While the first time home buyer tax credit is a distant memory to most, there are certain groups who can still use the program.

For certain members of the uniformed services, members of the Foreign Service, and intelligence community employees who served at least 90 days of qualified, extended duty service outside of the United States between January 1, 2009 and April 30, 2010.  Spouses of persons meeting the above criteria are eligible as well.

Basically, for those who were serving the country on foreign soil during the time of the last tax credit, they have until April 30, 2011 to use “last year’s” credit.

A quick reminder, it is $8,000 for first-time home buyers, $6,500 for repeat buyers.  An existing home owner must have lived in their “main home” in five of the last eight years to be eligible.

Like last year’s credit, you must be under contract on or before April 30, 2011 and close on or before June 30, 2011.  Those are hard dates with no exceptions from the IRS.

Other eligibility criteria include:

• The home may not be purchased from a parent, spouse, or child
• The home may not be purchased from an entity in which the seller is a majority owner
• The home may not be acquired by gift or inheritance
• Each buyer must meet tax credit eligibility standards
• The home sale price may not exceed $800,000
• Buyers may not earn more than $125,000 as single-filers; $225,000 as joint-filers

The complete program description is published on the IRS website.

The big one…this is a tax credit, not a tax deduction.  Credits have a dollar-for-dollar impact on your refund or liability.  If you normally get $2,000 back, you’d get $10,000 back.   If you normally owe $8,000, you’d owe $0.  Credits are about 3-5 times as good as a deduction depending on your tax bracket.

Personally, I’d call a tax professional.  Between the first time home buyer tax credit, transaction related deductions, and the itemization of mortgage interest, it’s well worth the investment.

For additional information regarding your tax credit eligibility, call an accountant. Speaking with a tax professional is often worth the cost.

An “existing home” is a resale of a home that cannot be described as new construction.  The press jumped on this slight decline, calling it “unexpected” and disappointing, but a deeper look at the data shows the news isn’t as bad as it first appears.

We’re once again seeing a very normal, wide variance by region.  The Northeast posted a pretty substantial loss, but the West even managed a pretty solid gain.

• Northeast : -18.3 percent
• Midwest : 0.0 percent
• South : +0.5 percent
• West : +4.9 percent

Good news for home values, we’re seeing a the supply dropping.  We’re down to 8.3 months in May and, because home prices are based on supply and demand, this is a positive for pricing. By comparison, in 2008, the average existing home inventory was 10.4 months.

First time home buyers represented 46% of all buyers.  Certainly the tax credit helped, but first time home buyers are a critical floor of support to the housing market.

When would-be first time home buyers are uncertain about their jobs and living in the basement at Mom and Dad’s, they don’t buy a first home.   When they don’t buy that “existing home,” that “existing owner” can’t move up to the bigger home.   The key to unlocking the mid-size and jumbo housing market is that first time home buyer re-entering the market.   With 5.5 million existing homes being sold the past few months,  we’ll have to see how this trickles up to the higher home prices.

Take a look at the headlines from last Friday:

• Sales of new homes rocketed up 27 percent in March (WaPo)
• New-home sales rise fastest in 47 years (CNNMoney)
• Sales of New Homes Climb by Most Since 1963 (Business Week)

None of these statements is false, per se, but each is somewhat misleading.  The biggest reason why March’s New Home Sales was even able to rise 27 percent is because data from the month before it — February — was the worst in New Home Sales history.

In February, new homes sold posted its lowest level in recorded history.

A better comparison would be against March a year earlier; or October 2009, the month before the home buyer tax credit’s initial expiration date.

Against both of those time periods, March 2010 fared well.

Home buyers – first-timers and repeats alike — went under contract last month, taking advantage of the soon-to-expire federal home buyer tax credit program.  The credit gives up to $8,000 for first-time buyers and up to $6,500 for repeat ones.

Buyers must be in mutual contract on or before April 30, 2010 to be eligible for the credit, and must closed on or before June 30, 2010.

The New Home Sales data included other strong housing data, too. The current supply of new homes nationwide is at a multi-year low.  Along with stronger home demand, this should push Chicago home prices higher throughout the coming months.

It’s no wonder builders are bullish on the economy.

Housing Starts are climbing.  A Housing Start is a new home on which construction has started and, over the last 6 months, home builders are averaging one half-million starts per month.

This marks the highest 6-month average since 2008 and a reading one-fifth percent better from 12 months ago.  Revisions to prior data have all been higher, too.

Even more interesting, though, is that the number of newly-issued building permits is exploding. Permits were up more than 5 percent last month and have climbed back to the levels of late-2008.

Housing permits are an important data point in housing because permits are precursors to actual housing starts.  According to the Census Bureau, 82% of homes start construction within 60 days of permit-issuance.

Therefore, because March’s housing permits increased, we should expect Housing Starts to continue to rise into the early months of summer.

This, too, reflects well on housing because the federal home buyer tax credit won’t be in existence this summer. The simple fact the homes are being built now shows that housing is likely to expand even after the tax credit expires.

Non-military members must be under contract by April 30, 2010 and closed by June 30, 2010 in order to claim up to $8,000 in federal tax credits.

The federal first time home buyer tax credit expires April 30 and the deadline is sparking a home sale surge. It figures to burden real estate, mortgage and title offices nationwide over the next 60 days so plan your closing date accordingly.

Especially because the last Friday in May is the Friday before Memorial Day.

Now, if the connection between the tax credit and Memorial Day is not immediately clear, think of your own office on a 3-day weekend’s Friday. Some of your colleagues take a half-day at work, others take the entire day off.

Office-wide, productivity drops.

The same is true in the real estate space. Offices are short-handed ahead of a holiday so, if you’re under contract for a home and plan to close in May, consider a closing date other than Friday May 28, 2010.

And meanwhile, with 6 weeks until Memorial Day, here’s some steps you can take today prepare for other people’s time off later.

1. Notify your lender of your planned vacation time between now and your scheduled closing
2. Purchase a homeowners insurance policy and prepay the first year. Send proof of payment to your lender.
3. Have Power of Attorney forms lender-approved and signed by all parties in advance, if applicable
4. Deposit gift monies and/or retirement fund withdrawals into an acceptable bank account, if applicable
5. Schedule your final walk-through as far in advance as is realistic so there’s time to make “fixes”, if needed
6. Have your closing funds ready at least 1 day in advance

The tax credit’s expiration is around the corner and as it gets closer, real estate-related businesses are taking on more work. Basic title and mortgage tasks are taking longer to complete and that should persist for a while.

Get ahead of the curve and beat your contract dates handily. Use the checklist above and be responsive to your lender’s requests.

And, if at all possible, avoid closing on the Friday before Memorial Day and even the Tuesday after — it’s when office staffs are at their smallest.

A piece of advice:   If your pre-qualification and/or pre-approval letter is more than 8 weeks old, it would be prudent to have your lender “re-pre-approve” you.  Mortgage guidelines have been in flux and your original lender letter may now be invalid.

For example, over the past half-dozen months, the majority of mortgage lenders have reduced their risk tolerance with respect to:

• Maximum debt-to-income ratios
• Minimum allowable credit scores
• Calculation of “assets in reserve”

For buyers of condominiums and co-ops, even the subject property itself is coming under tougher scrutiny.

Today’s mortgage applicants need to be a complete package. It takes more than just good income and credit to get approved anymore and today’s buyers should revisit their qualifications. What passed underwriting in January may not pass in May.

Being pro-active brings other advantages, too. If a mortgage re-pre-approval does unearth an issue, it’ll be easier for every party to the transaction to address and correct it up-front versus trying to clean up a mess once a home’s already under contract.

Talk to your agent and your loan officer about your pre-qualification/pre-approval letter before you bid on a home.

The credit ranges up to $8,000 for first-time home buyers, and up to $6,500 for existing homeworkers who have lived in their main home for 5 of the last 8 years.

Claiming the federal tax credit is a two-step process. First, you must be under contract for a new home on or before April 30, 2010.  Then, you must close on said home on or before June 30, 2010.

There are no exceptions on the dates (except for certain members of the military).

Timeline aside, home buyers and the subject property must also meet minimum requirements in order to be tax credit-eligible:

• You can’t purchase the home from a parent, spouse, or child
• You can’t purchase the home from an entity in which the seller is a majority owner
• You can’t acquire the home by gift or inheritance
• Each buyer in the purchase must meet eligibility requirements
• The home sale price may not exceed $800,000
• Buyers may not earn more than $125,000 as single-filers; $225,000 as joint-filers

The complete eligibility checklist is published on the IRS website.  Or, if you find IRS-speak too difficult, make a phone call to your accountant.  Asking a tax professional’s advice on a tax-related matter is never a time-waster.

And lastly, don’t forget that if you’re claiming to federal tax credit for home buyers, it’s a tax credit and not a deduction.  This means that a tax filer who qualifies for the full $8,000 and for whom the “normal” federal tax liability is $8,000, will owe no federal taxes in 2010 to the IRS.

If you’re an active buyer in Chicago, or anywhere else in the country , mark your calendar for April 30, 2010. It’s 30 days from now and, as the date gets closer, buyer traffic will increase. The likely result is higher home prices and more difficult negotiations.  The best time to act may be today.

As we’ve been discussing, the primary driver was the flood of first time home buyers out to meet the original November 2009 deadline for the tax credit.

There were quite a few November transactions that were bumped up from being December, January or February buyers.

If you look at the graph, the trend is holding up and pointing towards a very busy spring market.

When the federal home buyer’s tax program was extended last year, the new rules stated that home buyers must be under contract for their new, respective homes on, or before, April 30, 2010 in order to claim up to $8,000 in federal money.  That deadline is approaching and many markets are experiencing a surge in buyer traffic as April 30 nears.

The Existing Home Sales data doesn’t reflect this new demand, nor the number of new contracts written. It only accounts for home closings and, in February, closings were down.  That’s more reflective of offers from December and January than home shopping activity in February and March.

For today’s buyers, the market looks favorable. The federal tax credit is in place, mortgage rates stubbornly stick near all-time lows, and home prices are staying in check.

Existing Home Sales should gain through March and April, pressuring home prices higher. And, by the time the press reports the gains, the best deals in the city may already be gone.  Consider acting sooner rather than later.

First time home buyers are finding homes more affordable than ever before.  Values are better, but these 5% interest rates really extend home affordability.

Home prices tend to rise gradually with any increases realized over the course of months or years on an even pace.  Rates for first time home buyers change in the blink of an eye.

If home prices jump 5%, the impact on housing payments would be half as much as if rates went from 5% to 6%.

If you’re trying to gauge whether mortgage rates will be rising or falling, watch for news on inflation.  Loan rates are very responsive to inflation and with good cause.

By definition, inflation is when a currency loses its value.  Say something used to cost $1.00, but now costs $1.10.  That’s inflation.  It’s perceived that goods are more expensive.  They’re not.  It’s just that the dollar used to buy the goods is worth less.

This is a big deal to mortgage rates because mortgage bonds are denominated, bought, and sold in U.S. dollars.  As the dollar loses value to inflation, therefore, so does the value of every mortgage bond in existence. When bonds lose their value, investors don’t want them and bond prices fall.  Mortgage rates move opposite of bond prices.

Prices down, rates up.

In today’s market, the relationship between inflation and mortgage rates is helping home buyers. The Cost of Living made its smallest annual gain in 6 years last month and the Fed has repeatedly said that inflation will stay low for some time. The combination is driving investors to buy mortgage bonds which, in turn, is suppresses rates.

So long as it lasts, the cost of homeownership will remain relatively low.  Low rates and soft values, combined with the expiring tax credit, means that the timing to buy a first home may never be better than right now.