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Make The Stimulus Package Work For You

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Here are the highlights.

woman putting lots of cash into her wallet

Financial expert Danielle Hoston: Two weeks ago, I described foreclosures, short sales, and REOs. This past week, millions of homeowners (and even those that don't own homes yet) received great news in the new stimulus package. Here's a short summary:

For homeowners:
If you have been unable to benefit from current lower interest rates or are currently "underwater" on your loan amount because the real estate market decline has reduced your equity below current refinancing guidelines, you'll be glad to know that new mandates are on the way that may save you thousands of dollars. Furthermore, current loan modification guidelines will be federally mandated even if you haven't missed a payment.

For more information on the Homeowner Affordability And Stability Plan, click here.

If you are an investor or a speculator:
Many willing investors have been stifled from making more investments because of the credit crunch and a bleak economic outlook. Your ability to purchase investments and the value of your current and future investments depends on a rebound in real estate values and increased consumer confidence.

If you have yet to buy a home:
You are the lucky beneficiary of an unprecedented tax credit of $8,000 for first time homeowners who close escrow by December 2009. In simple terms, tax credits equal more cash to you. If you owe $1,000 at the end of the year, this credit will award you $7,000. If you are owed $1,000 in a tax refund, your refund will be increased to $9,000.

What we all get:
Tax breaks, tax breaks, and more tax breaks...

Undoubtedly, there will still be foreclosures as no stimulus package can save every home. In fact, only an estimated 1/3 of the homes threatened by foreclosure will be rescued. If you are unemployed and unable to make your mortgage payment, my advice is simple: start short sale proceedings immediately and save yourself from falling victim to the foreclosure process.

Critics of the stimulus package argue that lower interest rates are not enough and demand that principal reductions of loan amounts are in order. The fact is, real estate markets go through growths and declines as part of the normal market cycle. It is not logical nor does it fit any real estate cycle that homes will not only recoup their value but will likely appreciate over time. Don't look a gift horse in the mouth. Embrace these savings as an opportunity to mitigate past financial mistakes or to do more things right with your money.

Let us not seek the Republican answer or the Democratic answer, but the right answer. Let us not seek to fix the blame for the past. Let us accept our own responsibility for the future.
- John F. Kennedy


We want to hear your thoughts! Does the stimulus package benefit you? Do you think it will work?


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35 comments so far | Post a comment now
ivar February 23, 2009, 4:17 PM

Currently the US Treasury bonds are in something that looks like a free fall. The yield on the 30 year bond has jumped from approximately 2.5% to 3.75% since the beginning of the new year, causing the bond to drop about 17 points. I think this is only the beginning of a trend that is likely to go on for a very long time. In Q1/08 the US was borrowing at a 310 bill annual rate. Now the US is borrowing at a 2 trill + annual rate, or close to 7 bill every single day. The various bailouts and stimuluses only makes matters worse by greatly adding to the need for additional borrowing. Demographically too, the US is likely to be needing to keep borrowing ever greater amounts. In order to facilitate all this financing, I believe interest rates will continue to go higher and eventually go much higher, causing the bonds to keep falling. Should the flooding of the economy with US dollars cause the dollar to start falling, it would become that much less attractive for investors to keep buying new bonds as well as holding existing bonds denominated in US dollars. This would add tremendously to any existing downward trend.

PS:

To trade futures on the 30 year bond requires 4K initial margin for each contract and a 1 point movement in the contract represents 1K loss or profit depending on which way it moves. If it moves favorably, a 4 point move allows the adding of another contract without adding any money to the account.

leelee February 23, 2009, 6:13 PM

So what I’m getting is that, unless you are going to buy a home this year, the stimulus package will not effect you one bit. This is just for homeowners and those buying this year.

Danielle February 23, 2009, 7:19 PM

Thanks for your inquiry, Leelee.

This is just one aspect of the stimulus package as it relates to the Homeowner Affordability And Stability Plan. The tax break for first-time home buyers was mentioned because of people interested in buying this year.

There are a lot more tax breaks available… I might discuss some of those in next week’s post. Let me know if you would be interested!

-Danielle

Selene February 23, 2009, 9:22 PM

Great info! This will SO help me sell mortgages and homes!

Shelly February 24, 2009, 2:30 AM

This is all well and good for those people who lived above their means and bought home that they NEVER should have been allowed to buy or people looking to buy for the first time but I’d like to know if there is anything in this bill that will help homeowners who are looking to sell so they can move into a larger home? With the new lower interest rates than what I currently have and the declining home prices I can afford an upgrade without much of an increase in my monthly mortgage payment, so I would like to sell and move. The problem for is that with the declining home values I most likely won’t make much money, if any at all, off the sale of my current home. If I don’t make enough money off the sale of my current home then I won’t have a down payment for a new home. I’ve had people tell me that we should just stay where we are. Problem is that we have truly outgrown our 900 sq ft home. We bought it when our kids were young because we could afford it and we figured with the equity we would earn eventually we’d be able to sell and buy a bigger home. Now it looks like we’ll be stuck here for a very long time.

Danielle February 24, 2009, 1:02 PM

Hi Shelly,

Thank you for your inquiry. Obviously, I don’t know your entire situation but it sounds like your concern is the same as many other people.

In any market, you are trading apples for apples. The best you can do is get the most you can for your “apple” and buy a better “apple” within your price range. The advantage for you in today’s market is that better “apples” are selling for less, there is less competition for them, and lower financing rates means that you pay less in the long run. Furthermore, you’ll be better positioned with a better “apple” than you had before when the market turns up again.

If you have sufficient equity in your home to realistically sell and purchase a new one, then you are in a great position to make a move!

I hope that helps, Shelly!

Shelly February 24, 2009, 1:24 PM

That’s exactly my problem I had sufficient equity to sell in ‘07 but didn’t because we had just refinanced out of our original ARM. Now the market has caused my home to be worth $20,000, maybe even $30,000, less than it was two years ago and that means that if I sell I will not make enough money for a down payment on my next home. So I’m stuck until I can save enough money to offset the amount that I now won’t make in the sale of my home. And it appears as though there is nothing in the “Stimulus Package” that will help me or people in my situation who did what we were supposed to do: Bought a home that we could afford, did what we were supposed to do so that we could refinance out of our Adjustable Rate Mortgages before they became a problem, Paid our mortgage payments in full and on time, Worked extra over-time and got second jobs when necessary… So in a nutshell you are saying that NO there is nothing in Pres. Obama’s plan to help people in my situation… No compensation for the loss in equity sustained due to the government, Fannie Mae and Freddie Mac’s involvement in what they did to housing markets across the country. But hey… Thanks for responding so quickly. Please continue to keep us all posted, maybe there will eventually be something out there for folks in my situation.

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