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In my first two articles, we walked through the processes of starting your search online, physically viewing properties, and finished up with what you can expect at the closing table when you receive the keys to your home. Today we will discuss the current state of the market, foreclosures/short sales and tax incentives to owning a home.

The current state of the real estate market is a confusing one so you are definitely not alone. REAL ESTATE IS VERY LOCATION DEPENDENT. I can’t say that enough. When you read the USA Today article that states real estate prices have dropped dramatically, please take it with a grain of salt. It is always important to consider national trends but real estate prices/sales can drop 40% in a certain city and increase 10% in another. The best way to find out what your city’s current conditions would be to contact your local realtor for location specific trends and price changes.

POSITIVE TRENDS:
• Existing-home sales surged 10.1 percent in October from September and are 23.5 percent above the level in October 2008. Sales activity is at the highest pace since February 2007. So things are looking up.
• Another good sign is that inventory fell 3.7 percent in October from September. Low inventory means that there are fewer homes for sale on the market, which in turn causes more competition and higher sales prices.
• 30-year fixed-rate mortgages are near record breaking low levels. This is great for buyers because you can afford a much higher priced home on the same budget.
• The first-time homeowner government credit of $8000 was extended. The IRS defines a first-time homebuyer as someone who has not owned a principal residence during the three-year period prior to the purchase. It also was extended to owners who have lived in their previous home for five consecutive years out of the last eight ($6500). It applies to sales occurring on or after January 1, 2009 and on or before April 30, 2010. The credit is not taxed and is basically an additional $8000 add-on to your income tax returns. There are income restrictions on the credit so please check with your mortgage broker to make sure you qualify.

NEGATIVE TRENDS:
• The Mortgage Bankers Association reported that a record number of loans—1 in 7 are delinquent. Up from 1 in 10 a year ago. Our economy over the past 2 years has weighed heavily on homeowners who have lost income or jobs so many homeowners have not been able to keep up with loans.
• The national median existing-home price for all housing types was down 7.1 percent from October 2008. Distressed properties, which accounted for 30 percent of sales in October continue to downwardly distort the median price because they usually sell at a discount relative to traditional homes in the same area.

Again, take the national statistics that I stated above as general trends. Each city/state will have very different statistics. But the general national trends all point toward a leveling off if not upward trend in total number of sales. Once the foreclosures start to level off, decreased levels of distressed homes are sold, and inventories continue to hover at low levels, the prices of homes will start to increase again. The next 6-12 months will be a great time to buy. Especially as interest rates are continuing to stay at historically low levels. These conditions will not last forever and many mortgage brokers that I speak with warn that home interest rates will start to get much higher in the near future.

FORECLOSURE VS. SHORT SALE

Foreclosure is the legal proceeding in which a homeowner obtains a court ordered termination of their right to possess the home. A short sale is the sale of real estate in which the sale proceeds fall short of the balance owed on the property’s loan.

If you a seller, you will want to do everything you can to sell your home through a short-sale process rather than through a foreclosure. Here are a few benefits for doing a short sale.
• You are in charge of the sale, not the bank. But you do need approval from the bank to proceed.
• You can be current on your payments and still sell through a short sale
• Your home sale will be handled like any other home sale
• After foreclosure, it can take 5-7 years before you can purchase another home. In some situations, you are able to purchase a home immediately after a short sale.
• Effects on your credit score after a short sale can be 50 to 130 points. Effects after a foreclosure can be 200-400 points.

If you are a buyer, there are also many differences between the two. Working with a short sale is very similar to working with any ordinary for-sale home. You might get a better “deal” because the owner has the ability to sell the home for less than they owe the bank, but that does not mean the bank will give it away. The short sale process is more straightforward than working with foreclosed properties.

Buying foreclosed properties can be a very complicated process. You are negotiating with a bank so it can sometimes take up to 3-4 months to even get an answer to your first offer. Closing timeframes can take many, many months. Cash is king. A cash buyer, or buyer paying mostly cash, will be a lot more attractive to the bank even if the offer is lower. Nothing is guaranteed in a foreclosure. So if the bank verbally accepts your offer and they receive a higher offer within the next few months, they can and will back out given they have legal rights to do so.

My suggestion when working with foreclosed properties is to always, always perform a very thorough inspection. Foreclosed properties are sold “As-Is” so the bank will not put any money into repairing or fixing them up. Many times these homes are left damaged by the owner or tenant who previously lived there. Also, many homes have been neglected for many months or years on end. I also highly recommend working closely with a real estate attorney who has experience with foreclosed properties so they can ensure that the bank is following through on their agreements.

When buying foreclosed properties, make sure you have the time and patience to go through the entire process. You should also expect that you will need to do some work to get the home back into living condition. There are many “deals” to be had in the foreclosure process but you must have patience and time.

TAX INCENTIVE FOR HOMEOWNERS
There are many tax incentives for homeowners and that is one of the big reasons you should consider purchasing a home if you have the resources. Please talk to a qualified tax attorney to find out the individual benefits that apply to you but here is an outline of what you can expect.

• Mortgage Interest—This is your biggest tax break. All the interest you pay throughout your loan is deductible. In the first years of owning a home, the majority of your loan payment will be paying off interest.
• Points—To lower your interest rate, some homeowners will pay money up front. The amount of points you pay is deductible. This is a little less common these days because interest rates are dramatically low.
• Taxes—Most homeowners will pay property taxes (included in the monthly loan payment) into an escrow account. This escrow account will be used to pay your property taxes for the year. These taxes will be an annual deduction as long as you own your home.
• When you sell—When you decide to move up to a bigger home, you will be able to avoid some taxes on the profit you make.

There are also many tax incentives that are offered on a city/local basis that you can apply for that will help once your taxes are due. One recent tax incentive that was put into place revolves around Eco-Friendly construction. If your home was built with a certain number and standard of ENERGY-STAR windows, doors, etc. you can apply for a tax break.

That wraps up my three-part series of explaining the entire home buying process. Although this can look like a long, complicated process from a distance, it can be greatly simplified by using the resources of qualified professionals within the real estate world. I hope this has helped provide an example of the process from beginning to end and gave you some good tips to follow along the way.

If you have any real estate questions and/or are interested in starting a search, please contact me through my website at www.CondoMeNow.com or by email James Weber at jweb@heliosrealty.com

HAPPY HOUSE HUNTING!