Banks make it nearly impossible to obtain $8,000 tax credit
September 15, 2009 11:00AM By Michael Stoler
November 30 is just around the corner, when a first-time homebuyer must close on the purchase of a residence to qualify for the $8,000 tax credit. The tax-credit law requires the buyer to close on their purchase, not just be under contract for a purchase of the residence.
The tax credit is actually equal to 10 percent of the home's purchase price up to a maximum credit of $8,000.
First-time homebuyers are eligible for the credit if they have not owned a principal residence for three years prior to the purchase. The credit phases out between $75,000 and $95,000 for singles and $150,000 to $170,000 for married couples filing jointly.
The tax credit does not have to be repaid as long as the home is the homebuyer's main home for 36 months after the purchase date.
Unfortunately, many prospective purchasers of new homes are incurring difficulties in securing and closing on the purchase.
"Local and national commercial and savings banks are trying their best to aid the purchaser to close on the new home. Nevertheless, due to rules and regulations imposed by federal and state authorities, closings are taking much longer than expected," said Vincent Riso, a principal at the Briarwood Organization.
Strict underwriting rules are creating havoc for first-time and established buyers. Due to the credit crisis, lenders have risen the levels of underwriting requirements and are denying mortgages to prospective buyers with weak credit scores and low down payments.
For example, many condominium closings have been held up since government service organizations will not provide financing unless at least 50 percent of the units have been sold and closed.
A few years ago, a closing would take place three to four weeks after a contract of purchase was signed; today it can take three or four months. A three- or four-month process would make it impossible for many qualified buyers to benefit from the laws.
Two of the biggest housing trade groups, the National Association of Realtors and the National Association of Home Builders, are lobbying to extend the credit and even expand it.
According to the Pending Home Sales Index report issued by the NAR, contract activity for pending home sales has risen for six straight months, a pattern not seen in the eight-year history of the index. The report estimated that 1.8 million to 2 million first-time buyers will take advantage of the $8,000 first-time homebuyer tax credit.
Existing home sales rose 7.2 percent to a seasonally adjusted annual rate of 5.24 million in July, the most since August 2007 and the fourth straight month the figure increased, according to the NAR. One in three home sales last month came from first-time buyers who are benefiting from the tax credit.
Sens. Johnny Isakson and Christopher Dodd are sponsoring a bill that would raise the credit amount to a maximum of $15,000. The NAR is lobbying to extend the credit and broaden it to cover all new purchases in 2010.
Michael Stoler is a columnist for The Real Deal and host of real estate programs "The Stoler Report" and "Building New York" on CUNY TV and on WEGTV in East Hampton. His radio show, "The Michael Stoler Real Estate Report," airs on 1010 WINS on Saturdays and Sundays. Stoler is a director at Madison Realty Capital as well as an adjunct professor at NYU Real Estate Institute, and a former contributing editor and columnist for the New York Sun.
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Comments
Jfidelman
I'm really very disappointed to say the least, in the banks government and pretty much all those involved in making these stupid restraints on who can receive the tax credit. Don't get me wrong, from a business point of view the banks aren't trying to do anything other than cover their own asses.*(excuse the language) but they should have been doing that years ago, and not writing sub-prime mortgages to people they KNEW could not pay them back. And now, at a time of need, yes we NEED for people to be buying real estate big or small; the govn't restricts this credit to certain income families?
Comment #1 Posted By: Jfidelman 09/15/09
Anonymous
Bottom line, is that first of all the tax credit should be more broad casted through the media so people actually can get some kind of information, later perhaps calling licensed Realtor to further find out about the credit. But thus far, its been almost a secret! (ive seen 2 commercials for this credit, paid for by Realtors) What the hell is our govn't doing to us? They're basically hanging a piece of meat on a string, and we're all desperately trying to catch it on our treadmills. They're giving us a glimmer of hope, but not letting anyone actually get it?
Comment #2 Posted By: Anonymous 09/15/09
Anonymous
My opinion is that, Yes we should extend this tax credit maybe until the end of the year? maybe end of 1st quarter of 2010. But this time, have a legit promotion for it, and not restrict it to certain income families. Maybe only have this credit for 3 months, but allow every single person, regardless of their ownership of any properties , to be allowed to receive the credit.This may not make everyone happy, but people out there have money, just more frugle these days. Offer the people an equal credit, for all. That way our 'buyers pool' will increase exponentially. I apologize in advance if not everyone agrees with me, and i know most of this has been a rambling, but i felt very strongly after reading this article and needed to have my 2cents out there.
Comment #3 Posted By: Anonymous 09/15/09
Anonymous
I got my $8000. Sat on the fence for three years in a crappy rent house. The time to jump was last spring.
Comment #4 Posted By: Anonymous 09/15/09
Anonymous
They should get rid of this STUPID credit. Let prices fall!!! The idea that they are taking my tax money to buy someone else a house is criminal. Why are you taking my money to pay for some guy's house? Stay out of the way. Let prices fall another 20% to the long-term mean. The market is finally working. It will create affordable housing by itself, but the stupid government keeps getting in the way. Prices will fall with or without these stupid subsidies, it will just take longer because of these subsidies. So stop wasting my money trying to keep housing less affordable. This thinking is so backward.
Comment #5 Posted By: Anonymous 09/15/09
Anonymous
# 5 is 100% correct. I agree. And if the credit must stay everyone should be entitled to it. I feel like I'm being discriminated against just because I worked hard. How about a tax break for people who didn't go deeply into debt these last few years................
Comment #6 Posted By: Anonymous 09/15/09
Anonymous
I have had an offer in on a condo for several months now. But was just recently told by my agent that the deal probably wouldn't close until December. Many of the properties that first time home buyers can afford are 'short sales' or 'REOs'....These are taking an incredible length of time to close. I thought that I had put an offer early enough to qualify for the credit, but apparently 5 months isn't long enough. I am very disappointed. I imagine that the majority of people getting the credit are people who have cash....and are really investors.....THIS IS NOT REALLY THE GROUP OF PEOPLE THAT THE BILL WAS TARGETING.
Comment #7 Posted By: Anonymous 09/15/09
Anonymous
#8 - don't worry this will work out in your favor - take your offer off the table and then make another -this time drop your offer by $20K. There's no way this place you bid on isn't worth $20K less 5 months later (especially considering the $8K handout is over). Let's see, recently I've bought people houses, cars, windows, refrigerators and more - what's next I wonder? Should my taxes be used to buy people airline tickets? Perhaps the Feds could offer a $25 coupon on every work related flight - it would help increase the amount of commerce taking place and it would help out the airlines right -actually no need for Obama to pass that law (he's too busy trying to spend my money to give every US "citizen" free access to the world's best healthcare) I say we all just send a check for $1,000 directly to a different airline each month. Should we start with Southwest, they seem the most passenger friendly so let's reward them first.
Comment #8 Posted By: Anonymous 09/15/09
Anonymous
# 8 get over it. The people who are getting the credit are not investors rely on yourself and not these government programs. Reduce your price and if the seller is smart they will take it. Good Luck
Comment #9 Posted By: Anonymous 09/15/09
Moopheus
"Strict underwriting rules are creating havoc for first-time and established buyers. Due to the credit crisis, lenders have risen the levels of underwriting requirements and are denying mortgages to prospective buyers with weak credit scores and low down payments." What kind of crazy world is it coming to when the only people who can get a loan are people who might actually be able to pay it back? How does the government expect the banks to be able to make any money that way? Haven't we learned anything? But seriously, the creit was a bad idea from the beginning--its only purpose was a subsidy to keep prices propped up, which means that money really goes to realtors and sellers, not the buyers. It's a government giveaway to the housing industry, pure and simple. The chief sponsor, rep. Isakson, is a former real estate agent. No conflict there. This should not be extended. How does it help the buyer? If the credit goes away, prices will fall--that's better for the buyer.
Comment #10 Posted By: Moopheus 09/16/09
Anonymous
#10 - I am a buyer, I was helped very much by the credit. The price of the home came down 30% from list price too, so the argument that it goes to the housing industry is bogus. Also... anyone talking about the length of time it takes to actually close just doesn't know how the real estate market works, especially concerning short sales. Complaining about that sounds like sour grapes because the coupon's going to expire. The program works especially because it's capped at 150k income. It targets exactly the people who wouldn't be buying houses otherwise, and those people buy from sellers at about the same income level, minimizing more people falling into trouble. #8 do your homework.
Comment #11 Posted By: Anonymous 09/16/09
Anonymous
Pick your poison, at least this use of taxpayer money was focused on what of the two most important bases of US economic health--housing and employment. We are so far from being out from under the housing problems--shadow inventory of lender owned and non lender own but defaulted (100-400 days) properties are going to exert a huge downward pressure on house prices--without job growth/and or tax incentives the housing market (especially the "move up market") is going to continue its downward spiral which will be a continuing disaster on households, banks etc. I say give it one more year at 12,000-15,000 and open it up for everyone for primary residences and rental properties. we are long past the point of thinking we should not spend tax payer money supporting the economy--deflation is still the greatest risk, higher inflation is at least 18-30 months off-look at M2 & M3 if you don't believe me.
Comment #12 Posted By: Anonymous 09/17/09
Anonymous
#11 -so throwing a few Billion of taxpayer money at a Trillion dollar problem is going to help you think? You'll be underwater in your house in 12 months. Congrats.
Comment #13 Posted By: Anonymous 09/19/09
Anonymous
to # 10 please tell me what i can do to close faster ona short sale because everybody i've asked thats in the real estate buisness says "all u can do is wait"..The tax credit should be extended but not increased or made for everyone just because a lot of the homes out there are forclosures or short sales which can take forever
Comment #14 Posted By: Anonymous 09/28/09
Anonymous
correction last comment was for #11
Comment #15 Posted By: Anonymous 09/28/09