For the housing market, it’s the equivalent of financial alchemy, and it’s hot: Turning the $8,000 federal home-purchase tax credit, which normally isn’t spendable until after you’ve gotten your refund, into immediate, hard cash, available for your down payment and closing costs.

Congress’ stimulus-bill tax credit for 2009 is generating efforts nationwide to find ways to “monetize” it — providing money upfront to buyers who need dollars for down payments right now, not next year after they file their federal returns and get refunds. The credit is available only to qualified taxpayers who have not owned a house during the previous three years, and who close by Nov. 30, among other requirements. Buyers can amend their 2008 returns to claim the credit or claim it on returns for 2009.

In recent weeks, at least 10 states say they’ve come up with ways to work this monetary magic. They have created innovative bridge-loan programs that advance credit-eligible buyers the cash they need for their closings. Generally the advances take the form of second mortgages — with or without interest charges — that become due and payable whenever buyers receive their credits in the form of refunds from the Internal Revenue Service.

In Missouri, which was the first state to create such a program, buyers can get a no-cost “tax credit advance” of up to 6% of the home price. The advance is actually an interest-free second lien that is repayable no later than June 2010, once the buyers have received their $8,000 tax credit.

If buyers can’t meet that repayment deadline, the advance morphs into a traditional second mortgage with a 10-year payback term and a fixed interest rate one-half a percentage point higher than their first mortgage rate. The underlying first loans are all fixed-rate 30-year mortgages issued by private lenders participating with the tax-exempt bond programs of the Missouri Housing Development Commission.

Colorado kicked off a similar program, known as JumpStart, on April 14. Delaware, New Jersey, Tennessee, Idaho, Washington state, Ohio, Pennsylvania and New Mexico have come out with their own versions, some with modest interest charges on the second mortgage from the beginning.

In Washington, where the state Housing Finance Commission already runs a tax credit bridge-loan program for buyers using its mortgages, state Treasurer James McIntire wants to make it much bigger. He has been pushing for creation of a “public-private” down-payment program that could reach far larger numbers of consumers than is possible under the housing commission’s current funding constraints.

McIntire has proposed depositing $25 million of state funds into interest-earning accounts at an FDIC-insured bank. The bank would then provide revolving lines of credit to the state housing commission to greatly expand its down payment bridge-loan efforts. In a novel arrangement, the Washington Assn. of Realtors has pledged $400,000 as a backstop for McIntire’s plan to cover any unexpected losses on the credit monetization transactions. The state Legislature has authorized the program in its new budget.

McIntire is also trying to persuade the Obama administration to allow the state to tap into bridge loan-assisted home buyers’ amended 2008 tax returns and be directly assigned all or a portion of the tax credit refunds. Under current IRS rules, McIntire said, tax refund checks are sent only to the taxpayer’s address. To ensure prompt repayment of bridge loans, the state would like to have refunds mailed to the housing finance commission in cases in which repayment of a bridge loan is due.

Bottom line: Since other state housing agencies reportedly are considering rolling out credit-monetization programs on their own, keep your eye on what’s happening in your area. A no-cost advance tied to the $8,000 credit just might get you the down payment and closing cash you need.

With 30-year interest rates well below 5 percent, and 15-year interest rates between 4 percent and 4.5 percent, it’s time to start seriously thinking about refinancing your mortgage.

But before you high-tail it to the nearest mortgage lender and fill out a mortgage application, there are eight things you should do:

1. Check out the interest rate you have on your current loan. When interest rates dip, the natural inclination is to start filling out loan applications left and right. But too many times, homeowners are focused solely on the new interest rate instead of how much they’ll save by refinancing. While you may get water cooler-bragging rights, you should refinance only if it’s going to save you money.

2. Find out how much your home is really worth. There’s no way to sugarcoat it: Home values have sunk around the country an average of about 20 percent in the past year. In some places, such as Las Vegas, Miami, Phoenix and the San Francisco Bay Area, the decline has been twice as steep. It’s vital to assess whether your home still has any equity (the difference between what you owe and what the home is worth) or if you are “underwater” with your mortgage (meaning that you owe more to your lender than the property is worth. Whether you have equity will determine what kind of refinance is open to you.

3. If you’re underwater with your mortgage, assess how far underwater you are. While federal requirements have changed with regard to refinancing loans owned or serviced by Fannie Mae, Freddie Mac or FHA, if your loan is more than 105 percent of the value of the property, you may not be able to refinance without bringing cash to the table. (You may still be eligible for a loan modification, however.)

4. Get a copy of your credit history and credit score. Since the credit crisis began, lenders have raised the credit scores required to get approved for the best loan programs and best interest rates. The best place to go for a copy of your credit history and credit score is AnnualCreditReport.com. It’s the only place where the three credit reporting bureaus provide a free copy of your credit history each year, plus you can pay $7.95 for a copy of your credit score. Choose the Equifax credit score, since it’s the one closest to the score used by most lenders. (You can also go to MyFico.com, and purchase your credit history and FICO score for $15.95. You may also find their online community to be helpful in terms of suggestions on how to raise your credit score.)

5. Start identifying potential lenders. Shopping around for a loan takes a little more planning and effort than it used to, as lenders have jacked up the fees they charge to underwrite and process the loan. Your best bet is to talk to a national lender, a credit union (if you belong to one or can join one), a local mortgage broker (call your real estate agent if you don’t know one and ask for several recommendations), and perhaps an online lender.

6. Find out if your second lender will subordinate to your first lender. If you have a first and a second mortgage (also known as a home equity loan), find out whether the second lender will subordinate to the new first lender. That will allow you to refinance your first mortgage, while leaving your second loan in place. Many second lenders will not agree to this, and if yours doesn’t, you may not be able to refinance at all unless you pay off the second loan. One possibility is to refinance your first mortgage with the lender who owns your second loan.

7. Focus on the big picture, not just the interest rate. While the interest rate you’d get is important, it’s also important to calculate how much you’d pay in fees, and how long it will take to pay yourself back the cost of the refinance with your monthly savings. For example, if you’re going to save only $50 per month, and it costs you $5,000 to refinance, it’ll take you 100 months — or more than eight years — to pay back the cost of doing the loan. You won’t start saving until well into the eighth year of paying down the mortgage. So, unless you’re cutting the term of the mortgage significantly (going from a 30-year to a 15-year), or you’re able to pay off the costs in a relatively short period of time (say, less than a year or 18 months), it may not pay to refinance.

8. Get your paperwork together ahead of time. Before the housing crisis, you could almost do a refinance over the phone. In fact, you could call the loan officer you worked with regularly and put in your order for a refinance. You could do a no-cost refinance without providing much in the way of proof of earnings, or account statements or copies of tax returns. The forms would be delivered to your home, and then you’d sign them and send them in. Today, you’ve got to have your paperwork in order before you can refinance. Gather your W-2, a current paycheck, copies of your last two federal and state tax returns, copies of your bank accounts, retirement accounts, and other assets. Then call the lender.

While job cuts and dwindling investment accounts continue to plague wage-earning households, many seniors continue to wonder how long their once-healthy retirement funds will provide them with the cash needed for their leisure years.

Some good news arrived recently, especially for older homeowners who continue to make mortgage payments on their primary residence. The economic stimulus bill signed into law raises the single national loan limit for the country’s most popular reverse mortgage to $625,500 from the previous ceiling of $417,000.

“This is a great opportunity for seniors to tap into additional funds to offset losses they may have experienced in the current economic environment,” said Sarah Hulbert, president of Senior Financial Corp., a reverse mortgage lender. “There are a great number of seniors in homes valued significantly over the old limit of $417,000 limit who will be able to maintain or enhance their standard of living through the implementation of this new loan limit.”

The Federal Housing Administration, a component of the U.S. Department of Housing and Urban Development, insures the nation’s most popular reverse mortgage known as the Home Equity Conversion Mortgage, or HECM. Other private reverse mortgage “jumbo” funds have virtually evaporated given the present credit crisis.

A reverse mortgage historically has enabled senior homeowners to convert part of the equity in their homes into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payment. Reverse mortgages are available to individuals 62 or older who own their home. Funds obtained from the reverse mortgage are tax-free. Here are the vitals of the new guidelines:

* All areas of the continental United States, as well as Alaska, Hawaii, Guam and the Virgin Islands, will operate under a single HECM loan limit of $625,500;
* The $625,500 limit applies to both regular HECM transactions and HECM for purchase;
* The current fee structure remains unchanged. HUD will continue to collect a 2 percent mortgage insurance premium upfront and 0.5 percent annually; and
* The maximum origination fee will remain $6,000.

Darryl Hicks, vice president of the National Reverse Mortgage Lenders Association, a nonprofit trade group based in Washington, D.C., said there is anecdotal evidence that reverse mortgages are helping seniors to avoid foreclosure, but the organization has no hard data to support the claim. NRMLA expects even more activity with the new loan ceilings as seniors look for ways to escape high monthly mortgage payments.

Late last year, the Housing and Economic Recovery Act of 2008 approved the HECM for home purchases, allowing lenders to close the mortgages after Jan. 1, 2009. The move allows older homeowners to make a large down payment on a new home and then utilize the reverse mortgage as permanent financing.

The same law reduced the maximum loan fee on reverse mortgages to 2 percent on the initial $200,000 of the home’s value and 1 percent on the balance thereafter, with a cap of $6,000. Previously, HECM fees were capped at 2 percent of the home’s value or the county lending limit, whichever was lower.

Last October, Congress gave HECMs, which make up more than 90 percent of all reverse mortgages, a common loan ceiling of $417,000, regardless of location. Previously, the HECM program assigned different lending limits by county ranging from $200,160 in rural areas to $362,790 in the highest-home-value areas. The $417,000 limit enabled borrowers to obtain a substantially greater benefit from their homes, but the ceiling still was simply regarded as too low for higher-end homes. Lenders immediately began to lobby for the $625,500 number, and the stimulus bill supplied the increase.

However, not everyone qualifies for the maximum. A borrower’s age, along with prevailing interest rates, determine the actual amount of the HECM. Older borrowers qualify for the greatest amounts.

While the 4.3 percent increase in the number of FHA-insured HECMs was down significantly in 2008 from previous years, it bettered the negative numbers of conventional loans. One reason for the lower HECM volume was the uncertainty over the loan limits. There were a significant number of seniors waiting on the sidelines to see what the new loan limits would be.

With the present state of the economy, the increased limits will be beneficial.

When most people buy a home, they deposit money at the settlement or closing with their lender for the payment of future real estate taxes.

Lender’s have a formula for determining how much money they need to hold in escrow to make sure that they have enough cash in the account for the payment of the next real estate tax bill.

Let’s talk about the tax mistake first. If the property taxes were incorrectly reported at the closing of the purchase of your home, you need to make sure you received the right amount from your seller for the real estate taxes. Conversely, if you owed the seller money, you need to make sure you didn’t overpay him.

Once you know whether the numbers between you and your seller are correct, you need to understand what your lender is doing.

If the mistake on the real estate taxes only affected your lender’s computation of the real estate taxes, you need to understand the process the lender uses for the collection and payment of real estate taxes.

If you underpaid your real estate taxes at closing due to a mistake by the title company or the lender, you should know that the lender would have collected from you a significant amount of money at that time to fund the escrow. At that loan closing, you would have had to have come to the table with more money in order to put the necessary funds into the escrow account for the future real estate tax bill.

If the number used for the real estate taxes was $1,200 but should have been $4,800, your lender started out being short $3,600. In addition, when the lender used the $1,200 amount for the monthly payment calculation, your monthly mortgage payment would have been what you needed to pay your loan plus $100 for the real estate taxes.

But that number should have been $400 per month, or $4,800 per year. The net effect is that your lender needs the $4,800 for the real estate taxes and must collect more money each month from you to make sure the coming tax bill is covered.

You’re being asked to pay a lot of money, but the question you have to answer honestly is whether you knew what the real estate taxes were on the home when you bought it. If you knew that the taxes were $4,800, the amount the lender is requesting should not be a surprise to you. It’s only a surprise that it took them this long to catch the mistake.

In some cases, when lenders make these mistakes, they may say they’ll increase your payment by the additional $300 per month they need plus another $300 per month to fund the initial $3,600 required. In this manner, in about a year, you would have funded the escrow the way it should have been and your monthly payments to the lender would stabilize to a number that reflects the actual amounts that the lender needs for the payment of the real estate taxes.

Going back to your original question, if the lender’s computation is correct, you’ll need to pay the lender the money. Whether you and the lender decide it should be paid in a lump sum or over time, that will be up to you and the lender.

If the numbers were incorrect then and are incorrect now, you need to work with the lender to make sure the correct numbers are calculated for your real estate taxes and that you pay the right amount monthly to the lender to fund the real estate tax escrow account.

It’s never been a better market in which to be a first-time home buyer. The rising tide of foreclosures has pushed down home prices significantly over the past 18 months. Homes, relative to income, are about at the historic norm, which means they’re more affordable than they’ve been in at least a decade.

Beyond that, if you buy a foreclosed property, you might wind up with spending even less, as lenders struggle to process all of the foreclosures and short sales that are piling up. (To give you some idea of just how many foreclosures abound in some markets, if there were no more foreclosures in Florida, it would take the courts nearly two years to process all of the foreclosures on the docket today.)

Not only have homes come down in price significantly, but 30-year fixed-rate loans are at about 5 percent. Some first-time buyers are getting 15-year rates at 4.5 percent or below. These are historically low interest rates that will seem downright cheap if mortgage interest rates rise above 7 percent, which they will likely do several years from now.

Spending less to finance a property means you can buy more for your money or buy less and save more for retirement or other purposes. With interest rates so low, and the price of homes falling, homeownership becomes affordable to many first-time homebuyers.

As if this wasn’t enough of a push to get first-time buyers off the fence, the $8,000 tax credit has been added on top of the pile of first-time homebuyer goodies.

First-time buyers (defined as those who have never owned a home or have not owned a home in the past three years) who close on a home purchase before Dec. 1, 2009, can get up to an $8,000 tax credit on their 2009 income tax return. (If you already bought a house after Jan. 1, 2009, you can file for the credit on your 2008 tax return.)

When it comes to hiring a real estate agent, sales are so slow that even the best agents aren’t that busy. That means you shouldn’t feel rushed or pushed into making a decision. Your agent should have time to really help you understand what you want to buy, and help you secure an excellent deal on a property.

So who is buying what these days? One 30-something radio producer in Atlanta told me he plans to close on his home in the next 60 days. The producer bought a single-family house (it was a foreclosure) and shopped around until he got a 4.2 percent 15-year mortgage.

Another couple in their mid-twenties just closed on their purchase, a new construction foreclosure that had never been lived in. “The house was in unbelievably good shape and the process was incredibly easy,” the wife’s father told me. “When I bought my last house, it wasn’t this easy.” …
While the housing crisis continues to play out, some first-time buyers are finding a wide-open road leading to the house of their dreams. And even in this year, some 4 million people will buy a new or existing home.

If you want to make sure the house you buy this year is a smart financial move, follow these quick tips:

1. Get preapproved for your loan before looking for a house. If you get preapproved, that means the lender has to pull a copy of your credit history and score, you have to apply for the loan, and the lender has to approve your application. Make sure you shop around for the best lender and loan before putting in an application.

2. Once you know what you can spend, find the right neighborhood for the next seven to 10 years. If you plan to stay in your home for at least seven to 10 years, you’ll be able to ride out almost any downturn in the market. That’s important because it’ll cost you around 10 percent of the sales price to sell that home. Over seven to 10 years, you’ve got a good shot of at least breaking even on the sale, plus you’ll have built up a decent amount of equity by paying down your mortgage each month.

3. Don’t go for flash — buy what you need. You can always add granite countertops to a kitchen. It’s a lot harder to buy the size house you need in your school district of choice. So, buy something a little faded and dated, and upgrade over time as your budget allows.

4. Make sure you have cash in reserve. Houses always need something, so when you’re calculating your budget, make sure you allow some extra cash for upkeep and maintenance, like roof leaks, broken hot water heaters, and air conditioning or furnace maintenance. Having a decent reserve fund will allow you to sleep at night without worrying that you’ve stretched yourself too thin.

5. With all that has happened in the real estate market the past several years, make sure you don’t stretch yourself too thin. Buy a home that you can afford now and for the long term. Buy a home that suits your needs now and down the line. In the past I have written about overbuying a home — that is buying a bigger and better house than you need. Just because you can afford the mortgage payments now, doesn’t mean that you should buy more than you need or more than you can afford in the future. Good planning in the purchase of your home should go hand in hand with good financial planning for your future.

From a real estate perspective, there are several ramifications that arise when someone dies on a property. There’s no real reason, though, for you to cancel the purchase of a home you say you love, because of a death.

Mindset Management

The event of a death on a property seems bizarre to most buyers, but I think that’s a sign of the times. There was once a time when most people died at home; these days, most people are hospitalized before they die, so at-home deaths are simply less common. Death is an inevitable part of life, and there’s really nothing inherent about a natural death on a property that should change your decision about a property you really like. In fact, you might look on the fact that these folks allowed their mother to die at home, even knowing that it might negatively impact their transaction, as an expression of their love for her.

Certain ethnic groups and spiritual belief systems feel otherwise, but if you fell into that boat, you probably would not be debating whether or not to move forward. Also, many people feel differently about violent deaths or deaths from unnatural causes — which is completely understandable.

I brokered a very similar transaction several years ago, except the deceased was a tenant who committed suicide in the residence’s garage. My client, the buyer, and I had actually met the tenant at the Sunday open house, and he was gone within the week — we got a call from the listing agent a day or two after our contract was accepted. My intrepid buyer chose to move forward with the transaction, but she did ask the seller to please paint, carpet and clean the deceased tenants’ unit first (it was quite a mess, and my client planned to lease the place out immediately after closing). The seller agreed to do so, and also replaced a couple of windows. The cooperation of these folks in light of the circumstances was the definition of a win-win.

You should also look to engineering a win-win situation here. You might feel a little less “creeped out” if the home is professionally cleaned or if the interior of the mother’s area is repainted or recarpeted. You might want a feng shui consultant or a clergyperson to come through and implement some energy cures or say a prayer. Get clear in your own head on what would give you a level of comfort around this recent death, and consider asking the seller to facilitate that. The average seller in today’s market would be happy to do anything within reason to prevent the sale from being derailed. The key words are within reason — do not take advantage of the sellers’ emotionally tough situation to try to shoehorn a bunch of unreasonable demands or a big discount down their throats. It just wouldn’t be right.

Need-to-Knows

You don’t say whether you’ve already removed contingencies. In most states, when a seller makes an important new disclosure, the buyer gets a few days (three is typical) to consider the new disclosure and cancel the transaction, if they choose to — even after contingencies have been removed.

Most states require sellers to disclose a death that occurs within a few years (again, three is typical) prior to the sale to prospective buyers. Even in states that do not specify death on the property as a matter that much be disclosed, sellers are required to disclose anything which would make a material difference in the decision-making of a reasonable buyer. Clearly, a recent death on the property would be a prudent disclosure, in any event. Obviously, your sellers have complied with this disclosure mandate.

One thing you should know if you choose to move forward, though, is that you will be required to disclose the death, too, if you transfer the property in the next few years. “Transfer” means selling or leasing the property, so if you even plan to rent it out in the near future, know that you will be required to disclose the issue. If you plan to occupy the property personally for the next three years or so, the disclosure issue will be a non-issue for you.

Action Plan

1. Consider what changes to the property would make you feel better about living there, in light of the circumstances of the seller’s mother’s passing.

2. Work with your Realtor to structure a proposal for the sellers to help facilitate the changes to the property, either by completing the work or helping defray the costs.

3. Ask your Realtor what the death-on-property disclosure requirements are in your state. Stay mindful that you will need to also disclose the death if you transfer the property to a buyer or a tenant in the next few years.

In Texas, death by natural causes does not have to be disclosed. As a seller and a listing agent you usually still disclose the death in as sensitive a fashion as possible. The neighbors are going to tell the buyer after the sale if not before. In spite of the fact that it legally does not have to be disclosed, you don’t want to appear to be withholding information that a buyer probably wants to know. Violent deaths do have to be disclosed. It is always a sensitive situation because you do not know how the buyer is going to react to the news under either circumstance.