Real Estate Information Archive

Homebuyer Tax Credit

 

The government recently passed an incentive credit for people buying homes that have not had an ownership interest in a property for the past 3 years.  You don’t necessarily have to be a first time home buyer.  The way this works is that the year after you purchase your home, you will receive up to $7500 as a tax credit when filing your taxes.  This can result in a refund to you.  If you receive the full $7500 you will then start to repay the money at $500 increments for the next 15 years.  This is essentially an interest free loan from the government.  A lot of home buyers wonder how they will pay for improvements to the home.  This may be a great way to make some of those upgrades that you don’t have the money to initially do.  You can do whatever you want to with that money though.  You could put in the bank or invest it in some other account. 

 

In a new market when there are very few 0% down programs left, this may be a way repay yourself for the initial down payment requirement, or simply afford yourself a little cushion in the unique market.   

 

For more information or any questions, contact

 

Matt Smith – Countrywide Financial – 616-299-2951

Why Selling Now Makes Sense

Home owners who are reluctant to sell because prices have fallen, should do the math, and realize that the market downturn could work in their favor, say practitioners in hard-hit, but still pricey Boston.

Their reasoning may work in many other parts of the country as well.

"People are finding houses at prices they thought they'd never see again," says David W. O'Neil of Century 21 Spindler & O'Neil Associates in suburban Boston.

O’Neil points out to potential sellers that if the house a buyer covets used to be $500,000 but its price has fallen 20 percent to $400,000, it is a deal, even if the buyer’s own home also has lost 20 percent of its value.

In general, the toughest sell is people who bought about four years ago at the height of the market, says Zur Attias of The Attias Group at Barrett & Co. in Concord, Mass. But even for these home owners, selling now may make sense as long as they can at least break even.

He argues that almost everyone forgoes something, and probably several things, that he or she wanted when buying a house. For instance, the home may be in the right school district, but on a busy street. Or it may in a great neighborhood, but it's a Cape, not a Colonial. These are things Attias calls "unchangeables."

He says it’s a good time to sell if a seller can get rid of the most negative unchangeables in his current home, and replace them with better unchangeables in a new home. Once the market really turns around, the growth will be bigger in the better house, he predicts.

Real Estate buyers are usually highly focused on the purchase price of a property. This is a legitimate concern. The purchase price is one of the most important considerations in a real estate transaction. But at the same time home buyers too frequently treat interest rates as a secondary concern. Many buyers will stress over $300 or $400 in negotiations over purchase price. But when told that interest rates dropped half a point, home buyers will often respond with a shrug.

This is frequently because it is easy to understand the difference between paying 200k and 195k for a house. But it's harder to appreciate the difference between an interest rate of 6.5% and 6.0% for a house. But interest rates can have a large influence on mortgage payments. Using a mortgage calculator first let's look at the difference between the mortgage on a 200k and the mortgage on a 195k house assuming a 6.5 percent interest rate.

200k  (6.5%)  Mortgage  $1264.13 per month
195k  (6.5%)  Mortgage  $1232.53 per month

The difference ends up being $31.60 a month.

Now let's look at the difference between an interest rate of 6.5% and 6.0% on a 200k house.

200k  (6.5%)  Mortgage  1264.13 per month
200k  (6.0%)  Mortgage  1199.10 per month

The difference ends up being $65.03 a month or $780.36 a year. A simple half point drop lowered the mortgage payment by 5.4 percent.

Interest rate changes are not that uncommon. We wrote a tool that graphs mortgage rates over time based on the interest rates provided by Freddie Mac. In the middle of 2007 we saw interest rates of 6.7%. At the beginning of 2008, interest rates were down to 5.75%. What is a little more interesting is when we switch the toggle on our tool from the interest rate to the mortgage on a 200k house based on the interest rate for that date http://www.escapesomewhere.com/blogim/mortgage_rates_broker.jpg. From the middle of 2007 to the beginning of 2008, we saw a drop in the monthly mortgage payment on a 200k house drop from $1290 to $1170, a difference of 9.3 percent. This is why when buyers say they are waiting for prices to drop 5%, it might be a good idea to tell them that the actual mortgage they would get on a house has already dropped by more than 5 percent.

In light of all the mortgage issues over the last few years, it highlights why home buyers should shop around for interest rates. All too frequently home buyers will go with the first mortgage person they meet under the assumption that everyone has roughly the same rates and that a half point isn't really that big of a difference. As we have seen above, a half point can make a significant difference in someone's mortgage payment.

In summary, home buyers should still focus on price because it will always be an important part of the real estate transaction. But if home buyers start to look at interest rates more closely, they will end up with more success in their real estate purchases and lower mortgage payments.

Why can’t we be more like Grand Rapids?

By JOANN FITZPATRICK

It’s such a big country, America. I don’t know it well, haven’t traveled from sea to shining sea, except by airplane from East to West several times. Last weekend I was in Michigan, not quite the heartland but close enough.

The combined effect of television programs, chain stores and restaurants and electronic gadgets is that we think we’ve been homogenized.

But it’s not so, thank goodness.

I know that when I visited New Orleans, before and after Hurricane Katrina, this is a place very different from Boston or anywhere else in America.

Texas, too. But what of the vast Midwest? Is it really different from New England or California?

Darned right, it is. I was in Grand Rapids, Mich., for a wedding. What I knew about Grand Rapids before going there was that it was the hometown of President Gerald Ford and site of his presidential library and museum. And also the home of Amway, though I and other out-of-town guests had only a vague idea of what Amway sells.

The small talk that predominates at events like this was punctuated repeatedly by wedding guests proclaiming to one another, ‘‘What a nice town, what a surprise!’’ Many if not most of the guests flew in from both coasts and interesting places in between, such as Santa Fe. There was elitism to spare but at the same time a willingness to be charmed by a place that truly seems to represent good old-fashioned American values.

If there are surreptitious litter police, they keep themselves well hidden, but the streets of Grand Rapids are as gleaming as the refurbished buildings throughout the downtown. Community pride is everywhere. I couldn’t help but compare what I saw to cities and towns back home.

Don’t get me wrong, I love Boston and New England, from the coastline to the old mill towns like the one where I grew up, Manchester, N.H. But there’s no disputing that the quality of life in this area continues to deteriorate. We blame government for not investing more in parks and beaches, but who’s dropping the garbage? It’s not the government; it’s us. The mounds of Dunkin’ Donuts cups scarring off-ramps on our highways is disgusting. Local streets are no better and because we seem not to care, the habit just grows.

In Grand Rapids, Midwestern friendliness and helpfulness were everywhere. I left my camera in a cab and within minutes of calling the hotel, staff was on the case. They called back 15 minutes later, not having located it yet but to let me know I had not been forgotten. I nearly fainted from the shock of random kindness. (Yes, I got it back.) When was the last time someone actually cared that you lost an item in their store, or even that you were shopping there?

Downtown Grand Rapids, a city of about 200,000, is a laboratory of urban renewal. Formerly a manufacturing city - home of Kelvinator, for example - it faces a huge challenge in reshaping its economy. The state of Michigan is no help, since its automobile-reliant economy has been in the hopper for years, with more bad news sure to come.

So what is Grand Rapids turning to? Health care. And here is where it could be interesting to Massachusetts. Spectrum Health, Grand Rapids’ biggest employer, is creating a cancer center and also expanding its medical research, including a new center for molecular medicine. Michigan State University is moving its medical school to the city. You may say, ‘‘So what?’’ But think about all those Boston-area college graduates, our biggest source of human capital, and the cost of living in Massachusetts, and then compare it to Grand Rapids. There you can buy a five-bedroom house in the historic district for $400,000. Yup, $400,000, and you could walk to work, breathe clean air and not worry about litter blowing in your face. And your children could attend a neighborhood school. The historic district, a microcosm of American architectural styles, was rehabilitated decades ago solely because of the efforts of public-spirited citizens.

I am not writing this to encourage young people to leave Massachusetts. I think it’s important to recognize, though, that we don’t necessarily have it all here. We have first-class hospitals and colleges with costs to match and housing prices that make building a future here ever more difficult. We also have a shortage of the kind of community spirit I saw in Grand Rapids.

There, the Amway Corp. and its founders put their names all over downtown, investing in public buildings they hope will rejuvenate the city.

Here, corporations hand out a few dollars to local charities, but there is less to donate as they are bought up by national companies more interested in naming rights on arenas than in philanthropy or rebuilding communities.

Look around your town: Can it be improved? Probably. I am tired of dirty streets and blaring car horns, bad manners and shoddy service. We’re better than that, aren’t we?

JoAnn Fitzpatrick, former editorial page editor

Copyright 2007 The Patriot Ledger
Transmitted Saturday, June 16, 2007