“Homebuilders slowed down the pace of construction for the third straight month in May, a possible sign that the shortage of houses for sale might worsen…Home construction is still 3.2% higher year-to-date, but that increase has been too modest to address the dwindling supply of homes” — CNBC
TOP STORY:
Grants, Rebates and Tax Breaks for Buyers
It’s a toasty afternoon in August and you’re about to break a pencil in frustration: Your daughter and her husband want to buy their first home, and they have asked you to help work out a budget that fits their modest income.
Even with your knowledge of mortgage interest and taxes, however, you can’t make the numbers work. It is maddening.
You decide to take a break and call your real estate professional, who provides you with the following helpful information.
Mortgage interest Credit
According to businessinsider.com, “The federal government’s mortgage interest credit provides an opportunity for qualified first-time homebuyers to claim a tax break for the mortgage interest they paid. Unlike the mortgage interest deduction — which reduces your taxable income — this mortgage interest credit directly counts against your tax bill, lowering what you owe. It’s a little-known but very cool program. . . Depending on the purchase price of your home, a buyer can get 20 to 30 percent of the interest they pay every year back as a straight tax credit.”
Businessinsider.com goes on to explain, “For example, imagine you prepare a return and find that you owe the IRS $1,000 in taxes. However, completing IRS Form 8396 for the mortgage interest credit shows that you’re eligible for a $1,000 credit. In that situation, you can apply the credit and not owe the IRS anything.
“The credit is not refundable, so you won’t receive a check if the credit is larger than what you owe in taxes.”
“To be eligible for this a strategic tax break, a state or local government must have issued you a Mortgage Credit Certificate. Typically, this certificate is issued at the time you originate the mortgage. The certificate tells you how much interest you can claim as a credit. If you also claim a mortgage interest deduction when you file your taxes, you must reduce the credit by that amount – no double dipping is allowed.
Be sure to consult your CPA or financial advisor to be sure you can qualify.
Tax Breaks f or ALL Homeowners
According to financial advisors Motley Fool: “…the IRS allows homeowners to deduct the interest they pay on their primary residence and/or second home, up to a maximum of $1 million in original mortgage principal. This can include more than one separate loan, as long as the total is below the $1 million limit, and includes loans you obtained to refinance your home, as well as mortgages obtained to purchase the home.
“In addition, the interest on home equity debt is deductible, but up to a lower borrowing limit of $100, 000 for most people. The limits for both types of mortgage debt are the same payers and married couples filing joint returns, but are cut in half for married couples filing separately, to $500,000 and $50,000 respectively.
“Also, it’s worth mentioning that there are a few other deductible items in addition to the interest you pay on your mortgage. Private mortgage insurance (PMI) premiums are also deductible, but are subject to income limits, and this deduction technically expired at the end of 2016 and hasn’t been extended as of this writing.
“As you can probably imagine, the tax- deductible costs of homeownership can add up to a substantial amount of money each year.”
And here’s more good news for buyers. Property taxes are also deductible from your federal returns. Considering that people customarily pay thousands of dollars annually in taxes on the assessed value of their homes, this property-tax deduction is particularly welcome.
State Agencies Offer Mortgage Assistance
To help low- and median-income buyers afford a down payment, several states have agencies that offer help. In California, mortgage assistance is available through the California Housing Finance Agency (CHFA), which offers both loans and homebuyer education to low- and moderate-income residents. To qualify, borrowers must receive homebuyer- education counseling and meet certain financial criteria.
CHFA maintains a searchable online database of mortgages that it offers (www.calfha.ca.gov). To further help borrowers qualify for loans, the state agency recently adopted a guideline allowing borrowers to count the income earned from accessory apartments (also known as granny flats) located on single family properties.
Homebuilder Concessions and Incentives
Help for homebuyers is also available from home builders, who sometimes offer concessions and “free” items to get the sales process rolling. Negotiating concessions with a homebuilder is an area where the homebuyer needs expert help — specifically, that of a real estate professional.
While the great majority of homebuilders are honest and honorable, they are also business people who do not give away money for nothing. In some cases, builders may offer genuine discounts on homes that are selling slowly, or on model homes that may be a little “shop worn.”
In other cases, however, the concessions they offer including such head-turning items like a free vacation, a sunroom addition, or a new car, are built into the price. Or, the homebuilder may impose conditions that are not necessarily to the advantage of the buyer, according to Re- altor.com, the on-line magazine of the National Association of Realtors (NAR).
Buyers Beware
Buyers “must keep a long-term focus in mind and a skeptical eye on these kinds of builder incentives and seller concessions.”
To get the incentives offered, for example, “buyers usually must work with the lender recommended by the builder as well as the title company chosen by the builder, if you choose to work with the builder’s preferred service providers, you still should shop around for a loan and compare title company fees to be sure your deals are fair.”
Also, the homebuyer must be alert to potential bait-and-switch schemes, according to realtor.com: “Loan programs have rules about how much a seller can contribute towards a buyer’s purchase. If you’re considering a deal in which the seller or builder will pay some of your closing costs, you must discuss this with a trusted lender.”
“Remember, a good Realtor can help you analyze the true market value of a property and any concessions.” For that reason, “don’t think of stepping foot in a new home subdivision without your agent or you can’t use him or her,” according to thebalance.com, a financial websites. Otherwise, the builder will not recognize the real estate professional as your agent and will not negotiate with him or her.”
INTERNET, SHMINTERNET: BUYERS WANT REALTORS
Fears of technology one day phasing out the real estate profession appear to have been over-exaggerated. Instead, consumers are turning to real estate professionals for help more than ever before. Statistics show that buyers do tend to find homes on their own with the help of the internet (8% in 2001 compared to 51% in 2016). But they still seek the assistance of a real estate professional to guide them through the process. In 2016, 94% of transactions involved a real estate professional, up from 84% in 2001.
– National Association of Realtors
Grants and Tax Rebates Are Available
In a strong home market like the current one, home builders hardly need incentives to create housing. The market is motivation enough.
However, when the government wants special kinds of housing, such as affordable apartments, or housing for disabled people, or energy-saving houses, the Feds will offer various kinds of financial help to make those kinds of homes attractive to builders.
Now, getting grant money from the government to build your green home is not a light undertaking. According to Hunker, com, a home-design website: While many grants are available, “it will take a lot of research and persistence to acquire one of them for your own building project.”
Government Help for Home Builders
Here’s a look at incentives for green construction and using energy-savings materials and equipment.
Green building, also known as sustainable construction, is one kind of housing for which plentiful grants and tax rebates are available. A high number of national, state and local programs can provide assistance. Some grant programs are run by governments, while others are private, non-profit foundations. The list below is only a small sampling of the total number of state and local grants and tax rebate programs available. A good resource for grants of all kinds is the website grants.gov, which has a searchable database of grant programs.
The website describes itself as “a comprehensive online guide to all federal grant-making agencies. In its own words, the site “provides synopses of (funding opportunities) with a link to a full funding announcement for each respective agency.” (grants.gov, however, is an information clearinghouse, and does not accept application submissions.)
MILLIONS OF YOUNG PEOPLE EXCLUDED FROM MARKET
Roughly three million potential first-time buyers have been shut out of the market over the last decade, according to a new study, suggesting the market’s recovery of the past few years could have been stronger. Tight lending standards and acute shortages of affordable housing in many markets have reduced the pool of potential buyers, particularly among young people; reducing a key component of housing demand.– Laura Kusisto, Wall Street Journal.
Some Grants for Green Homes
Arizona’s Energy-Efficient Homes program offers a 5% (up to $5,000) tax credit on state income taxes if the home is certified to be 50% more energy efficient than the state’s 1995 energy standard.
Anne Arundel County, MD, provides a five-year tax credit for both new and renovated buildings that meet the National Green Building Standard, worth up to $3,000 for the best-performing homes. The National Green Building Standard is a widely recognized set of criteria for green-home construction.
The State of Oregon has a range of energy-efficiency tax incentives for green building, both for homes and commercial buildings. Starting in the late 1970s during the period of high oil prices, these incentives have continued and expanded over the years.
Pitkin County, CO, offers grants up to $8,000 for homebuilders to create Net- Zero-Energy-Homes, or homes that produce as much energy as they consume.
GLOBAL ECONOMY GROWING
Economic growth is projected to pick up in 2017 and 2018 as headwinds from past exchange-rate appreciations abate and support from fiscal policy begins to appear. Consumer spending will benefit from continuous, though slowing, employment gains and, as the labor market tightens, stronger wage growth. With inflation nearing its target and unemployment edging down further, monetary policy stimulus has begun to be withdrawn gradually. As growth picks up, further interest raises are projected to contain inflationary pressures and reduce the risk of financial- market distortions. -Organization of Economic Co-Operation and Development (OECD)
Utilities Offer Tax Rebates
In California, the Home Upgrade program of Pacific Gas & Electric offers upto $6,500 in rebates when homeowners make energy-saving home improvements.
Southern California Edison is another power company offering energy-saving rebates. The first, worth up to $3,000 in rebates, is the Home designed to “help you to improve your home’s exterior shell to maintain a more comfortable warmer or cooler indoor environment. Eligible base measure improvement options include attic, wall and floor insulation, duct sealing, furnace and A/C replacements and more.
A second SoCal Edison program, this time eligible for a $5,500 rebate, involves the homeowner hiring a contractor to conduct an energy audit of the home to ascertain the energy savings potential of a given structure.
With the help of the California Public Utilities Commission, the Los Angeles Department of Water and Power (LADWP), Southern California Gas (SoCal Gas) and San Diego Gas & Electric (SDG&E) are offering up to $6,500 in rebates in the Energy Upgrade California Home Upgrade. These upgrade include improvements to air sealing, in cool roofs, and upgrades to heating and cooling systems.
In San Diego, SDG&E has also formed partnerships with local contractors to make energy-efficiency home improvements, such as improved heating and cooling systems, for qualifying customers.
Back to the Kids
Well, that should be enough information to get you started. If you still feel challenged in your attempts to work out a home-buying budget for your first foray into homeownership, maybe it would be best to wait until evening when the day cools off or enjoy a quick dip in the pool. After all, you’ve done the best thing to solve your home –affordability issue: You’ve contacted a knowledge real estate professional who understands this topic from top to bottom.
