Deanna McMullen's Blog

Friday's bond market has opened in positive territory after this morning's major economic news failed to reveal any significant surprises and overseas news from China has the stock markets in selling mode. The major stock indexes are showing sizable losses with the Dow down 128 points and the Nasdaq down 17 points. The bond market is currently up 10/32, which will likely improve this morning's mortgage rates by approximately .125 - .250 of a discount point.

The Commerce Department reported early this morning that retail level sales rose 0.5% last month. This matched forecasts for the most part, meaning consumers spent no more than was thought. That is relatively good news for the bond market and mortgage rates because consumer spending fuels economic growth. Today's report did revise December's sales 0.2% better than previously thought, but it appears that news has not influenced trading or mortgage pricing.

February's preliminary reading to th e University of Michigan Index of Consumer Sentiment revealed a reading of 73.7. This was a decline from January's reading and lower than forecasts were calling for. This means that consumers are less optimistic about their own financial situations this month than many had thought. That is considered good news for the bond market and mortgage rates because waning consumer confidence usually translates into weaker levels of consumer spending.

Yesterday's 30-year Bond sale also was met with a lackluster interest from investors. This was no surprise and neither was the minimal reaction to the results once they were posted yesterday afternoon. Mortgage rates were not affected by the results of the sale yesterday.

Next week has several relevant economic reports scheduled, including two key inflation readings. Others include a couple of housing reports and a measurement of industrial output.

Happy Friday......and remember that Sunday is Valentine's Day!!!

I want to just put it out there that when you read my blog and happen to notice spelling errors, I need grace :)  Spell check does not always catch my tricky spelling errors :)

Have a Magnificent Monday!

If you live anywhere around Austin today, I am sure you have seen the gloomy weather we have today and that will likely continue thru the week.  This is the perfect weather to take Vitamin D3 in.....helps with the no sun blues :)

Today's real estate topic is about the most wise places to invest in your home....in particular, the best 3 Rooms to invest in....where you will get the most bang for your buck.  Happy reading!

......As always, if you know of someone who would appreciate the same level of service that we offer, please send me their information and I will be happy to provide excellent service to them.  We are never too busy for your referrals.

You never realize how much your mother loves you until you find all the finger-paintings, birthday cards, and class projects she tucked away for safekeeping.  My mom gave me a special box like this last year that I went thru recently. It was a box of treasures for me.  If you have anything like this gathering dust in a closet, take it out.  It would probably make a wonderful addition to your valentines card/gift. 

As for real estate......Monday's bond market opened well in negative territory following stronger than expected economic reports. The stock markets started the week in positive ground with the Dow up 74 points and the Nasdaq up 13 points. The bond market is currently down 17/32, but due to strength late Friday we will see little change to this morning's mortgage rates compared to Friday's morning rates.

There were two relevant reports posted yesterday morning. The first was January's Personal Income and Outlays data early this morning. It showed a 0.4% increase in income and a 0.2% rise in spending. The income reading was stronger than expected, but the spending increase fell short of forecasts. Therefore, this report can be considered neutral for mortgage rates.

The second report on Monday was the Institute of Supply Management's (ISM) manufacturing index. This index tracks manufacturer sentiment by rating surveyed trade executives' opinions of business conditions . It showed a reading of 58.4 that was well above what analysts were expecting to see. This means that more surveyed manufacturers felt business had improved last month than the previous month, indicating a strengthening manufacturing sector. This can be considered bad news for bonds and mortgage rates.

Today we do have two speaking engagements to watch. Treasury Secretary Geithner will speak before a Senate Finance Committee at 10:00 AM ET regarding the U.S. budget. At the same time, Paul Volcker who is the Chairman of the President's Economic Recovery Advisory Board, will testify to the Senate Bank Committee about high-risk banking activities. Since the government bonds are highly involved in the economic recovery and budget issues, these speeches may affect the markets if something unexpected is said. This could be positive or negative for bonds and mortgage rates, but are worth watching.

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Lock if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

Have a wonderful Tuesday!!!!

in 1988 The Phantom of the Opera opened on Broadway.....several people share this day as their birthday.....Lucinda Williams, Angela Davis, Paul Newman and Ellen DeGeneres! 

As for real estate, there is a startling rate of 5.01% of homes that are rolling into a delinquent status with their mortgages as of December 2009.  That number is also said to be on the rise (Fox New Analyst).

 I wanted to let you know, those of you who don't already know, that our company can help if you are in that boat.  We have a local investor to help any homeowners who are behind on their payments.  This investor will buy your house and help you get out of a bad situation and into a new home.  If you are in a place where you can't make your payments, or you will be there soon, call us to see how we can help you.  We have helped many families in similar situations and can help you too!  We can work really fast, but don't wait until it is too late.

Call or email us today!  Have a wonderful Tuesday!

Frequently Asked Questions
About the First-Time Home Buyer Tax Credit

The Worker, Homeownership, and Business Assistance Act of 2009 has extended the tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence. The tax credit now applies to sales occurring on or after January 1, 2009 and on or before April 30, 2010. However, in cases where a binding sales contract is signed by April 30, 2010, a home purchase completed by June 30, 2010 will qualify.

For sales occurring after November 6, 2009, the Act establishes income limits of $125,000 for single taxpayers and $225,000 for married couples filing joint returns.

The income limits for sales occurring on or after January 1, 2009 and on or before November 6, 2009, are $75,000 for single taxpayers and $150,000 for married taxpayers filing joint returns.

The following questions and answers provide basic information about the tax credit. If you have more specific questions, we strongly encourage you to consult a qualified tax advisor or legal professional about your unique situation.

1. Who is eligible to claim the $8,000 tax credit?
First-time home buyers purchasing any kind of home—new or resale—are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and on or before April 30, 2010. For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner. A limited exception exists for certain contract for deed purchases and installment sale purchases. See the IRS website for more detail.

However, the law also allows home sales occurring by June 30, 2010 to qualify, provided they are due to a binding sales contract in force on or before April 30, 2010.

Persons who are claimed as dependents by other taxpayers or who are under age 18 are not qualified for the tax credit program.

2. What is the definition of a first-time home buyer?
The law defines “first-time home buyer” as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.

For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. However, IRS Notice 2009-12 allows unmarried joint purchasers to allocate the credit amount to any buyer who qualifies as a first-time buyer, such as may occur if a parent jointly purchases a home with a son or daughter. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.

3. How is the amount of the tax credit determined?
The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.

4. Are there any income limits for claiming the tax credit?
Yes. For sales occuring after November 6, 2009, the income limit for single taxpayers is $125,000; the limit is $225,000 for married taxpayers filing a joint return. The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $125,000 for single taxpayers and $225,000 for married taxpayers filing a joint return. The phaseout range for the tax credit program is equal to $20,000. That is, the tax credit amount is reduced to zero for taxpayers with MAGI of more than $145,000 (single) or $245,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.

5. The income limits for claiming the tax credit were raised when the tax credit was extended. Are the higher limits retroactive?
No. The new income limits are only applicable to purchases occurring after November 6, 2009.

The income limits for sales occuring on or after January 1, 2009 and on or before November 6, 2009 are $75,000 for single taxpayers and $150,000 for married couples filing jointly.

6. What is “modified adjusted gross income”?
Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine “adjusted gross income” or AGI. AGI is total income for a year minus certain deductions (known as “adjustments” or “above-the-line deductions”), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.

To determine modified adjusted gross income (MAGI), add to AGI certain amounts of foreign-earned income. See IRS Form 5405 for more details.

7. If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?
Possibly. It depends on your income. Partial credits of less than $8,000 are available for some taxpayers whose MAGI exceeds the phaseout limits.

8. Can you give me an example of how the partial tax credit is determined?
Just as an example, assume that a married couple has a modified adjusted gross income of $235,000. The applicable phaseout to qualify for the tax credit is $225,000, and the couple is $10,000 over this amount. Dividing $10,000 by the phaseout range of $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000.

Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $138,000. The buyer’s income exceeds $125,000 by $13,000. Dividing $13,000 by the phaseout range of $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.

Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances.

9. How is this home buyer tax credit different from the tax credit that Congress enacted in early 2009?
The tax credit’s income limits were increased, the documentation requirements were tightened, and the program's deadlines were extended.

10. How do I claim the tax credit? Do I need to complete a form or application? Are there documentation requirements?
You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on line 67 of the 1040 income tax form for 2009 returns (line 69 of the 1040 income tax form for 2008 returns). Please note that although the Form is titled “First-Time Homebuyer Credit,” this is the correct form for claiming both the $8,000 first-time homebuyer tax credit and $6,500 repeat buyer tax credit.

No other applications are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and first-time home buyer tests. Note that you cannot claim the credit on Form 5405 for an intended purchase for some future date; it must be a completed purchase. Home buyers must attach a copy of their HUD-1 settlement form (closing statement) to Form 5405 as proof of the completed home purchase. In cases where a HUD-1 form is not used, such as for construction of some new homes, you should attach a copy of the certificate of occupancy in lieu of the HUD-1. Homebuyers should be sure to read the instructions for the revised IRS Form 5405 to be sure they meet the new program requirements.

11. What types of homes will qualify for the tax credit?
Any home that will be used as a principal residence will qualify for the credit, provided the home is purchased for a price less than or equal to $800,000. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.

It is important to note that you cannot purchase a home from, among other family members, your ancestors (parents, grandparents, etc.), your lineal descendants (children, grandchildren, etc.) or your spouse or your spouse’s family members. Please consult with your tax advisor for more information. Also see IRS Form 5405.

12. I read that the tax credit is “refundable.” What does that mean?
The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.

For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed).

13. Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?
Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been “purchased” on the date the owner first occupies the house. In this situation, the date of first occupancy must be on or after January 1, 2009 and on or before April 30, 2010 (or by June 30, 2010, provided a binding sales contract was in force by April, 30, 2010).

In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date. To provide proof of purchase, homebuyers must attach a copy of the HUD-1 Form or certificate of occupancy to IRS Form 5405.

14. Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?
Yes. The tax credit can be combined with an MRB home buyer program. Note that first-time home buyers who purchased a home in 2008 may not claim the tax credit if they are participating in an MRB program.

15. I live in the District of Columbia. Can I claim both the Washington, D.C. first-time home buyer credit and this new credit?
No. You can claim only one.

16. I am not a U.S. citizen. Can I claim the tax credit?
Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of “nonresident alien” in IRS Publication 519.

17. Is a tax credit the same as a tax deduction?
No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS.

A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $8,000 in income taxes. If the taxpayer receives an $8,000 deduction, the taxpayer’s tax liability would be reduced by $1,200 (15 percent of $8,000), or lowered from $8,000 to $6,800.

18. I bought a home in 2008. Do I qualify for this credit?
No, but if you purchased your first home between April 9, 2008 and January 1, 2009, you may qualify for a different tax credit. Please consult with your tax advisor for more information.

19. Is there a way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 or 2010 tax return?
Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downpayment.

Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.

In addition, rule changes made as part of the economic stimulus legislation allow home buyers to claim the tax credit and participate in a program financed by tax-exempt bonds. As a result, some state housing finance agencies have introduced programs that provide short-term second mortgage loans that may be used to fund a downpayment. Prospective home buyers should check with their state housing finance agency to see if such a program is available in their community. To date, 18 state agencies have announced tax credit assistance programs, and more are expected to follow suit. The National Council of State Housing Agencies (NCSHA) has compiled a list of such programs, which can be found here.

20. HUD is now allowing "monetization" of the tax credit. What does that mean?
It means that HUD allows buyers using FHA-insured mortgages to apply their anticipated tax credit toward their home purchase immediately rather than waiting until they file their 2009 or 2010 income taxes to receive a refund. These funds may be used for certain downpayment and closing cost expenses.

Under HUD’s guidelines, non-profits and FHA-approved lenders are allowed to give home buyers short-term loans of up to $8,000. The guidelines also allow government agencies, such as state housing finance agencies, to facilitate home sales by providing longer term loans secured by second mortgages.

Housing finance agencies and other government entities may also issue tax credit loans, which home buyers may use to satisfy the FHA 3.5 percent downpayment requirement. In addition, approved FHA lenders can purchase a home buyer’s anticipated tax credit to pay closing costs and downpayment costs above the 3.5 percent downpayment that is required for FHA-insured homes.

More information about the guidelines is available on the NAHB web site. Read the HUD mortgagee letter (pdf) and an explanation of the FHA Mortgagee Letter on Tax Credit Monetization (pdf). An FAQ about monetization (pdf) is available at the NAHB web site.

21. If I’m qualified for the tax credit and buy a home in 2009 (or 2010), can I apply the tax credit against my 2008 (or 2009) tax return?
Yes. The law allows taxpayers to choose (“elect”) to treat qualified home purchases in 2009 (or 2010) as if the purchase occurred on December 31, 2008 (or if in 2010, December 31, 2009). This means that the previous year’s income limit (MAGI) applies and the election accelerates when the credit can be claimed. A benefit of this election is that a home buyer in 2009 or 2010 will know their prior year MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.

Taxpayers buying a home who wish to claim it on their prior year tax return, but who have already submitted their tax return to the IRS, may file an amended return claiming the tax credit using Form 1040X. You should consult with a tax professional to determine how to arrange this.

22. For a home purchase in 2009 or 2010, can I choose whether to treat the purchase as occurring in the prior or present year, depending on in which year my credit amount is the largest?
Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in the present year and a larger credit would be available using the prior year MAGI amounts, then you can choose the year that yields the largest credit amount.

23. How can two unmarried buyers allocate the tax credit if one qualifies for the $8,000 first-time home buyer tax credit and the other qualifies for the $6,500 repeat home buyer credit?
The buyers can allocate the tax credit in any reasonable manner, provided neither claims a tax credit higher than the one they qualify for and the home purchase does not yield a total of more than $8,000 in tax credits. For example, the repeat home buyer could claim $6,500 and the first-time home buyer could claim $1,500. Alternatively, both buyers could claim a $4,000 tax credit.

24. Does a married couple qualify for any home buyer tax credit in the following situation? Spouse A has lived in and owned the same principal residence for at least five years. Spouse B has lived in and owned the same principal residence for less than five years.
In this situation, the couple does not qualify for any home buyer tax credit. Because the couple is married, the law tests the ownership history of both spouses. Spouse A clearly does not qualify for the $8,000 first-time home buyer tax credit, so neither does Spouse B.

Spouse A does appear to qualify for the $6,500 repeat buyer credit, but because Spouse B has not owned and lived in the same principal residence for at least five years, neither of them can claim the repeat home buyer tax credit.

I read something very interesting today that I want to share.

"Are you tired?  Worn out?  Burned out on religion?  Come to me.  Get away with me and you'll recover your life.  I'll show you how to take a real rest."

Sounds like an ad for the latest vacation spot doesn't it?  Guess what....it is a verse....Matthew 11:28

I don't know about you, but sometimes the day to day grind of life exhausts me.  When I am exhausted, I tend to say things I don't mean....effectively hurting someone I care for.  It may not be that I have a valid reason to be angry (sometimes I do), but it may be that I am just bone weary.  The verse may read like a get away ad.....and it kind of is.  The offer is the real deal.  Unlike a vacation though, it is free because it comes from our Savior. 

Jesus knew that we would allow the daily constant pressures, demands and stresses to get to us.  Too often, I can't seem to recover on my own.  My BFF and I have a saying.....when we are in a spot like this we say to each other to " go find your big girl chones and put them on". 

What I have figured out on my journey is that the answer is to take frequent emotional/spiritual retreats.  Before your imagination starts racking up the $$$$.....they don't have to be lengthy or expensive.  what this looks life for me for real is maybe a few minutes of quite time in the car after I drop off my kids at school, a walk at dawn when only the birds seem to be awake, cutting some flowers from my yard and arranging them in a vase, a hot bubble bath with candles, or just a good book.

Wherever you find these moments, do it often and you will be able to give thanks for these real rest that is offered in Matthew 11;28. 

Give yourself permission to rest for a moment!

I am sure that most of you have set out with a very optimistic opinion of the new year.  I personally am hopeful that the economy will continue to get better and that we will help our clients buy and sell more homes than last year. 

As the new year begins, many people are wondering what their homes are worth now.  This is a great question.  I ran the numbers on my own home and I was very happy to see that my home is worth slightly more than it was this time last year. 

With the tax credit being extended thru April of 2010 and then allowing time even to close into June, there have been many excited prospective home buyers and sellers popping up everywhere.  If you hadn't heard, the tax credit applies even to existing home owners, as long as you have owned your home for the past several years. The credits are up to $8k for 1st time buyers and up to $6500 for existing homeowners.  Call me for the skinny on qualification criteria. 

AND....if you are renting, but have owned a home before, you may qualify as a 1st time home buyer making it possible to snap up the larger credit.

Call me if you have questions!