Tax Credit for Homebuyers
First-time homebuyers who purchase homes from the start of the year until the end of November 2009 may be eligible for the lower of an $8,000 or 10% of the value of the home tax credit. Remember a tax credit is very different than a tax deduction - a tax credit is equivalent to money in your hand, as opposed to a tax deduction which only reduces your taxable income.
The tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000. Buyers will have to repay the credit if they sell their homes within three years.
Tax Credit Versus Tax Deduction
It's important to remember that the $8,000 tax credit is just that... a tax credit. The benefit of a tax credit is that it's a dollar-for-dollar tax reduction, rather than a reduction in a tax liability that would only save you $1,000 to $1,500 when all was said and done. So, if a homebuyer were to owe $8,000 in income taxes and would qualify for the $8,000 tax credit, they would owe nothing.
Better still, the tax credit is refundable, which means the homebuyer can receive a check for the credit if he or she has little income tax liability. For example, if a homebuyer is liable for $4,000 in income tax, he can offset that $4,000 with half of the tax credit... and still receive a check for the remaining $4,000!
According to the plan, the tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000.Homes that Qualify
To break down what this phaseout means to homebuyers who are over those amounts, the National Association of Homebuilders (NAHB) offers the following examples:
Example 1: Assume that a married couple has a modified adjusted gross income of $160,000. The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $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 homebuyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000.
Example 2: Assume that an individual homebuyer has a modified adjusted gross income of $88,000. The buyer's income exceeds $75,000 by $13,000. Dividing $13,000 by $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.
Remember, these are general examples. You should always consult your tax advisor for information relating to your specific circumstances.
The tax credit is applicable to any home that will be used as a principle residence. Based on that guideline, qualifying homes include single-family detached homes, as well as attached homes such as townhouses and condominiums. In addition, manufactured or homes and houseboats used for principle residence also qualify.Higher Loan Amounts
More good news - there is an extension on the additional tier of conforming loan amounts which had been first established in 2008. This tier of home loans are those greater than $417,000, and with a maximum that depends on the area, but is not greater than $729,750. These loans will again be eligible for rates that are slightly higher than conforming loan rates, but less expensive than the standard "jumbo" loan rates.
Mortgage interest rates have begun to come off the all time lows from early January and seem to have settled in the low 5% range on 30 year fixed mortgages with no points. One of the reasons that rates have begun to increase is all of the planned stimulus packages and spending that newly elected President Obama has on the table. The way these packages will be financed is through increased government borrowing in the form of increased supply of treasury notes. This expectation of increased supply in the bond market has lead to higher yields in all bond markets and caused mortgage backed securities (MBS) to follow with higher yields as well. Along with increased supply pulling the price of bonds down and thus increasing the yield; there is fear among investors that inflation will eventually pick up if the stimulus packages spark an economic recovery.
The Fed is going forward with their program of purchasing MBS on the open market. They have consistently been buying 3 to 4 billion of agency MBS each day. If it were not for this constant demand provided by the Fed, mortgage rates would be much higher than they are today.
On the bright side, as lenders get caught up on loans in their pipeline over the next month they should get more aggressive in the rates they offer on their daily rate sheets in an effort to keep the new loans coming in. This tightening of the spread between lenders rate sheets and MBS pricing could lead to lower rates again sometime in the next month.
While 30 year rates in the high 4% range were nice while they lasted, rates in the low 5% range are nothing to complain about either, especially with the home purchase season fast approaching.
The monthly unemployment report was released today and the results were worse than expected. In total it is estimated that 524,000 jobs were lost in December. Economists were expecting job losses to be closer to 500,000 for December. On top of that the numbers for October and November were also revised to show larger losses than were first reported. The unemployment rate has jumped up to 7.2% which is the highest it has been in 16 years.
One bright spot in all of this bad news is that mortgage rates remain at all time lows. This should help a lot of borrowers to free up some money by refinancing their mortgage into lower monthly payments.
Another factor keeping mortgage rates at these historic levels is the fact that the Federal Reserve has begun their program of purchasing Agency Mortgage Backed Securities in an effort to keep rates low. So far it has worked as rates have been available in the 4s at times this week.
The consumer confidence report came out this morning and it was worse than expected. The reading shows consumer confidence at 38.0, lower than the expected level of 45.8. This is the lowest monthly reading ever reported by the Conference Board.
As we have discussed in the past, bad news for the economy normally leads to support for mortgage rates. This news that came out today shows that the economy will most likely not be starting a recovery anytime soon and should help keep mortgage rates from going much higher for now.
Mortgage Backed Securities have been under some year end selling pressure lately and the result is mortgage rates have come off their recent lows. The increase in mortgage rates have been minimized by the slow economy and economic reports, like the consumer confidence report from this morning, coming in worse than expected.
Mortgage interest rates are still near historic lows and offer a great opportunity to refinance into lower rates for many people. It is also a good time to take advantage of low house prices combined low fixed mortgage rates and look into buying a home.
You can always check the current mortgage rate options by checking the homepage of our website which is updated daily.
Mortgage rates in Massachusetts look like they will begin the holiday shortened work week slightly higher after hovering around historic lows recently.
30 year fixed rates should still be available in the low 5% range this week. With so much uncertainty in the market it is hard to predict where rates will go on any given day. This is why it is important to lock an interest rate when one is available that makes sense for you to refinance at. There is no guarantee that rate will be available the next day.
There is not much news scheduled for this week that will have an impact on the mortgage market. We will update you though if any mortgage rate news comes out.
As more and more borrowers realize that mortgage rates in Massachusetts and all of New England are at historic lows, they are inquiring about the possibility of refinancing into a lower interest rate. Once they find out they have the credit scores and income to qualify the next obstacle is home values. To get the lowest interest rate and avoid paying Private Mortgage Insurance (PMI) you need the loan amount to be 80% of the home appraised value. Given the current state of the housing market, many borrowers are discovering that they no longer have the required 20% equity, even if they did just a few months ago.
This is when PMI comes into play. A lot of people immediately think of PMI as a bad thing. It adds to the monthly mortgage payment without helping to pay down the balance of the mortgage. A lot of people don't realize that going from a loan with no PMI to a loan with PMI might still be a good move.
One reason having PMI on your new loan could be a good option is that in some cases it may be used as a tax deduction. You will have to consult a tax advisor to see if this deduction can be applied to your taxes. If it can, it will help reduce the actual cost of the PMI.
Another reason PMI is not as bad as it may initially seem is because it is not a permanent expense. On conforming loans the PMI may be eliminated once you have 20% equity in the home. Once it is removed you will be left with the original interest rate and no PMI payment.
Interest rates are at historic lows right now making it possible for many people to reduce their current mortgage payment, even if their new loan has PMI. For example, say you bought a home 3 years ago for $400,000 with a 20% down payment. You took out a loan for $320,000 and got a fixed at 6.375% with monthly principal and interest payments of $1,996.38. Now that rates have come down, you have the option to refinance into a 30 year fixed loan amount of $315,000 at 5.00% with monthly principal and interest of $1,690.99 per month. The only problem is that your home now appraises for $360,000 due to the weak housing market, leaving you with a little more than 10% equity in the home. PMI is now required on the loan in order to get the lowest rates. In this scenario you could expect to have to pay a PMI payment of about $130 per month.
Even with the new PMI on the loan, your total payment would still be $175.39 less than you were currently paying. And once you have 20% equity in the home again, the PMI would fall off and you would then be saving $305 per month compared to the loan you had with an interest rate of 6.375%. Once you factor in potential tax savings from the PMI it becomes clear that it is worth it to refinance even if you no longer have the 20% equity in your home.
To see if it makes sense for you to refinance given the historically low 30 year fixed rates that are currently available, give us a call at 508-839-1117 to talk with one of our loan officers.
On Tuesday December 16th
the Federal Open Market Committee (FOMC or "The Fed") will release a statement after its scheduled meeting. Many economists are expecting the Prime rate to be lowered to 3.5% at this meeting. One important thing to remember is that a lower Prime rate does not translate into lower fixed mortgage rates. See our article from November 16th http://www.hqworksforme.com/mortgage-blog/bid/6768/What-determines-mortgage-rates
for more information on what determines mortgage rates.
There are a couple of other news items coming out this week that could have an impact on mortgage rates. The first piece of data will be released on Tuesday is the Consumer Price Index (CPI). The CPI will give investors an idea of what direction prices for goods and services in the economy are going. A higher than expected reading (more inflationary) will be bad for mortgage rates while a lower than expected number (less inflationary or even deflationary) could provide support.
On Thursday the Philadelphia Fed Index is released. This reports on the level of manufacturing activity in the Philadelphia region and is seen as a strong indicator for national manufacturing activities. If this number is worse than expected it should provide support to mortgage rates because generally a weak economy leads to increased investment in fixed income, like mortgage backed securities (MBS).
Current 30 year fixed mortgage rates remain at all time lows and depending on how things look this week in the economic reports, they could be sticking around into the new year.
Current mortgage rates will be low again this week as the rally in mortgage rates that started on November 26th looks to be sticking around longer than some previous rallies this year. This is good news for borrowers that are looking to refinance a current mortgage or purchase a home. One of the main goals the Treasury has is to try and stimulate the housing market and bring some potential buyers off the sidelines with the lower mortgage rates.
One news item coming out this week that could impact mortgage rates is the Retail Sales report which will be released on Friday. This report is expected to show that retail sales were lower by 1.4% in November. A worse than expected reading would be bad news for the economy and could support lower mortgage rates. A better than expected reading would be a positive sign for the economy and most likely lead to higher mortgage rates.
Other than the Retail Sales report, any new announcements from the Federal Reserve or the Treasury about Mortgage Backed Securities (MBS) could swing rates one way or the other. For the most up to date information on mortgage rates in Massachusetts along with the other states in New England that HomeQuest is licensed in, call 508-839-1117 and ask to speak with one of our loan officers.
Current mortgage rates have remained near the lowest levels of the year so far this week . The spread of mortgage rates compared to the 10 year treasury is beginning to widen so that could be a sign that once the 10 year yield starts to increase, mortgage rates could follow very quickly. If there is a rate available now that you like, it would be a good move to lock in while it is available.
Some news coming out later this week that could have an impact on mortgage rates includes the unemployment rate which will be released on Friday.
For now mortgage rates in Massachusetts remain near all time lows. Rates in the rest of New England are also currently at the best levels of the year.
The Federal Reserve announced a plan this morning to buy up to $500 billion in mortgage backed securities from Fannie Mae, Freddie Mac and Ginnie Mae. The goal of this move by the Fed is to lower the cost of borrowing on mortgages to borrowers in an effort to support the slumping housing market. The announcement immediately caused a rally in the MBS markets resulting in lower mortgage interest rates across the country.
Current mortgage interest rates in Massachusetts also will be going down today making it a great opportunity for many borrowers to lock in a rate and refinance their home mortgages. Call HomeQuest at 508-839-1117 to see what rate can be locked in for you whether you are looking to refinance your mortgage or need a new mortgage to purchase a home.