus, if "AS IS" is presented to you, the buyer, in contractual form, make sure you have a contingency to get out of the contract if the "AS IS" condition turns out to be above what you have budgeted for improvements, or future improvements, or in other words the condition is worse than anticipated.

If the seller will not allow you to have inspection contingencies then do it before making an offer or find another property. Of course, there is an expense involved in doing inspections, so make sure you are serious about the property before either entering into a contract or have lots of extra cash on hand to do multiple inspections on multiple properties.

What do you do about your deadlines in an Agreement of Sale?

It is best to address all of them immediately.

Most people will need to do the following:

• Make a mortgage application
• Make sure the property is insurable
• Schedule inspections
• Make a second deposit
• Perhaps, review leases or condominium documents
  

None of these items are based on one another. All of their contingency periods run simultaneously. Thus, a second deposit is not based on the result of the home inspection, etc.. Generally, it is due earlier. Thus, make sure your Realtor gives you a list of deadlines and begin making the phone calls as soon as you have the contract in your hand. You want to make sure you meet all deadlines and protect your deposit and not accidentally default.

Home Inspectors

How do you pick a Home Inspector?

It, typically, is not something you are doing regularly. So, you will not have your favorite home inspector like you may have your favorite electrician or handy man. Thus, what should you look for in a home inspector? And how should you find one?

1. Ask your Realtor for a reference or several, look on the web, look in the phone book
   
2. Call and ask them a few questions:

• Will they give estimates on critical items?
• Will they go up on the roof?
• Will they take pictures?
  
• How long will it take to get the report back?

I would expect that they will give you estimates on critical items. If you don't have estimates, then you must meet and arrange with each contractor to meet you at the property to give estimates. And these meetings must happen before your contingency period lapses if you intend on re-negotiating the price based on those inspections, or rescinding the contract.

I would also expect that the home inspector goes up on the roof and takes pictures so that you the home buyer can see the condition of the roof without climbing the ladder yourself! Again, although, in general, it is easier to get the roofer on the roof than other contractors to come out, who must go into the property, it is best if your home inspector does it at the time of the home inspection. You can always follow up with a roofer.

Pictures... they are nice to have, but best for the roof ,and next for critical items. I would insist on the roof, and would like the critical items, but would not turn away a good home inspector if he/she only gave me roof pictures.

Some provide the report right on the spot. That is a really nice service, however, if they will email within 24 hours, it is also good. It still should give you enough time to review the report and respond to the sellers.

When your offer is accepted, and you have an inspection contingency, please schedule it immediately.