$8,000 Obama Bucks buy Son's 1st Home!

[furnishedowner]

I was helping our son clean and vacate his university-area rental home all this past week. Yes, one of his roommates partied WAY too much and got all 3 of them kicked out. After multiple warnings.

So the boys had to clean and vacate their great $1500/month rental within walking distance of the university. The owner has now rented it to a doctor for $2,000/month, he said. No hard feelings.

Because of blogs on this site, I started asking around about the $8,000 downpayment/tax credit money available for 1st time home buyers. The end result was that our 20-year-old college junior bought his first home on a real estate contract. We did not even co-sign.

He had NO  income for last year because he went to summer school. He is going to file a 1040 and the 5405 tax form to get the $8,000 from the Federal Government. The seller is financing the property on a Real Estate Contract at 4.78%.  Payments are about $1240/month. Our son has rented out 1 room at $400, and is advertising the 2nd bedroom at $400 as well, plus 1/3 utilities.

The house was a newly rehabbed 3 Bedroom, 2 Bath, 2 car garage nice area home about 10 minutes drive to the university. The seller knew that we had been paying our son's rent, and that we would continue to help him, so he was okay with the buyer's finances.

He will have to live in the house for 3 years or pay back the $8,000. What a great deal for someone just starting out! Now he can give notice to partying or under-performing tenants and he will be in a stable, suitable house for the rest of his time in college.

It was fun seeing him shake the seller's hand, "Congratulations on your first home!" He already is getting an "owner's" mindset--"No, I don't want any extra junk in here, and I'm not going to rent to anyone who smokes."

It's been a wearying but good week. Did the cleaning, move-out, house search, and closing in just 7 days. This should inspire some of you newbies as to what is possible if you search!

Furnishedowner

F

 

[fdjake]

That is AWESOME!!!

Imagine..... A GOVERMENT PROGRAM that actually works....It's been so LONG (8 years) I forgot what they looked like!!!!!

Your son bought at what looks like the very BOTTOM of the market.  I wonder how many of his fellow students have parents as smart as HIS!!!

 

[Hooch]

So one of his "roomates" partied too much, huh 

Congrats to him on the house. It turned out to be a good thing. I like people who turn a negative situation into a positive.

He is going to file a 1040 and the 5405 tax form to get the $8,000 from the Federal Government.

You do realize that Hud changed the rules on this, don't you? He can use the money up front. I first heard that it could be used for the down payment and then later heard that it can be used only for closing and he gets the rest but not for the down payment??? I don't know how that works!  But anyways, he does have access earlier than having to file again with the IRS. You might want to look into this. If you do please report exactly how this works.

[Brian06]

Congrats to your son and your family!  Please let us know how it goes for him.

[christopher w]

That is awesome. I am doing the same thing for a family here in Texas. The daughter has no income but because she is a student her parents can co-sign for her she gets the 8K and all we have to do is provide transcripts showing she is a student.

There is still a lot of good stuff going on out there in the real estate market. We just never hear about any of it.

[furnishedowner]

Just ONE of the reasons that they got kicked out was that 1 roommate, Jose, was from Ecuador. Because Jose was the only Ecuadorean on campus who was NOT in the dorms, the others all hung out at Jose's house.

Jose and his compatriots took over the garage as their drinking and smoking den. When their parties were winding down at 1 or 2 or 3 in the morning, they would end by loudly singing THE ECUDOREAN NATIONAL ANTHEM! I am not making this up. The adjacent neighbor put soundproofing on his bedroom windows, but it finally got to be too much.
Nationalism is alive and well in Ecuador.

Furnishedowner

[JakeRodgers]

That's hilarious furnished owner! I'm only a few years out of college myself but its stories like that that really take me back....

christopher-you bring up a good point that there are some things going on in the RE market; we just never hear about them!

[sammydy]

Hi Furnishedowner,

     I am happy to hear about your son's good fortune...

     But did I just read that he got a 0% down (even if gov $$$, its still 0% for your son), NINJA loan from the seller (with just a wink from the father as additional security) in this market on a house that does not appear to conform to the 2% rule that he is, even if just in part, renting out; probably to the same guy that he knows to attract noise and disturbance to an extent that got him kicked out of his previous residence?!?!?!?!?!?   

     Sorry to say, but that seller must have either have been very desperate to sell at the sales price, knows something you guys don't, or is just not very informed.  Take you out of the equation, which he should have since you did not cosign, and your son is (statistically) a foreclosure (and all of the seller's liabilities as the holder of the note) waiting to happen.   

fdjake,

     As for a market bottom, what signs are you seeing for that?  Prices are still dropping and sales are really only bumping up in the really low end which has already suffered the greatest declines.  Some areas may have bottomed though most are still priced for the bubble years and bubbles always not just disinflate but overshoot on the way down. 

     As for this government program working...  Well it got a house sold and maybe others but by in large those purchasers just paid 8k above the real current market price and will in turn lose that "8k" of "equity" in time as the subsidy program fades away.  All our taxes are doing is shuffling another 8k into the sellers' pockets and helping people wiggle around the down payment requirements (which help to reduce defaults by putting the buyer's skin in the game).  Furthermore, with all the buyer assistance going around, it wouldn't surprise me if for many that 8k got included the financing, which means they will end up paying interest on it as well.  As a buyer I'd prefer to buy an asset without a price subsidy and just get it at the cheaper real price.

[furnishedowner]

Sammydy,

I appreciate your concern over our son's possible default, but that isn't going to happen. We have been paying $500/month plus some utility costs since he started school 2+ years ago.

Now we will just be paying him so he can write the mortgage check to the seller's escrow company. If he is short a roommate one month we will pay extra like we would have done in the rental. He will also get a temporary job; they are advertised in the university newspaper.

Our son paid fair market value for the house, as best we could determine. Not a steal, but then there were no loan fees or costs. It is a fixed rate 30-year mortgage, no balloon payments.

As for that home sale stimulating the economy, YES, it did! I have hundreds of dollars of receipts in my wallet for the hotel for 1 week, restaurants, Wal Mart, Ace Hardware, Home Depot and the Dollar Store, etc. 

We bought curtains, curtain rods, hoses, brooms, a dog house, carpets, doormats, shelf liners, hangers, laundry baskets and towels. We just bought whatever was needed to set up housekeeping in a nice fashion.

I agree with FDJake, in that I think the market in our area is perhaps nearing the bottom. But it doesn't really matter! What matters is that our son is in an affordable nice house with NEW ROOMMATES whom he can kick out if they act like the old roommates.

The seller of that house bought it 6 months ago and gutted the whole inside and made it new. It had had an "uninhabitable" notice posted on it by the city, as the tenants renting it were pigs.  So I guess it was a basic "FLIP" house. Lots of money went into that house then and now.

Yes, real estate IS good for the economy.

Furnishedowner

[Dave T]

He is going to file a 1040 and the 5405 tax form to get the $8,000 from the Federal Government.

You do realize that Hud changed the rules on this, don't you? He can use the money up front. I first heard that it could be used for the down payment and then later heard that it can be used only for closing and he gets the rest but not for the down payment??? I don't know how that works!  But anyways, he does have access earlier than having to file again with the IRS. You might want to look into this. If you do please report exactly how this works.

You heard wrong.  HUD is allowing lenders to make bridge loans for the amount of the tax credit.  The taxpayer still has to file a tax return to get the refund which is then used to payoff the bridge loan.

If the homebuyer is using FHA financing, the buyer must still pay the minimum 3.5% downpayment out of pocket.  The bridge loan can be used for closing costs and to make a larger downpayment.

[sammydy]

Hi Furnishedowner,

     I don't really have any concern about your son defaulting.  Your own business, from the posts on here, seams to be going very well and as long as you are not one of those pull yourself up by your own bootstrap parents he should be fine.  Although to be fair, until he is fully independent and able to pay for the house himself his stability in this situation depends on you and your business continuing to be around and doing well.

     On your side of the transaction you guys made out like bandits.     Your son even got a 4.6% non-prime loan at the same time that the government's attempts to hold down interest rates has failed miserably and prime rates have so far shot up to about 6%.  Had your son been applying for a mortgage through a bank, the entire transaction would have likely frozen up and died or at the very least have gotten a much higher interest rate; and this is not counting the 0% NINJA character of this loan.  The person whom made questionable decisions is the seller.  Made a NINJA loan to a college student.  Neglected to get a cosigner with big pockets that he could have easily have gotten with a small nudge and instead just went with a wink.  Did not get a real deposit from the buyer, not a significant amount nor directly from him, consequently he now holds the loan of a buyer with no skin in the game.  Accepted an absurdly low interest rate that fails to compensate him, or any buyer of his note, for his risk in this loan.  Made a virtually, if not a full, 100% LTV loan at a time property values are collapsing almost everywhere.  If the loan defaults he will likely be left with collateral worth less than he thought in addition to all the foreclosure expenses.  Putting all of that aside, he made a loan type that has proven to be a disaster and that as a result are pretty much no longer offered.  I hope the guy doesn't need his money any time soon and needs to sell his note.  I wouldn't be surprised if he could at best cash it out at 25% of its mathematical present value, if at all.    This has nothing to do with you.  From the sellers point of view you should not be in the picture as you did not cosign.  Were the situation reversed the seller would have been greatly reprimanded on this site and rightly so.

     As for housing stimulating the economy, I made no statement one way or another.  Your son would have likely have bought this house (and all the accessories) anyway without the 8k credit, just probably paid 8k less and maybe one of you would have put some down payment down (although considering the seller's actions probably not even that).  The only person whom really gained was the seller whom got to put 8k of our tax dollars in his pockets.  Although as for any stimulus from housing, or the amount of, I'd say that is highly questionable considering what happened due to the housing bubble and its collapse.  It would have been nice if all that money and energy had been put to more productive uses such as savings, investments in productive enterprises, and paying down debt.

[Hooch]

HUD is allowing lenders to make bridge loans for the amount of the tax credit.  The taxpayer still has to file a tax return to get the refund which is then used to payoff the bridge loan.

If the homebuyer is using FHA financing, the buyer must still pay the minimum 3.5% downpayment out of pocket.  The bridge loan can be used for closing costs and to make a larger downpayment.

On non FHA, can the bridge loan be used completely for downpayment?

[Ubbens]

Woah, that sounds like an awesome place to live for a student! I wish I could have such a big house to live in during my studies, sadly the house-prices in the Netherlands are absurdly high, making it impossible to settle for any more than a 30 square feet room.

Anyways, congratulations with your son's first house!

[furnishedowner]

Sammydy,
I still see that house purchase as win-win for everyone. The seller is the one who wanted the real estate contract, that is the same way he bought it six months ago.

I took the contract to a real estate attorney since I was unfamiliar with that contract in this state. He changed a few minor things, and said they were used a lot and gave the contract his seal of approval.

The seller will have income coming in each month from the contract. Our son will have housing under his control and stability for three years. There is no way he will default, given that then he would have to pay back the $8,000 federal stimulus money.

A lot of this deal was done with handshakes, and an "I trust you" sort of mindset. That still takes place here in the West. For some people, their word IS their bond.

Furnishedowner

He does have "skin" in the house in that he had to empty his bank account to do the move. $250 for the movers--2 guys, Felipe and Ramon, with an old trailer. He had to pay carpet cleaners at the old house; now he is investing in security deposits for the utilities. He bought a used refrigerator, $100, from a guy in a beautiful new house who wants to move to Phoenix to buy cheap real estate.

[Bluemoon06]

Imagine..... A GOVERMENT PROGRAM that actually works....

All government programs work.  They just may not be what YOU want.