By Dennis Norman, on October 1st, 2010  Dennis Norman I just returned from the Lake of the Ozarks after attending business meetings for the Missouri Association of REALTORS (MAR) which included an update on AMENDMENT 3, the effort backed by MAR to prevent double taxation on Real Estate in Missouri. The “update” was more like a football rally, complete with “cheerleaders” and all and, while the fanfare was a little over the top for me, I was thrilled to see so much enthusiasm by REALTORS from across the state over this issue. Continue reading “REALTORS Rally to promote a YES vote on Amendment 3“
By Robert Fishel, on September 29th, 2010  There are so many different charges involved in buying a home, it is important to know what to expect at the settlement. Your lender is required to give you a Good Faith Estimate (GFE) of your settlement costs within three business days of your loan application. Once you get it, review the charges below to avoid any surprises when you sit down to close on your loan. Continue reading “A Condensed Guide to Closing Costs; St Louis Mortgage Watch“
By Dennis Norman, on September 27th, 2010  Dennis Norman Last month I wrote an article about private transfer fees drawing fire from the Federal Housing Finance Agency which cast private transfer fees in a negative light. Freehold Capital Partners, a company that, according to it’s website, partners with real estate developers to utilize private transfer fees (PTF’s) has come out in defense of the use PTF’s and show that they do benefit homebuyers as well as the community. Continue reading “The other side of private transfer fees“
By Dennis Norman, on September 15th, 2010  Dennis Norman While much of the talk (including mine) about the real estate market is somewhat negative, there are some positive things to talk about; home prices have fallen back to levels they were at 7 years ago or more and home mortgage interest rates have hit the lowest levels in decades making a home more affordable than ever. This is a great opportunity for someone to buy a home, particularly if a first-time buyer that doesn’t have to deal with selling a home in the current market. In addition, provided Congress doesn’t take them away, there are tax benefits associated with owning a home that makes a home even more affordable.
To explore the tax-related aspects of home ownership I have done an E-View TM with Dan Elder a CPA and principal of Elder & Associates, PC. Continue reading “Tax benefits of home ownership“
By Dennis Norman, on September 3rd, 2010 Dennis Norman Reverse mortgages have become increasingly popular over the past few years with seniors that find themselves with a large amount of equity in their home, but short on cash, or struggling to pay for the upkeep of the home, property taxes, insurance or other living expenses. A reverse mortgage allows people in that situation to pull the equity from their home in a lump sum, monthly payments or just as they need it. Continue reading “New Rule Proposed to Protect Seniors Obtaining Reverse Mortgages“
By Dennis Norman, on September 1st, 2010 Dennis Norman UPDATE 9/03/2010 -Good News! I’m waiting for confirmation from the Secretary of State’s office, but I have been told that the Secretary of State has decided to drop the appeal and allow this issue to move forward to the voters in November! A huge victory for Missouri property owners! – end of update.
Yesterday I wrote about a Cole County Judge ruling against the Missouri Secretary of State and in favor a group working to prevent double taxation, by means of a transfer tax or fee on real estate, in Missouri clearing the way to take the initiative to voters this November to decide. Unfortunately, this morning I learned that the Missouri Secretary of State, Robin Carnahan is going to appeal the courts decision in an apparent effort to keep this issue from coming before the voters of Missouri. Continue reading “Carnahan files appeal to stop effort to prevent double taxation in Missouri“
By Dennis Norman, on August 31st, 2010 Dennis Norman Earlier this month I wrote about a set-back in an effort to give Missourian’s a an opportunity in November to prevent the possibility of double taxation by voting to pass a constitutional amendment prohibiting transfer taxes or fees on the transfer of real estate. The effort, which had the full support and backing of the Missouri Association of REALTORS, hit a road block when the Secretary of State’s office did not certify that enough signatures were obtained to put the issue on the ballot in November. Continue reading “Court rules in favor of group working to prevent transfer tax“
By Dennis Norman, on August 26th, 2010 Dennis Norman Before you decide on a mortgage make sure you fully understand all the terms of the loan and make sure you know what you are getting yourself in for. Some home mortgages have features that may be risky and make it difficult for you to make your payments in the future. Be sure that you understand the loan terms, the risks and all the costs of the loan you are getting. To help you, below are 7 key questions to ask your lender about your mortgage BEFORE you accept a loan.
Continue reading “7 Key Questions To Ask Your Lender When Getting a Mortgage“
By Dennis Norman, on August 12th, 2010 Dennis Norman Today the Federal Housing Finance Agency announce proposed guidance that would prohibit Fannie Mae, Freddie Mac and the Federal Home Loan Banks from investing in mortgages with private transfer fee covenants. Considering that covers the lenders that originate, invest in or, or insure over 90 percent of the homes in the U.S. that pretty much puts the kibosh on financing a home with such a transfer fee. Continue reading “Private Transfer Fee Covenants Draw Fire From FHFA“
By Ted Gayer, on August 5th, 2010  Ted Gayer, Co-Director of Economic Studies, Brookings Institute The U.S. Department of the Treasury and the Department of Housing and Urban Development released June data for the Obama administration’s Home Affordable Modification Program (HAMP). HAMP is the foreclosure prevention program targeted at borrowers who are delinquent in their mortgage payment or facing imminent risk of default on their mortgage.
It has always been an open question whether HAMP would prevent foreclosures or whether it would just delay inevitable foreclosures. While those who qualify for HAMP receive reduced mortgage Continue reading “The Latest Data on the Home Affordable Modification Program“
By Dennis Norman, on August 3rd, 2010 Dennis Norman Previously I have written about an effort supported by the Missouri Association of REALTORS (MAR) to protect Missouri homeowners from facing double taxation through a real estate transfer tax by backing an effort to amend the Missouri Constitution to prohibit such a tax. Unfortunately, after Missouri citizens supported this initiative in overwhelming numbers, the effort was dealt a blow today when effort by the Missouri Secretary of State’s office announced its conclusion that the Vote “YES” To Stop Double Taxation amendment did not receive enough signatures of registered voters to qualify for the ballot. Continue reading “Missouri REALTORS Face Setback but Vow to Keep Fighting Double Taxation“
By Dennis Norman, on July 19th, 2010 Dennis Norman Next month St. Louis County and St. Charles County will hold their annual collector’s real property tax sale. The City of St. Louis holds their property tax sale on five separate dates beginning in May and running through October.
The general perception among many people is that at these sales property is sold for back-taxes owed, which is not entirely accurate. Under tax sales the property owner may in fact lose ownership of their property to the purchaser at the tax sale but, in St. Charles and St. Louis County, not until after a “redemption” period has passed and notifications required by State law have been complied with. The City of St. Louis operates under a different state law and their process does not allow a redemption period but does require the purchaser to have the sale “confirmed” by the courts at his expense. This process will require the purchaser to hire an appraiser to testify as to the reasonable value of the property.
There’s another catch too…Assuming you are going to want title insurance, that is, a title insurance company to insure that you have “good title” such as you would on a normal home-purchase, then you are going to have to file a “quiet title” lawsuit against the property owner and all other parties with an interest in the property. Years ago when I was buying property at the tax sale I was able to skip this step, but in recent years the title companies have not been willing to insure the title without the suit. The quiet title suit will add time and money to the purchase of the property.
Another little twist in the county sales (not including city of St. Louis) is there are two types of property tax sales; a first and second sale and then a third sale. In the first and second sale there are normally 3 years delinquent taxes and the “purchaser” at the tax sale will receive a purchase certificate. The current owner will then have one year to “redeem” the property. If the property is redeemed by the owner, then the holder of the purchase certificate will receive a refund of the money they paid for it, plus pro-rated interest at 10% per annum on the original delinquent tax amount for the period until redemption. If the owner does not redeem the property within the one year period, and the purchaser of the certificate gives proper notices, then they will receive a collector’s deed at that time.
The St. Charles and St. Louis County tax sales will be held on Monday, August 23, 2010. For more information on the upcoming tax sales click on the links below:
Disclaimer: I am not an attorney (although I have stayed at a Holiday Inn Express before) and this is not intended to be legal advice or a legal opinion but simply general information. You should seek appropriate legal advice prior to bidding at tax sales.
By Robert Fishel, on June 30th, 2010
The state of Missouri funded a $15 million tax credit incentive program in January of this year to help spur home sales, but few have taken advantage of the program.
Now, Missouri home buyers must complete the purchase of their home by August 31, 2010 to take advantage of the program. The Missouri Housing Development Commission (MHDC) must receive their HOPE application by September 30, 2010.
HOPE stands for Home Ownership Purchase Enhancement. Homes purchased after August 31, 2010 will not be eligible for the HOPE program.
The HOPE program was expected to pay the property taxes for 9,000 to 11,000 Missouri families.
As of last week less than 1,500 home purchasers are participating. There is approximately $12 million still available for income-qualified home buyers.
You do not have to be a first-time buyer to participate. All tax credit funds are available on a first-come, first-served basis.
In the face of a more austere budget for 2011, Governor Jay Nixon is “slowing down” MHDC’s process of awarding tax credits. His goal is to cut the state’s 2011 budget $350 million and gain legislative approval by the end of this fiscal year on June 30.
Under the HOPE program MHDC provides incentives up to $1,750. Up to $1250 is available to pay the first year property taxes for income-eligible Missourians who buy a new or existing Missouri home after Jan. 1, 2010.
An additional $500 is available for “green” homes or energy-efficient improvements. Homeowners who bought a qualified newly constructed energy efficient home or bought an existing home and remodeled or purchased items, such as Energy Star® appliances, to make the home more energy efficient can apply for the additional money.
In the St. Louis metro the one- to two-person maximum gross household income qualification for the St. Louis MSA counties of Franklin, Jefferson, Lincoln, St. Charles, St. Louis City, St. Louis County, and Warren is $67,900. For a 3+ person household the maximum gross income is $78,085. In MHDC’s designated targeted areas the maximums are $81,480 and $95,060 respectively. For further information, go to the MHDC website: www.mhdc.com
St. Louis Mortgage Interest Rates – June 30, 2010 *
- 30-year fixed-rate mortgage 4.50% no points
- 15-year fixed-rate mortgage 4.125% no points
- 5/1 adjustable rate mortgage 3.625% no points
- FHA/VA 30-year fixed rate mortgage 4.75%
- Jumbo 5/1 ARM 4.125% no points
- Jumbo 15 year fixed rate mortgage 4.625%
For more information or if you have questions on mortgage rates in St. Louis you may contact me by phone at my direct line, (314) 372-4319, email at rfishel@paramountmortgage.com or you can visit our company website at http://www.paramountmortgage.com.
*Note- The above rates are based upon a typical sale price of $187,500 with a 20% percent down payment leaving a loan amount of $150,000 to a borrower with a 720 credit score for a loan with no discount points charged. Rates and terms will vary depending upon loan amount, home value, credit and income of borrower.
This information is provided by this author and this site for informative purposes only and is not warranted or guarteed in any way.
By Dennis Norman, on June 3rd, 2010 Dennis Norman Last month I did an article, “Should You Rent Or Buy A Home?“, in which I discussed a survey that was done by the National Apartment Association which indicated 76 percent of consumers surveyed believed renting to be a better option than home ownership. Well, today Trulia released it’s new “Rent vs. Buy Index” which established a price-to-rent ratio for the 50 largest cities in America (by population), then, based upon that ratio, determined which cities it makes more sense (financially) to rent versus buy.
 The index looks at the total cost of home ownership on a monthly basis in each city, including what the house payment would be on a 2 bedroom home at the average list price, plus the cost of property taxes, homeowners insurance, closing costs at the time of purchase, home-owners associations dues and, where applicable, private mortgage insurance. They then compared this to the average monthly rent in the same city for apartments, condominiums and town-homes, then computed the ratio between the two numbers.
The tables below first show the top ten cities to rent in vs buy, followed by the top ten to buy versus rent based upon the Trulia Index (for price/rent ratios of 1-15 it is best to buy, 21 or above it is best to rent and for that 16-20 range it is still more expensive to buy than rent, but the “premium” paid for home-ownership may be worth it, depending on the consumers situation).
 Source: Trulia Rent vs. Buy Index  Source: Trulia Rent vs. Buy Index
By Dennis Norman, on June 1st, 2010 UPDATE- June 2, 2010: The National Association of REALTORS obtained answers from the Treasury Department on 3 common questions about HAFA:
- agents are not permitted to rebate a portion of their commission to the buyer,
- sellers who are real estate agents must list their home for sale with another broker, not their own broker, and
- the incentive allowed for subordinate lien holders (6% of any one subordinate lien, up to a total of $6,000 for all subordinate liens) is a hard cap and may not be supplemented from any source.
Dennis Norman In March I did an update on the Home Affordable Foreclosures Alternative (HAFA) Program which was scheduled to go into effect April 5, 2010. Today, Fannie Mae issued guidelines to their servicers outlining the policies and produres Fannie Mae had adopted as a result of HAFA.
What is HAFA? In a nutshell it gives qualifying homeowners the opportunity to do a short-sale or deed-in-lieu rather than face foreclosure:
The Home Affordable Foreclosure Alternatives Program provides financial incentives to loan servicers as well as borrowers who do a short-sale or a deed-in-lieu to avoid foreclosure on an eligible loan under HAMP. Both of these foreclosure alternatives help the lender out by avoiding the potentially lengthy and expensive foreclosure proceedings and also by protecting the property by minimizing the time it is vacant and subject to vandalism and deterioration. These options help out the borrower by avoiding the foreclosure process and the uncertainty that comes with it and allows the borrower to negotiate when they will give up possession of their home as well as, under the HAFA program be released from any further liability from the loan including short-fall and deficiencies.
Highlights of the guidelines given to mortgage servicers by Fannie-Mae:
- Servicers are “encouraged to adapt their processes to implement these Fannie Mae HAFA policies and procedures immediately;” however, they have until August 1, 2010 to implement them.
- The HAFA Short-Sale and HAFA DIL (deed-in-lieu) program will be offered to borrowers through December 31, 2012
Borrower Eligibility for HAFA Consideration:
- A borrower cannot be considered for HAFA until the borrower has been evaluated for a HAMP modification (including, but not limited to, providing all required income documentation).
- Once a borrower has met all of the eligibility criteria for HAMP, the borrower must be considered for a HAFA short sale or DIL (after all home retention options have been considered) if the borrower:
- was not offered a trial modification due to inability to meet the HAMP qualifications (for example, did not pass the net present value (NPV) evaluation or meet the target monthly mortgage payment ratio based on verified income);
- failed to complete the trial period successfully;
- became two consecutive payments (31 or more days) delinquent on the modified mortgage loan; or
- requests a short sale or DIL.
- Lender’s are not allowed to consider a borrower for a Fannie Mae HAFA short sale or DIL (without consent from Fannie Mae) if:
- a foreclosure sale is scheduled to be held within 60 days of the borrower’s request for a Fannie Mae HAFA short sale or DIL, ordetermination that a borrower is ineligible for HAMP, or;
- a foreclosure proceeding could be initiated and reasonably be expected to result in a foreclosure sale being held within 60 days of the borrower’s request for a Fannie Mae HAFA short sale or DIL or determination that a borrower is ineligible for HAMP; or;
- the mortgage loan is secured by a property in Florida on which foreclosure proceedings are pending, judgment has been obtained, or a hearing on summary judgment or trial is scheduled within 60 days.
Financial Requirements of Borrower for HAFA:
The lender, prior to deciding if the borrower is eligible for HAFA, must determine if the borrower has:
- the ability to continue making the mortgage payments but chooses not to do so; or
- substantial unencumbered assets or significant cash reserves equal to or exceeding three times the borrower’s total monthly mortgage payment (including tax and insurance payments) or $5,000, whichever is greater; or
- high surplus income.
So the bottom line here is, if you have a bunch of assets, money in the bank or high income relative to you debt, Fannie Mae is not going to be interested in letting you walk away from your deficiency after a short-sale, or DIL.
On question that has come up on other posts I’ve written about this, is the effect of bankruptcy on eligibility for HAFA….Here’s the answer from Fannie Mae:
- A borrower in an active Chapter 7 or Chapter 13 bankruptcy case must be considered for a Fannie Mae HAFA short sale or DIL if the borrower, borrower’s counsel, or bankruptcy trustee submits a request to the servicer. However, the servicer is not required to solicit borrowers in active bankruptcy cases for shorts sales or DILs. With the borrower’s permission, a bankruptcy trustee may contact the servicer to request a short sale or DIL. The servicer and its counsel must work with the borrower or borrower’s counsel to obtain any court and/or trustee approvals required in accordance with local court rules and procedures. The servicer must extend the required time frames outlined in this Announcement as necessary to accommodate delays in obtaining bankruptcy court approvals or receiving any periodic payment when made to a bankruptcy trustee.
Lenders must, upon determination of eligibility for a HAFA Short-Sale or DIL, determine the fair market value of the property:
- As soon as a borrower is determined to be eligible for a Fannie Mae HAFA short sale or DIL and has demonstrated a willingness to participate, the servicer must take the necessary steps to determine the market value of the mortgaged property. Fannie Mae will require a broker price opinion (BPO) based on an interior and exterior inspection of the property or, if licensing requirements in the state dictate use of an appraisal for these purposes, an appraisal
- The BPO (or appraisal, if required) must be dated within 90 calendar days of the date the relevant HAFA Agreement is executed by the servicer.
Allowable Fees on Short-Sale:
Fannie-Mae will allow:
- real estate sales commission customary for the market. The servicer may not require that the commission be reduced to less than 6 percent of the sales price of the property;
- real estate taxes and other assessments prorated to the date of closing;
- local and state transfer taxes and stamps;
- title and settlement charges typically paid by the seller;
- seller’s attorney fees for settlement services typically provided by a title or escrow company;wood-destroying pest inspections and treatment, when required by local law or custom;
- homeowners’ or condominium association fees that are past due, if applicable.
- Fees paid to a third party to negotiate a short sale with the servicer (commonly referred to as “short sale negotiation fees” or “short sale processing fees”) must NOT be deducted from the sales proceeds or charged to the borrower.
- Additionally, the Servicer, its agents, or any outsourcing firm it employs must not charge (either directly or indirectly) any outsourcing fee, short sale negotiation fee, or similar fee in connection with any Fannie Mae loan.
In addition, Fannie Mae will allow;
- The Lessor of 6% of the balance of a junior lien, or $6,000, to settle the second lien.
- $3,000 to the Seller, to be paid out of sale proceeds, to help defray the costs of relocation.
Short-Sale Approval Should be Faster:
One of the major hindrances to short-sales has been the amount of time it takes for a lender or servicer to respond to an offer to purchaser, many times taking several months. Under these new guidelines that should not be a problem because, provided the Seller’s Agent has submitted all the required document to Fannie Mae (they only have 3 business days to submit) then the servicer must respond to the offer within 10 business days indicating acceptance or rejection of the offer. This is huge and should really help facilitate short-sales.
Deed-in-Lieu Eligibility:
Generally, for a borrower to be eligible for a Fannie Mae HAFA DIL, the mortgaged property must have been listed for sale at market value for 120 days or more. A servicer may waive the requirement that the property securing the mortgage loan previously be listed for sale in cases involving:
- a serious illness or disability,
- a deceased borrower or co-borrower,
- a borrower or co-borrower who has been relocated or who has been deployed by the military,
- a determination that local market conditions would impede a sale of the property,
- a borrower who demonstrates an unwillingness or inability to maintain or market the property during the listing period, or
- a borrower who has expressed an interest in doing a Deed for Lease
This is simply an overview of the Fannie-Mae guidelines and the HAFA program…there is much more, but this gives you the idea. For starters, this is nothing that a homeowner would want to take on alone in my opinion. I think you need a qualified real estate broker or agent, that has in-depth knowledge about HAMP and HAFA and the short-sale process.
To get more information I suggest your read my post from March, you can access that by clicking here, or if you really want to have some fun, you can read the complete Fannie-Mae guidelines by clicking here.
By Dennis Norman, on May 3rd, 2010 Dennis Norman Last October I wrote about an effort by the Missouri Association of REALTORS (MAR) to protect Missouri homeowners from facing double taxation through a real estate transfer tax by backing an effort to amend the Missouri Constitution to prohibit such a tax. To get the issue on November’s ballot, petitions with signatures from a requisite number of Missouri voters needed to be submitted to the Secretary of State by yesterday.
Today, the Vote YES to Stop Double Taxation Committee, announced that on Sunday it turned in petitions, signed by “tens of thousands of registered voters”, to the Secretary of State for review.
“In overwhelming numbers, Missouri citizens supported through their signatures putting into our State Constitution an assurance that the sales of homes and other real estate won’t be subjected to paying taxes twice on the same property,” said Elizabeth Mendenhall of Columbia, spokesperson for the Vote YES to Stop Double Taxation Committee.
“Thanks to the signatures of so many thousands of our neighbors, Missouri is a step closer to banning bad public policy that denies fairness and defies common sense,” added Mendenhall, who is also president of the 22,000-member Missouri Association of REALTORS®.
Transfer taxes on home sales are double taxation because Missourians already pay annual property taxes on real estate, often over many decades of ownership. Missouri is among just 13 states that do not impose a transfer tax on real estate sales, including all of Missouri’s neighboring states. As state, county and city revenues decline, politicians are tempted to impose new transfer taxes – just as Missouri citizens are struggling to make it.
“This unfair double taxation can happen in Missouri under current law. We are asking voters to keep politicians from penalizing Missourians with such a bad tax policy,” Mendenhall said. She led supporters on Sunday as they turned in petitions signed by citizens from across the state to place the proposed state constitutional amendment on November’s general election ballot.
The proposed state constitutional amendment’s language is straightforward and simple: “Shall the Missouri Constitution be amended to prevent the state, counties, and other political subdivisions from imposing any new tax, including a sales tax, on the sale or transfer of homes or any other real estate?”
The Secretary of State will now work with county election officials to verify the petition signatures. Once the required number of signatures are verified, the proposal will secure a place on the November statewide ballot and will be assigned an amendment number.
Voters are encouraged to visit www.YesToSaveHomes.com to learn more about the proposal to stop double taxation.
By Dennis Norman, on April 9th, 2010 Dennis Norman I thought I would end the week by giving everyone something to dwell on and contemplate over the weekend. Actually, I set out this morning to do a post about the National Association of REALTORS(R) (NAR) Housing Affordability Index for February which was recently published. As I was reviewing the data in the report I started giving “affordability” a lot of thought, went down a few rabbit trails, did a few hours of research and ended up with an analysis of home affordability.
The NAR Report:
Since this was the initial topic I thought I should say a little about it. The NAR Housing Affordability Index for February was at 176.0 meaning that a median-income family has 176 percent of the income they need to purchase a median-priced house, which is good. This is down slightly from January’s index of 177.5 but is still a vast improvement from a couple of years ago when it was 115.4 in 2007 (the higher the number the better).
This is where I started digging in a little though. There are several factors that play a role in the index: median home prices, mortgage rate and median family income. Since 2007 median family income has dropped about 1 percent which has very little affect on affordability however interest rates have dropped from 6.52% in 2007 to 5.13% in February, a decline of over 21% and home prices have fallen almost 25% during the same period so it’s not surprising that homes are more affordable, particularly since the index uses the house payment to determine affordability.
Low interest rates – how much of a factor?
The NAR index is based upon a monthly payment of $1,104 on a median priced home in 2007 and a payment of $716 on a median-priced home in February 2010; a decrease of $388 in payment over the period. So how much of a role did interest rates play in the decrease? Well, lets put it this way; if in 2007 the rates were 5.13% as they were in February the payment on a median priced home would have been $950, $154 less than it was. And, if interest rates now were 6.52 like they were in 2007 then the payment on a median priced home would be $833. So if we take do an apples to apples comparison with regard to interest rates, then the lower home prices have resulted in a monthly savings of $117 instead of $388. Hmm…
 In the chart to the right you can see mortgage interest rates for the past 20 years and can see just how low rates are today, about half of what they were 20 years ago. The median interest rate for the 20-year period of 1989 – 2009 is 7.31% which should remind us that rates will most likely not stay as low as they are now.
So what happens if interest rates go up, say back to the 20-year median rate of 7.31%? Well, going back to NAR’s affordability index, if we apply that rate to the current median home price used in the index the payment goes from $716 to $902, an increase of $186, or 26% which I would say is significant and would chop NAR’s affordability index down a chunk.
Here’s the scary part: home affordability is not far off an all time high and we have incentives such as home buyer tax credits, and yet home sales are dragging along at depressed levels which tells me we can’t afford to have housing affordability go the other direction.
If interest rates increase how much would home prices have to fall to keep affordability the same?
OK, let’s say, that in spite of what the government is telling us, interest rates go up, maybe even up to the 20-year median rate of 7.31%, what would have to happen to prices to keep affordability the same? Well, assuming the median family income stays the same, the median home price would have to drop from the February price of $164,300 to $130,418, a drop of almost 21%, in order to maintain housing affordability where it is now. Make a mental note of that price drop and read on please.
Relationship between rent and home prices
As home prices shot up during the boom one thing that hit me was that rental and lease rates on homes were not increasing at nearly the same rate and prices on rental property seemed to be way out of whack with the income. Last year I wrote a post and told a story of my wife and I searching for a condo in Florida in 2003 to buy for a vacation rental and finding that the relationship between the prices and the income was nuts….it made no sense at all what people were paying. Since then I have seen several articles by people much smarter than me that have discussed the relationship between the “rental value” of a home and it’s sales price and when this gets too out of whack something breaks….home prices.
During the boom this was clearly evident…One example I remember is there was a developer in Clayton, an ecclectic, upscale neighborhood in St. Louis, MO, that built a wonderful new home in a transitional neighborhood and offered it for sale at $1.6 million. The house was well worth the money but, since this was a “tear-down” in an older neighborhood of much more modest homes, the price was significantly higher than the neighboring homes. Long story short, the builder couldn’t sell it, so he offered it for lease, first for around $5,000 a month, then later $3,500 and leased it. I remember doing the numbers then and thinking what a bargain leasing the home would be versus owning it. If you bought the home at the time, put 20% down ($320,000) you would have a payment of $7,567 plus taxes and insurance, so probably around $9,000 a month by the time you were done. Or, you could put down a security deposit of $3,500 and lease it for $3,500 a month. The lease route saved you $316,500 in cash up front and about $5,500 a month versus buying the home which made me realize either rents were way too low or prices too high…reality is it was probably a little of both.
 I decided to take a look at the relationship between median rental rates and median home prices over the past 20 years to see if this data might help me understand where things stand.
Playing economist I developed a price/rent ratio based upon median home prices’ relationship to median annual rental rates. As you can see in the chart to the right, this ratio was in the 13 to 14 range from 1989 through 1995 then inched up to the 15 to 16 range until 2005 when it shot up into the mid-20’s and then settled at 18.47 in 2009.
Home prices are still too high
The chart below shows my price/rent ratio over a 20 year period and shows the median for the period in red. From about 1996 until late 2003 the ratio was right at the median and I think there was a balance between rent and home prices. However, in 2004 home prices shot up and, even though, as the chart shows, started a decent in 2007, are still above the median range indicating to me that home prices are still too high. For 2009 the median home sales price (based upon census data) was $156,900 but in order to bring the price/rent ratio back in line with the “normal” period of ’96 through ’03, the median home price would need to be around $134,842, a decline of another 14 percent or so.
 The American Dream
Home ownership has, for as long as I can remember, been referred to as “the American dream” while at the same time renting or leasing a home has, by many people, been looked upon as a last resort or something not for them. Well, guess what? Times are changing! I should stop now and interject the fact that I am a REALTOR(R) and very much want people to buy homes, but the honest truth is that may not be the best alternative for everyone at this time. Our country is at a very volatile point in many regards and we have experienced the worst economy since the great depression….these are not normal times.
While, short of God, no one can, with certainty, say what is going to happen to home prices over the next decade, I think it is safe to say that any appreciation we may see will be modest until our economy is back on track which may be some time. In the meantime I wonder if leasing a home may become a more popular option for people, even prior homeowners, that don’t want to risk the financial anguish and pain they may have felt over the past couple of years again, and may instead choose to look at providing shelter for their family from more of a business standpoint….in other words, where will they get the most bang for their buck…owning or renting?
By Dennis Norman, on March 23rd, 2010  Dennis Norman UPDATE: March 26, 2010: Pres Obama signed HR 35909 into law on March 23, 2010. Yesterday the House and Senate approved the final version of HR 4872 and it now goes to the President for his signature (this is the bill that “taxes” real estate to pay for health care as I explained below) – end of update
Unless you live in a cave you have probably heard by now that yesterday Congress passed HR 3590, the “Patient Protection and Affordable Care Act”, or to put it more short and to the point, Pres. Obama’s “health care overhaul”. It is anticipated that President Obama will sign this into law today or tomorrow.
Also passed yesterday by the US House of Representatives was HR 4872, the “Health Care and Education Affordability Reconcialiation Act of 2010“, which makes changes to HR 3590 (so why did the House pass HR 3590 if there were changes they wanted made?? Politics baby, politics!). As soon as the President signs HR 3590 into law the Senate will take up debate on HR 4872 and will take a simple majority (51) of the Senate for passage. If the Senate does approve this bill as written it will then go to the President to be signed into law and will amend the “Patient Protection and Affordable Care Act”.
So what does health care have to do with real estate? Plenty, because if HR 4872 (the Reconcialition Act) becomes law. real estate (along with other passive investments) will taxed to help fund the bill. I say this because of Sec. 1402 of the bill, which addresses “Medicare Tax” and states that:
‘‘(1) APPLICATION TO INDIVIDUALS.—In the case of an individual, there is hereby imposed (in addition to any other tax imposed by this subtitle) for each taxable year a tax equal to 3.8 percent of the lesser of—‘‘(A) net investment income for such taxable year, or ‘‘(B) the excess (if any) of—‘‘(i) the modified adjusted gross income for such taxable year, over ‘‘(ii) the threshold amount.
This means that for people that have passive income from real estate, such as rents, will be subject to medicare tax on that income, unless, of course, you are under the income threshold amount which is defined in the bill as:
‘‘(b) THRESHOLD AMOUNT.—For purposes of this chapter, the term ‘threshold amount’ means—‘‘(1) in the case of a taxpayer making a joint return under section 6013 or a surviving spouse (as defined in section 2(a)), $250,000, ‘‘(2) in the case of a married taxpayer (as defined in section 7703) filing a separate return, 1⁄2 of the dollar amount determined under paragraph (1), and ‘‘(3) in any other case, $200,000.
In addition, Obama’s 2011 budget proposes inreasing the tax rate on capital gains to 20 percent, from the current 15 percent, for “high-income taxpayers” (defined as copules with 2011 taxable income above $235,450 and single people with income over $194,050).
It will be interesting to see how this plays out in the days and weeks to come. The interesting thing will be to see how long it takes everyone (including the politicians thatvoted for this) to figure out what the true cost of this legislation will be….oh yeah, and also how many Doctors decide to take early retirement.
By Dennis Norman, on March 2nd, 2010 Dennis Norman UPDATE June 7, 1010 – Here are links to the Forms from MHDC to claim the tax credit as well as some sample forms they have provided showing how to fill them in:
Program Application
Home Purchase Affidavit
Promissory Note
Hope Program Information and Instructions
Sample Forms
******
Dennis Norman Back in December I wrote a post about a $35 million economic development initiative that was approved by the Missouri Housing Development Commission which included $15 million to pay the first-year of property taxes for qualified homebuyers who purchase a new or existing home after January 1, 2010. Missouri Treasurer, Clint Zweifel, said he expected this would help between 9,000 and 11,000 Missouri families making less than $100,000 a year.
This morning I saw a report from a very trusted source that indicated thus far only two home buyers have taken advantage of this incentive. Wow, the State of Missouri is trying to give away money and it can’t! Perhaps homebuyers are not aware of the incentive, or there just aren’t that many people that meet the income guidelines that have bought a home since January 1st. In either event, the “incentive” does not appear to doing anything for the Missouri housing market.
To get complete details on the program please see my prior post by clicking here.
By Dennis Norman, on February 26th, 2010 Dennis Norman UPDATE: March 8, 2010 – I found out today the bill that was actually perfected last Friday was a floor substitute…Unfortunately the changes made to the bill were minor- they changed the public data base so that you have to enter a property address in order to look up the owners personal information (including phone number and email address) and they changed the wording to no longer make real estate agents and property managers responsible for property they don’t own. So basically, just a little window dressing to try to appease the REALTORS(R)…The bill is still a bad….
UPDATE: March 5, 2010–In spite of opposition to the bill by the St. Louis Association of REALTORS and others, the Board of Alderman perfected the bill today by a vote of 16-7. The next steip is for the bill to get final approval by the Board of Alderman on March 12th. Hopefully this can still be stopped.
Well, if Kacie Starr Triplett, Alderwoman for the 6th ward of the City of St. Louis, has her way, then both will have their private information listed in a public, online database for the whole world to see. The big difference is one such group is made up of felons convicted of some of the most despicable crimes short of murder one could commit, and the other group is made up of a group of property owners that own a property that has not been occupied for 6 months and could have as little as one building code violation. Hmm…
Triplett has sponsored a bill, Board Bill No. 322, which, if passed by the board of Alderman, would establish a “St. Louis Vacant Building Online Database for public access.” The bill states “the property owner shall provide the property owner’s street address, phone number and email address.” So, in a nutshell, if you are a property owner in the City of St. Louis and fall into this category, your personal contact information, including your phone number and email address, will be in a public database maintained by the City of St. Louis for all to see, just like convicted sex offenders. Oh wait, no, now that I am reviewing the sex offender registry they only reveal the address, they don’t even have to give a phone number and email address! Not to mention the sex offenders ended up in that situation after being convicted, you ended up there just by owning property (and having as little as 1 outstanding building code violation).
Thinking you’ll just say NO?
So you say “it’s none of their business and I just won’t give them the info”…..whoa, not so fast, let me quote the penalty in Tripletts bill for failure to provide this personal information:
“any person found to be in violation of provision of Section Six of this ordinance (that is the section requiring the personal info for the data base) shall be subject to a fine of not more than five hundred dollars ($500.00) or to a term of imprisonment of not more than ninety days (90) or to both a fine and imprisonment.”
Did you catch the part about prison? Yep, refuse to give them your unlisted phone number or email address and risk 90 days in city jail…fun. What happens if you don’t have an email address? I’m not sure…
There’s more….Lose your property over $400
If you fail to pay the fee for registering your property, which is $200 for every six-month period it is vacant, after one-year the fee becomes a lien and the city can foreclose. So, you could lose your property over $400, just like someone in the city did in the past two months under the current vacant property ordinance (current law does not have the public database).
There’s still more…Are you a property manager or maintenance person? Read this
Under the “Vacant Building Maintenance” heading, the bill states:
“The owner of any building that has become vacant, and any person maintaining, operating or collecting rent for any building that has been determined vacant shall, within thirty (30) days, do the following:
1. Enclose and secure the building, as defined under the St. Louis City Revised Code Chapter 25.01.030, Section 118.3.1 All doors must be properly secured and windows on all floors of the building be properly secured;
2. Maintain the building in a secure and closed condition until the building is again occupied or until repair or completion of the building has been undertaken.”
Wanna guess what the penalty is for failure to comply with the above? You probably guessed same penalty as for failure to give the personal information? Close….
“any person found to be in violation of provision of Section Seven of this ordinance shall be subject to a fine of not more than five hundred dollars ($500.00) or to a term of imprisonment of not more than ninety days (90) or to both a fine and imprisonment.
Every day that a violation continues shall constitute a seperate and distinct offense“
Did you catch the “every day” part? So, lets just say you are a property manager, or I guess maintenance man (I guess that is what she is referring to when she names people “maintaining” the property) or an owner and you have a vacant unit and fail, for one reason or another to properly secure the building in compliance with the codes (which is rather subjective, of course) for say 30 days; what maximum penalties are you facing under this new ordinance? Let’s do the math:
- Fine, $500 x 30 days = $15,000 total fine
- Imprisonment, 90 days x 30 days=2,700 days imprisonment (7.5 years)
Is it just me, or does this seem harsh?
So what’s wrong with all this?
I know my diatribe is getting lengthy so I’m going to wrap things up with what I see as issues with this ordinance in bullet points below:
- Invitation for theft – One problem property owners face in the city, particularly with vacant buildings, is theft and vandalism. I have had many airconditioning units stolen just for the copper coils inside, plumbing ripped out of houses for the copper as well. What more could a theif want? An online database that shows him every vacant buidling in the city? Stealing copper will be almost as easy as shopping at Wal-Mart.
- Privacy issues – I don’t think most poeple would want their phone number and email address put online for anyone to access.
- Lack of notice/due process– I’m very concerned about the city’s ability to turn this fee into a lien and foreclose on the property.
- FORGET GETTING A LOAN ON AN INVESTMENT PROPERTY – In my opinion, if this bill passes, I think it will be hard, if not IMPOSSIBLE, to get financing on an investment property in the city…reason being, Tripletts bill says after fees become delinquent for a year they become a lien and subject to foreclosure “in the same manner as delinquent real property taxes“… I’m not sure how a court is going to interpret this, but in the City a sale for back property taxes wipes out ALL liens, even senior liens (such as first deeds of trust)…by the wording of her bill I think the case could be made that the foreclosure on the liens wipes out senior liens as well….if that is the case lenders are going to be very concerned about lending money on a building that may end up being subject to vacant property registration…
I need to say, I am not defending derelict buildings or irresponsible property owners, I just don’t feel this is the way to deal with them. Ordinances like this, in my opinion, assume you are guilty and treat you that way, plus trample on your rights.
If you don’t own property in the City you may think this doesn’t affect you, but that may be temporary. Municipalities copy what is done in other municipalities all the time. If this ordinance passes in the City of St. Louis I promise you it will appear in other places as well. Perhaps where you live or own property.
In addition, speaking from experience, cities don’t usually stop with just one ordinance once they have forged new territory. If the city gets this ordinance through and deems it a success in their eyes, you can bet they will start looking at other “problem areas” they can attack in the same way. Many cities see rental property as a problem and claim tenants cause more calls to police, create more problems than homeowners, etc. What if tenants are the next target? How about a public data base showing the tenants name, phone number and email address? Think about it. Where does it stop?
Tripletts bill has already been through a committee and is moving forward. If you would like to voice your opinion on it I would suggest you contact her, or your alderman if you live in the city or perhaps Lewis Reed, the President of the Board of Alderman. Their contact information is below:
Alfred Wessels, Jr wesselsa@stlouiscity.com 13th Ward
Antonio French frencha@stlouiscity.com 21st Ward
April Ford-Griffin griffina@stlouiscity.com 5th Ward
Charles Quincy Troupe troupec@stlouiscity.com 1st Ward
Craig Schmid schmidc@stlouiscity.com 20th Ward
Dionne Flowers flowersd@stlouiscity.com 2nd Ward
Donna Baringer baringerd@stlouiscity.com 16th Ward
Frank Williamson williamsonf@stlouiscity.com 26th ward
Fred Heitert heitertf@stlouiscity.com 12th Ward
Freeman Bosley, Sr. bosleyf@stlouiscity.com 3rd Ward
Greg Carter carterg@stlouiscity.com 27th ward
Jeffrey Boyd boydj@stlouiscity.com 22nd Ward
Jennifer Florida floridaj@stlouiscity.com 15th Ward
Joe Vaccaro vaccaroj@stlouiscity.com 23rd Ward
Joseph Roddy roddyj@stlouiscity.com 17th ward
Joseph Vollmer vollmerj@stlouiscity.com 10th Ward
Kacie Starr Triplett triplettk@stlouiscity.com 6th Ward
Ken Ortmann ortmannk@stlouiscity.com 9th Ward
Lewis Reed reedl@stlouiscity.com President
Lyda Krewson krewsonl@stlouiscity.com 28th Ward
Marlene Davis davisma@stlouiscity.com 19th Ward
Matt Villa villam@stlouiscity.com 11th Ward
Phyllis Young youngp@stlouiscity.com 7th Ward
Samuel Moore moores@stlouiscity.com 4th Ward
Shane Cohn cohns@stlouiscity.com 25th Ward
Stephen Conway conways@stlouiscity.com 8th Ward
Steve Gregali gregalis@stlouiscity.com 14th Ward
Terry Kennedy kennedyt@stlouiscity.com 18th ward
William Waterhouse waterhousew@stlouiscity.com 24th Ward
By Dennis Norman, on January 11th, 2010 Dennis Norman Depending on which estimate you believe, somewhere between one-third and one-half of the homeowners with a mortgage in the U.S. owe more on their homes than their homes are currently worth. This has lead to an unprecedented amount of short-sales and in many cases, a lender “forgiving” you of the short-fall (the amount of your loan your sale proceeds were not adequate to pay) which, in the past could have left you owing taxes on the “forgiven debt”.
For some of those underwater homeowners that are not fortunate enough to do a short sale they may end up losing their homes through foreclosure. Like short sales, in the past some foreclosures also resulted in the homeowner finding they owe taxes as a result of the foreclosure.
Fortunately seller’s in these situations today are getting some relief through the Mortgage Forgiveness Debt Relief Act which, according to the IRS, “generally allows exlusion of income realized as a result of modification of the terms of a mortgage, or foreclosure on your principal residence.” This applies to debt forgiven in 2007 through 2012 up to $2 million in forgiven debt.
The following are some FAQ’s on the subject from the IRS. This is for information only…you should consult your CPA or tax professional to see how this may or may not apply to your situation:
What does exclusion of income mean?
Normally, debt that is forgiven or cancelled by a lender must be included as income on your tax return and is taxable. But the Mortgage Forgiveness Debt Relief Act allows you to exclude certain cancelled debt on your principal residence from income. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.
Does the Mortgage Forgiveness Debt Relief Act apply to all forgiven or cancelled debts?
No. The Act applies only to forgiven or cancelled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes. In addition, the debt must be secured by the home. This is known as qualified principal residence indebtedness. The maximum amount you can treat as qualified principal residence indebtedness is $2 million or $1 million if married filing
separately.
Does the Mortgage Forgiveness Debt Relief Act apply to debt incurred to refinance a home?
Debt used to refinance your home qualifies for this exclusion, but only to the extent that the principal balance of the old mortgage, immediately before the refinancing, would have qualified. For more information, including an example, see Publication 4681.
How long is this special relief in effect?
It applies to qualified principal residence indebtedness forgiven in calendar years 2007 through 2012.
Is there a limit on the amount of forgiven qualified principal residence indebtedness that can be excluded from income?
The maximum amount you can treat as qualified principal residence indebtedness is $2 million ($1 million if married filing separately for the tax year), at the time the loan was forgiven. If the balance was greater, see the instructions to Form 982 and the detailed example in Publication 4681.
If the forgiven debt is excluded from income, do I have to report it on my tax return?
Yes. The amount of debt forgiven must be reported on Form 982 and this form must be attached to your tax return.
Do I have to complete the entire Form 982?
No. Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Adjustment), is used for other purposes in addition to reporting the exclusion of forgiveness of qualified principal residence indebtedness. If you are using the form only to report the exclusion of forgiveness of qualified principal residence indebtedness as the result of foreclosure on your principal residence, you only need to complete lines 1e and 2. If you kept ownership of your home and modification of the terms of your mortgage resulted in the forgiveness of qualified principal residence indebtedness, complete lines 1e, 2, and 10b. Attach the Form 982 to your tax return.
Where can I get this form?
If you use a computer to fill out your return, check your tax-preparation software. You can also download the form at IRS.gov, or call 1-800-829-3676. If you call to order, please allow 7-10 days for delivery.
How do I know or find out how much debt was forgiven?
Your lender should send a Form 1099-C, Cancellation of Debt, by February 2, 2009. The amount of debt forgiven or cancelled will be shown in box 2. If this debt is all qualified principal residence indebtedness, the amount shown in box 2 will generally be the amount that you enter on lines 2 and 10b, if applicable, on Form 982.
Can I exclude debt forgiven on my second home, credit card or car loans?
Not under this provision. Only cancelled debt used to buy, build or improve your principal residence or refinance debt incurred for those purposes qualifies for this exclusion. See Publication 4681 for further details.
If part of the forgiven debt doesn’t qualify for exclusion from income under this provision, is it possible that it may qualify for exclusion under a different provision?
Yes. The forgiven debt may qualify under the insolvency exclusion. Normally, you are not required to include forgiven debts in income to the extent that you are insolvent. You are insolvent when your total liabilities exceed your total assets. The forgiven debt may also qualify for exclusion if the debt was discharged in a Title 11 bankruptcy proceeding or if the debt is qualified farm indebtedness or qualified real property business indebtedness. If you believe you qualify for any of these exceptions, see the instructions for Form 982. Publication 4681 discusses each of these exceptions and includes examples.
I lost money on the foreclosure of my home. Can I claim a loss on my tax return?
No. Losses from the sale or foreclosure of personal property are not deductible.
If I sold my home at a loss and the remaining loan is forgiven, does this constitute a cancellation of debt?
Yes. To the extent that a loan from a lender is not fully satisfied and a lender cancels the unsatisfied debt, you have cancellation of indebtedness income. If the amount forgiven or canceled is $600 or more, the lender must generally issue Form 1099-C, Cancellation of Debt, showing the amount of debt canceled. However, you may be able to exclude part or all of this income if the debt was qualified principal residence indebtedness, you were insolvent immediately before the discharge, or if the debt was canceled in a title 11 bankruptcy case. An exclusion is also available for the cancellation of certain nonbusiness debts of a qualified individual as a result of a disaster in a Midwestern disaster area. See Form 982 for details.
If the remaining balance owed on my mortgage loan that I was personally liable for was canceled after my foreclosure, may I still exclude the canceled debt from income under the qualified principal residence exclusion, even though I no longer own my residence?
Yes, as long as the canceled debt was qualified principal residence indebtedness. See Example 2 on page 13 of Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments.
Will I receive notification of cancellation of debt from my lender?
Yes. Lenders are required to send Form 1099-C, Cancellation of Debt, when they cancel any debt of $600 or more. The amount cancelled will be in box 2 of the form.
What if I disagree with the amount in box 2?
Contact your lender to work out any discrepancies and have the lender issue a corrected Form 1099-C.
How do I report the forgiveness of debt that is excluded from gross income?
(1) Check the appropriate box under line 1 on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) to indicate the type of discharge of indebtedness and enter the amount of the discharged debt excluded from gross income on line 2. Any remaining canceled debt must be included as income on your tax return.
(2) File Form 982 with your tax return.
By Dennis Norman, on January 6th, 2010
- Dennis Norman
In the past I think closing costs associated with the purchase of a home were pretty much a mystery to many, if not most, home buyers with many not even being sure what they were paying for. Most buyers simply went through the process, paying for closing fees, notary fees, title examination, title insurance, survey, flood letters, courier fees, recording fees, etc. without ever realizing that these fees and costs may vary with other vendors.
January 1st changes went into effect in the RESPA (Real Estate Settlement Procedures Act) which will require lenders to fully disclose all closing costs, including the costs of obtaining a loan as well as estimated costs for title insurance, settlement and other services within three days after a buyer applies for a mortgage. This should make it easier for buyers to see what services they are being provided, what the cost is estimated to be and to have time to shop around to find the best providers of those services at the most reasonable prices. Basically it gives buyers the opportunity to take control of “their deal” and not just “go with the flow” hoping that vendors being selected by your lender, real estate agent and/or title company are providing you with the best service at the best price. While preparing to do this post I ran across a company that I am not familiar with but have to admit I really like their website and think it could be a great resource for homebuyers. The company is called Closing Corp and their website is Closing.com.  Home buyers can go to their website, fill in the address of the property you are buying, answer a few questions and not only get a detailed estimate of their house payments as well as closing costs but also see quotes for various services from local companies (such as title insurance, home warranties, etc) and then print out a report. I entered an address here in St. Louis and got the following results:
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47 title companies listed with prices from 6
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10 home warranty companies with prices from 8
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28 home inspection companies with prices from 13
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17 pest control companies with prices from 3
As I looked over the “quotes” for the various services I found several disclaimers, basically nothing is binding of course, but I do think this gives a buyer a good idea of the range of prices they should expect as well as gives them a list of various vendors in their area they can consider. In addition it provides short explanations of each service such as this description of title insurance which, while it is short, I think it does a decent job of explaining what it is:
Title Insurance protects property owners and lenders from losses that could result from disputes over who actually owns the property. This could include fraud, liens against the property, or errors missed during a title search.
If nothing else the fact that it estimates your monthly mortgage payment for you, including an estimate for property taxes and property insurance, is probably worth the visit to the site.
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Authors disclaimer: This is not an endorsement of Closing.Com nor recommendation or warranty, expressed or implied. It is simply an editorial review of the site. Realize that general and generic information from this site or any other like it is just that, general and generic. Consult your real estate professional to assist you in getting information specific to your situation.
By Dennis Norman, on December 18th, 2009 Dennis Norman UPDATE June 7, 1010 – Here are links to the Forms from MHDC to claim the tax credit as well as some sample forms they have provided showing how to fill them in:
Program Application
Home Purchase Affidavit
Promissory Note
Hope Program Information and Instructions
Sample Forms
******
Just moments ago, the Missouri Housing Development Commission passed at $35 million economic development initiative. Part of this initiative (to the tune of $20 million worth) is aimed toward helping stimulate home sales in Missouri.
 The initiative includes:
- $15 million to pay the first year of property taxes for qualified homebuyers who purchase a new or existing home after January 1, 2010. According to Missouri Treasurer, Clint Zweifel, this has the opportunity to help between 9,000 and 11,000 Missouri families making less than $100,000 a year.
- $5 million in assistance to qualified homebuyers to help with down payments and closing costs. This helps potential homebuyers overcome the obstacle of coming up with enough cash for a down payment and closing costs.
- In addition, there is assistance to homebuyers who purchase an energy-efficient home or purchase energy-saving appliances.
I have not seen the plan that was actually approved, however below are the details of the plan that was proposed to MHDC by Missouri Governor Jay Nixon and State Treasurer Clint Zweifel (remember, some things could have been changed when approved today) from a press release issued in November.
If approved by the commission, Missouri families making less than $98,000 a year who enter into a contract to purchase a new or existing Missouri home after Jan. 1 would have their property tax paid up to $1,250. Those families would be eligible to have an additional $500 paid towards the tax bill if the homeowner purchases a energy efficient home or items, such as Energy Star appliances, to make the home more energy efficient.
Who is eligible?
Income eligibility is based on previously adopted MHDC guidelines. Depending on the county of the home sale, household income limit guidelines for low to moderate income persons or families approved by MHDC last spring range from $58,300 to $98,560. These grants are for owner-occupied purchases only.
When would it start?
If approved by the MHDC at its next meeting on Dec. 18, 2009, funds would be available for contracts entered into after Jan. 1, 2010, on a first-come, first-served basis.
How much of the property tax bill could be paid?
Eligible homeowners could have up to $1,750 of their property tax bills paid. According to the State Tax Commission, the average residential real estate tax bill for a Missouri homeowner is $1,160. An income-qualified individual or family is eligible to receive $1,250 or the amount of their first year’s real estate tax bill, whichever is highest, when they purchase a new or existing residential home. An income-qualified individual or family can enhance this base amount, up to $1,750, if they purchase an energy-efficient new home or make energy efficient improvements to an existing home that is purchased. These improvements must be made prior to closing or within 60 days of closing.
How do Missourians apply for these funds?
Forms and affidavits will be part of documents executed at the home sale closing. Additional receipts and documentation will be required for proof of energy efficient improvements.
What energy-efficiency upgrades would be eligible for the additional incentive?
Eligible improvements would include installing high-performance windows, house wraps, programmable thermostat controls, water-efficient toilets and faucets, and energy-efficient water heaters, lighting and appliances; sealing heating and air conditioning ductwork; caulking; insulating water heater pipes; increasing the R-value of insulation in crawl spaces and attics; and conducting on-site energy efficiency inspections and tests, including a blower door test, which tests the overall energy efficiency of the house, and a duct blaster test, which tests how much the air ductwork leaks.
By Ted Gayer, on November 11th, 2009 Publishers note: If you have been reading our blog for a while you are probably aware we have been supporters and advocates of the home-buyer tax credit as well as the extension and expansion of the credit, which happened last week. We realize however, there are people that do not support the credits for a variety of reasons. I came across the article below which was written prior to passage of the extension of the credit by Ted Gayer. I think this is a well written piece and does present the “other side of the coin”…Ted agreed to allow us to publish it to show another point of view on the credits.
 Ted Gayer, Co-Director of Economic Studies, Brookings Institute Extending and Expanding the Homebuyer Tax Credit Is a Bad Idea
In an earlier piece, I argued that the $8,000 first-time homebuyer tax credit was a poorly targeted subsidy that should be allowed to expire, as planned, at the end of November. Unfortunately, the President and Democratic Congressional leaders are moving toward extending the credit. Senator Dodd has suggested making the credit available to all home buyers (not just first-time buyers), subject to income requirements. Senator Dodd said he is working with Senator Isakson, who previously proposed a $15,000 tax credit to any buyer of a home. Continue reading “And now for the other side of the coin on the home-buyer tax credit“
By Dennis Norman, on October 24th, 2009 A new Web site provides Missouri voters with information about a proposed state constitutional amendment barring politicians from imposing double taxation on sales of homes and other real estate.
I would encourage Missouri residents to visit www.YesToSaveHomes.com to learn more about the proposal.
Continue reading “Web Site Launch Promoting “Vote YES to Stop Double Taxation”“
By Dennis Norman, on October 22nd, 2009
By Dennis Norman, on October 21st, 2009 By: Dennis Norman
Many seniors find themselves in a situation where there are struggling to keep up with rising costs of gasoline, utilities, property taxes and insurance but yet they own a home that is either paid for or has a significant amount of equity. Since, in many cases, they have been in their homes for years, raised families and have a lifetime of memories in their home selling it to realize the equity out of it is usually not something they would consider.
A “reverse mortgage” may be a “best of both worlds” alternative: A chance to get some of the equity out of your home in order to help with your living expenses or to meet an emergency or unexpected expense, without giving up the ownership of your home and without the risk of losing your home. Continue reading “St Louis Real Estate – Reverse mortgages pave the way to financial freedom for many St Louis seniors“
By Dennis Norman, on October 6th, 2009 Dennis Norman By: Dennis Norman
According to a report prepared by the Federation of Tax Administrators (FTA) in 2006, thirty-five states plus the District of Columbia impose a real estate transfer tax. What a transfer tax amounts to is when you sell or transfer a house (or other real property) you pay a tax to the state on the sale ranging from a low of 0.01 percent in Colorado to a high of 2.2 percent in the District of Columbia.
In addition, in some states (Delaware, Maryland, Michigan, New Hersey, Pennsylvania, Washington and West Virginia) some of the localities impose a tax in addition to the State transfer tax. In California, Louisiana and Ohio real estate transfer taxes are imposed only at the local level. Continue reading “Missouri Association of REALTORS working to prevent double taxation“
By Dennis Norman, on August 2nd, 2009 The Internal Revenue Service this week announced its first successful prosecution related to fraud involving the first-time homebuyer credit and warned taxpayers to beware of this type of scheme.
On Thursday July 23, 2009, a Jacksonville, Fla.-tax preparer, James Otto Price III, pled guilty to falsely claiming the first-time homebuyer credit on a client’s federal tax return. Price faces the possibility of up to three years in jail, a fine of as much as $250,000, or both. To date, the IRS has executed seven search warrants and currently has 24 open criminal investigations in pursuit of potential instances of fraud involving the credit.
The agency has a number of sophisticated computer screening tools to quickly identify returns that may contain fraudulent claims for the first-time homebuyer credit. “We will vigorously pursue anyone who falsely tries to claim this or any other tax credit or deduction,” said Eileen Mayer, Chief, IRS Criminal Investigation. “The penalties for tax fraud are steep. Taxpayers should be wary of anyone who promises to get them a big refund.” Whether a taxpayer prepares his or her own return or uses the services of a paid preparer, it is the taxpayer who is ultimately responsible for the accuracy of the return. Fraudulent returns may result not only in the required payment of back taxes but also in penalties and interest.
First-Time Homebuyer Credit
The First-Time Homebuyer Credit, originally passed in 2008 and modified in 2009, provides up to $8,000 for first-time homebuyers. The purchaser, however, must qualify as a first-time homebuyer, which for purposes of this credit means someone who has not owned a primary residence in the past three years. If the taxpayer is married, this requirement also applies to the taxpayer’s spouse. The home purchase must close before Dec. 1, 2009, to qualify, and the credit may not be claimed on the purchaser’s tax return until after the taxpayer closes and has purchased the home.
Different rules apply for homes bought in 2008.
Full details and instructions are available on the official IRS Web site.
By Dennis Norman, on August 1st, 2009
Dennis Norman By: Dennis Norman
Buying a home should be a dream come true not a nightmare of worry and stress. A new Federal Reserve Board publication, “5 Tips for Shopping for a Mortgage,” will help consumers avoid potential pitfalls and make well-informed decisions when choosing a home loan.
Financing the purchase of a home is one of the most complex financial decisions that consumers make. The Federal Reserve’s latest “5 tips” guide is designed to help home buyers find the mortgage that is best for them. The complete guide is available here however a summary of the tips are below:
- Know what you can afford.
- Review your monthly income and spending to estimate what you can afford to pay for a home, including the mortgage, property taxes, insurance, and monthly maintenance and utilities.
- Shop around-compare loans from lenders and brokers.
- Shopping takes time and energy, but not shopping around can cost you thousands of dollars. You can get a mortgage loan from mortgage lenders or mortgage brokers.
- Understand loan prices and fees.
- Many consumers accept the first loan offered and don’t realize that they may be able to get a better loan.
- Know the risks and benefits of loan options.
- Mortgages have many features — some have fixed interest rates and some have adjustable rates; some have payment adjustments; on some you pay only the interest on the loan for a while and then you pad down the principal (the loan amount).
- Get advice from trusted sources
- A mortgage loan is one of the most complex, most expensive financial commitments you will ever assume–it’s okay to ask for help. Talk with a trusted housing counselor or a real estate attorney that you hire to review your documents before you sign them.
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