This article outlines some good points when considering the advantages of completing a residential real estate transaction by the end of 2012.
Source: Tara-Nicholle Nelson for Trulia Pro
Five reasons to buy and complete a purchase before the end of the year:
1. Take advantage of the Mortgage Debt Relief Forgiveness Act benefits.
This law exempts current homeowners from the hidden, serious income taxes that are normally incurred when mortgage debt is forgiven – including in cases where an underwater home is sold short. See, a mortgage lender extends cash to a borrower when they make a mortgage on a home. If that debt is wiped out without actually being paid back, then the cash that was extended to that borrower is normally considered income by the IRS, and is taxed as such.
But when the real estate market crashed, the federal government enacted this Act to eliminate the thousands and thousands of dollars of income taxes the average American who loses a home to foreclosure or short sale would otherwise incur. It’s sort of the government’s effort not to kick folks while they are down, and help them recover, financially, from these already traumatic events.
Thing is, this Act is set to expire on December 31, 2012. Most industry insiders expect it will be extended before that time, but growing numbers are surprised it hasn’t already been. And with the election taking place shortly before the expiration timeline, there is an increasing concern that the Act could end up falling through the cracks.
Though time is tight to complete a short sale by the end of the year, some servicers are expediting these transactions so that it might still be possible to get a short sale closed. Talk to your tax professional for the best advise.
2. Reduced competition.
Conventional real estate wisdom pegs the summer months as the hottest months of the year, for several reasons:
- families with children prefer to move into their new homes before the kids go back to school
- in areas where the fall and winter months bring bad weather, it’s less likely to see house hunters out and hunting – and less desirable for sellers to have folks traipsing rain and snow into their homes
- and the holiday seasons tend to be busy with travel, family dinners and other home-oriented activities – which makes both buyers and sellers simply less likely to be active in the market, statistically speaking.
What this means is that buyers may currently face fewer competitors, and that means a lower incidence of multiple offers and lower likelihood of being outbid.
The converse is true for sellers: many banks are holding back on releasing REO inventory these days, and even some “regular” sellers will hold off from listing during the holidays, waiting until after New Year’s. This may position sellers to have less competition from other sellers for the qualified buyers who, like them, are trying to close escrow before year’s end.
3. Increased motivation of all parties at the table.
See all those bullet points above, summing up why buyers and sellers are fewer in number during the late Fall and the holiday season? All those same factors make for one more compelling reason to get a home bought or sold soon: the folks who are active right now, both buyers and sellers, are motivated to get deals done.
Some banks and asset managers handling short sales and foreclosures even have above-average motivation to move properties off their books and get transactions closed before the year-end. This doesn’t mean buyers can score a mansion for pennies, but it might get them slightly more consideration, responsiveness and speed than you would see in such a transaction earlier in the year.
4. Transaction-related tax deductions.
Mortgage interest paid in 2012 will be deducible in 2013 – while that might not seem like it could possibly be much, the real deal is that at closing, buyers pay all of their mortgage interest from the date they close through the end of that month. And at the beginning of a loan, most of monthly mortgage payments are interest, so that could tally up to be a nice little, wholly deductible sum.
Also, if buyers prepay mortgage “points” at closing in order to get a lower interest rate for the life of a mortgage loan, the IRS considers those points to be prepaid mortgage interest. If a contract requires the seller to pay points toward a mortgage, the buyer can also deduct those points on their 2012 tax return!
Finally, there are other closing costs that are deductible, buyers, on the return they can file as early as January, 2013. The most notable of these are property taxes, but buyers might also have some moving cost deductions, if they relocate for work and moved far enough to meet IRS guidelines. (Again, best practice is to consult with a tax pro)
5. Interest rate certainty.
The election is over. There’s not going to be an administration change but there’s always the chance that the new year will bring new priorities, on a national policy level. The federal government, the Fed and other interest-rate impacting organizations have kept a very tight lid on mortgage rates throughout recent history in an effort to help our nation recover from the recession. But there’s no way now to know precisely how rates will change in the New Year.
Closing escrow on a home purchase before the year is over is the only failsafe way to lock in low rates now for the life of a home loan.
If purchasing a home before the year ends is important to you, contact me. We can discuss your options and make the process as smooth as possible for you.