March 2, 2010

Incentives for Buying New Homes

danBy Dan Dolan
Dan Dolan Homes

Seniors may not be taking full advantage of $11,000-plus incentives for buying their new homes. And the benefits of one-time down-payment reverse mortgages for purchase are still not well known. 

The level of activity at my weekend open houses has been picking up as, traditionally it does, after Super Bowl Sunday. Maybe it’s the thoughts of spring that are awakening buyer desires to downsize. Or maybe the merciless winter has been a reminder of the need to have all the amenities on one floor. Admittedly, some of my visitors are awareness of the key incentive programs out there to make their home purchase easier on the budget. But not nearly as many as should, recognize how important the combined federal tax credit for buying a new home and the Davenport Now tax rebates could put $11,000 or more in their pockets depending on the price of the home they buy. I sometimes suggest that if I announced an $11,000 price increase buyers might want to tar and feather me and yet, missing out on these credits will have the same effect as a corresponding price increase.  

Likewise, some visitors are aware of the provisions of the Reverse Mortgage for Purchase program. But the significance of this program is dramatically lesser known. And that’s unfortunate because the combination of the tax rebate and RM programs has the potential for making their new home purchase less costly and their lifestyle benefits far more enjoyable. 

But there are some slight hurdles related to making all this happen. For instance, to cash in on the federal tax credit of $6,500 there’s a deadline to meet. Specifically, a purchase agreement must be signed by April 30 and the actual closing must be completed by July 1. That can be tricky in buying a home to be built or under construction. But to help buyers meet these deadlines, Dan Dolan Homes will “fast track” construction schedules and guarantee their completion. However, plans must be put in process now in order to make it all happen. 

To qualify for the Davenport Now tax incentive, the purchase must be of a new home in selected Davenport areas. Fortunately, our homes being built in Davenport at Northwest Circle all qualify for these tax rebates of some $5,000 or more depending on the price of the home being purchased. In aggregate, these two programs can represent a significant source of “pocket money” to facilitate the move, to buy some new furniture or even to offset a possible reduction in price of the home being sold. I think both the federal government and the City of Davenport deserve praise for helping facilitate a purchase of new homes in this economy. And for households who were planning on buying a new home regardless of incentives, it’s “icing on the cake” to make the move even “sweeter.” 
In my view, the program with the lowest awareness and perhaps the greatest degree of misunderstanding surrounding it is the Reverse Mortgage for Purchase Program approved by Congress in early 2009.  And here, I’m sorry to say that some of the financial institutions involved in making the loans have done very little to help promote  this program and to differentiate this “for purchase” mortgage program from the long-standing traditional reverse mortgages for existing homes that many seniors seem to be fearful of. And yet, I believe the “for purchase” reverse mortgages can be an excellent device for many senior home buyers.

In essence, the Reverse Mortgage for Purchase allows a buyer 62 years of age or older, to buy the new home with a single “moderate” down payment usually from t he sale of their existing home. They can live in the home “forever” without making any further mortgage payments. They simply pay their taxes, homeowners insurance and $65 monthly fee for lawn mowing and snow removal—and that’s it. They own the home. Upon their passing or departure, the home is sold by them or their estate, the reverse mortgage is paid off with the home sale proceeds and they or their estate receive any residual funds.  Their obligation never exceeds the sale proceeds so neither they nor their estate incurs any residual or “leftover” debt.  

Typically, a 75 year old buyer will make an estimated $75,000 one time down payment on a $200,000 home. That amount varies by age of the buyer, prevailing fixed mortgage rates at time of closing and the related closing costs. In my opinion, a reverse mortgage for purchase can be a very important tool for asset preservation and estate planning. 

Seniors looking to buy a new home that better meets their current lifestyle requirements should make every effort to take advantage of these programs before they expire. The cash benefits involved are significant and worth the limited effort required to realize them. We at Dan Dolan Homes would be very pleased to help seniors better understand the programs and to take advantage of them. 

 I would invite seniors to drop by any of our weekend open houses and visit with me or one of the Realtor hosts at the open. I can be reached at 570-1460 and I can be found weekends at Dan Dolan Homes opens in Blue Grass and Muscatine. Don Gibeault hosts our open houses at Northwest Circle, Davenport, Saturdays and Sundays from 1 to 4 PM. He can be reached at 650-8007.