A BETTER GREEN HOME INSPECTION COMPANY

Keeping you updated on the market!

For the week of
January 19, 2008

· The percentage of households that could afford to buy an entry-level home in California stood at 53 percent in the third quarter of 2008, compared with 24 percent for the same period a year ago, according to the CALIFORNIA ASSOCIATION OF REALTORS®’ (C.A.R.) First-Time Buyer Housing Affordability Index (FTB-HAI). The FTB-HAI measures the percentage of households that can afford to purchase an entry-level home in California.

· First-time home buyers also can take advantage of the federal tax credit for primary residences purchased by July 1, 2009. The credit reduces the borrower’s income tax dollar for dollars as much as $7,500 and serves as an interest-free loan. The amount of the tax credit varies depending on the home’s purchase price.

· In California , the median price of an existing home declined to $285,680 in November 2008, down 41.8 percent from November 2007 when the median price of an existing, single-family home was $490,511.

· The average rate for 30-year, fixed-rate mortgages was 5.01 percent for the week ending Jan. 8, according to Freddie Mac. Lower interest rates coupled with lower home prices can lead to more affordable mortgage payments, enabling some homeowners to move up, and first-time home buyers to enter the market.

· To qualify for the record-low interest rates, borrowers will need a down payment of at least 20 percent and a FICO score of 700 or higher. In California , a 20 percent down payment on a median-priced home would be $57,136. Additionally, home buyers will need to pay for any closing costs not paid by the seller.

· The large number of foreclosures on the market also is presenting an opportunity to purchase a home at a favorable price. However, some foreclosed homes may be in disrepair and may require additional work to make the property livable. A program offered by the Federal Housing Administration, 203K Streamline, allows home buyers to borrow as much as $35,000 more than the mortgage to pay for certain renovations, such as new paint, carpeting and appliances that a foreclosed home may need.

· To calculate how much house is affordable, consumers should follow the general principle of dedicating no more than 28 percent of their gross monthly income to covering the monthly mortgage payment, including property taxes and homeowners insurance. All debt payments combined, including mortgage, credit cards, car payments, student loans, etc., should be less than 35 percent of the gross monthly income.

· Using a home-loan calculator also can be helpful to determine how much house is affordable based on a borrower’s income. Many Web sites offer home-loan calculators including www.ginniemae.gov, www.bankrate.com, and www.fhainfo.com/calculators.htm.

Will loan limits rise?
Congressional leaders from both parties have been lobbying President-elect Obama to increase the limits of conforming loans – mortgages eligible to be purchased by Government Sponsored Enterprises (GSEs), like Fannie Mae and Freddie Mac – in high cost areas from $625,500 to $729,750 as part of an economic stimulus package. Qualified borrowers with conforming loans receive the best interest rates, because many in the financial industry believe conforming loans carry less risk.

Last year, as part of the federal government’s economic stimulus package, the conforming loan limit was temporarily increased to $729,750 in high-cost areas. Beginning Jan. 1, 2009, the conforming loan limit was lowered to its original level of $625,500 for high-cost areas.

In California , the new conforming loan limits for metropolitan areas range from $474,950 in the Sacramento-Arden-Arcade-Roseville metropolitan area, covering El Dorado , Placer, Sacramento , and Yolo counties to $625,500 in the Los Angeles-Long Beach-Santa Ana metropolitan area.

Paying down mortgage faster can make sense – sometimes
Homeowners who find themselves with extra cash may be considering paying down their mortgage. While this can help some people in certain situations, like seniors close to retirement age or those with adjustable-rate mortgages, it may not be the best choice for all homeowners. Paying down the mortgage more quickly can save homeowners a significant amount in interest in the long run. However, some financial experts advise clients, especially those with fixed-rate loans at favorable interest rates, to use extra money to pay down high-interest debt and build up an emergency fund.

Mortgage rate relief might not last long
The Federal Reserve’s announcement that it’s purchasing up to $500 billion of securities backed by Fannie Mae, Freddie Mac, and Ginnie Mae, has contributed to a reduction in mortgage rates to record lows. However, some mortgage experts warn that the low rates may not last long and could actually rise as early as this summer.

According to Celia Chen, senior director of housing economics at Moody’s Economy.com, in the second half of this year, the Federal Reserve’s program will have run its course and other issues will move to the forefront, which could push mortgage rates higher.

Lenders backlogged by refinancing rush
Lower mortgage rates have led to a flurry of homeowners seeking to refinance, but limited staff at many banks has resulted in processing and approval delays. Due to the large number of applications to refinance, Wells Fargo no longer is allowing its loan offers to lock in rates for less than 90 days. The 90-day lock is designed to allow enough time to close the loans.

The record-low rates that have led many homeowners to refinance are typically for 30-year, fixed-rate mortgages that meet the purchase requirements of Fannie Mae and Freddie Mac. Because so many factors determine the interest rate a borrower is actually offered, some banks may not post rates on their Web sites.

It is important to note that a lower rate accompanied by higher points and/or fees may not be the best option. Many times, a slightly higher rate with no points and/or fees is the better choice.

U.S. banks offer mortgages below 5% after Fed action
After the government started purchasing mortgage-backed securities, interest rates at some of the nation’s top banks started falling below 5 percent. On Jan. 8, JPMorgan Chase & Co. was offering 30-year mortgages as low as 4.75 percent on its Web site; Wells Fargo & Co. was advertising rates of 4.875 percent; and Bank of America Corp. at 5 percent. All posted offers were for borrowers with excellent credit – FICO scores of 720 and higher – and with a 20 percent down payment.

Fixed-mortgage rates fall below 5%
The average interest rate on 30-year, fixed-rate mortgages for the week ending Jan. 9, decreased to 4.89 percent from 5.07 percent, according to the most-recent survey from the Mortgage Bankers Association.

Credit restrictions, negative or minimal amounts of home equity, and high levels of outstanding debt have resulted in the denial of nearly 70 percent of borrowers’ applications to refinance.

Fewer apply for home loans; credit line delinquencies increase
A report by the American Bankers Association (ABA) said record numbers of borrowers missed payments on home equity lines of credit (HELOC) during the third quarter. Delinquencies on car loans that banks made indirectly through auto dealers reached the highest levels ever recorded by the ABA . However, according to the same report from ABA , fewer consumers missed payments on credit cards.

Mortgage giants extend suspensions of foreclosures
Fannie Mae and Freddie Mac last week announced they will extend the suspension of foreclosure sales and evictions from single-family homes through the end of January. The extension will allow borrowers facing foreclosure to remain in their homes while the companies work with mortgage servicers to find options for troubled mortgage holders under the Streamlined Modification Program.

This week (Jan. 15 - Jan. 21) the experts say: Rates are likely to remain flat.

Jan. 15 - Jan. 21

This week, almost half of the panelists believe mortgage rates will remain relatively unchanged (plus or minus 2 basis points) over the next 35 to 45 days. Another 31 percent think rates will fall, and the rest believe rates will rise. Panel: Up: 23% Down: 31% Unchanged: 46% Experts’ comments and Bankrate analysts Experts’ comments Panel After a volatile few weeks, mortgage bonds seem to be taking a breather. Continued negative economic data and the Fed purchases of mortgage-backed securities should keep rates in the sub-5 percent range for the near term. My advice to clients is to take advantage of the low rates today, rather than wait. If rates increase, you made a great decision. If they continue to decrease, it is simple and cheap (sometimes at no cost) to refinance again. David Kuiper, mortgage planner, First Place Bank, Holland, Mich. unchanged With retail numbers coming in low, consumer confidence still low, unemployment rising, we should see slightly lower rates. However, to make financial decisions based on speculation may prove costly. If it is cost-effective to buy or refinance, do it now. Don’t miss a great opportunity when it presents itself. Steve Levitt, vice president of mortgage lending, Guaranteed Rate, Chicago unchanged The 10-year Treasury is trading at 2.19 percent with almost no inflation component left in the equation. It is clear that the incoming administration will do everything in its power to keep rates low, including bringing 30-year-fixed rates to 4.5 percent or lower by purchasing securities and keeping liquidity in the market. There is also talk that Fannie and Freddie will increase their loan amounts to as much as $1 million. Mitch Ohlbaum, president, Legend Mortgage, Los Angeles unchanged I think we are at the bottom. Rates should stay flat for the next two months. Bob Moulton, president, Americana Mortgage, Manhasset, N.Y. unchanged The Fed and Treasury are continuing to buy Fannie Mae and Freddie Mac paper in an effort to drive mortgage rates lower. Despite those efforts, 30-year rates appear to have stabilized in the 5 percent range for borrowers with the best credit. I expect that will continue. Mike Larson, interest rate and real estate analyst, MoneyandMarkets.com, Jupiter, Fla. unchanged All economic reports indicate that rates should be going lower. However, lenders are managing volume by keeping rates artificially higher than where they should be priced and people continue to make application. Even with rates being propped up, they are still very attractive and near all time lows. If it makes sense to do something now, don’t wait as volatility remains a risk. If you are looking to refinance, do not risk taking a 30-day lock, take a 60-day lock and be safe. Jim Sahnger, mortgage consultant, Palm Beach Financial Network, Stuart, Fla. unchanged The Fed is deploying its $500 billion to manage mortgage markets. Dan Green, Mobium Mortgage, author of TheMortgageReports.com, Cincinnati unchanged Conforming mortgage rates are still too high. It is in the best interests of the U.S. economy if the Fed gets more aggressive about buying FHLMC/FNMA paper and drives the rate down and actually parks it at a fixed rate for several months. I would suggest two options: 1) peg the 30 year conforming at 4.5 percent with no points (retail) or 2) create the stimulus mortgage I suggested a couple of weeks ago which I will repeat: fixed at 3 percent for 2 years; then 4 percent for next two years; 5 percent for the remaining 26 years. This creates stimulus on the front end because homeowners would have more discretionary spending. If this were Fed-funded with increased money supply, the payments could go to reduce money supply. The eventual rate of 5 percent is designed to make this stuff marketable so it can get off the books of the government. Dick Lepre, senior loan officer, Residential Pacific Mortgage, San Francisco down Bankrate’s analysts Panel The 30-year fixed is at a record low in Bankrate’s 23-year-old survey. It’s never been lower, and that’s why I believe it will end up higher. Holden Lewis, senior reporter, Bankrate.com up Bernanke is intent on pushing mortgage rates down, and he is getting his way. Greg McBride, CFA, senior financial analyst, Bankrate.com

FIRST?TIME HOMEBUYER TAX CREDIT

Frequently Asked Questions

On July 30, 2008, President Bush signed a major housing bill (H.R. 3221) into law. As part of the housing bill, Congress has created a new, temporary tax credit to provide an incentive for first?time homebuyers.
The $7500 credit will be available for the purchase of a principal residence on or after April 9, 2008 and
before July 1, 2009.

CAVEAT: THIS INFORMATION IS ACCURATE BASED ON INFORMATION AVAILABLE AS OF JULY
30, 2008. AS WITH ANY TAX LAW CHANGE,
CHECK WITH A TAX ADVISOR IF THERE ARE
QUESTIONS ABOUT USING THIS PROVISION.

The Basics

1. How does a tax credit work?

Tax credits are special provisions that reduce income tax liability on a dollar for dollar basis. Credits are
claimed on an individual’s income tax return. In this case, Congress has created a tax credit for first?time
homebuyers. The maximum credit amount is $7500. Thus, if after figuring out all the income items and
exemptions and making all the required additions, subtractions, deductions and other items on a tax
return a person had total tax liability of $8000, a $7500 credit would wipe out all but $500 of the tax
due.

2. So in the case of this new homebuyer tax credit, what happens if the purchaser is eligible for
a $7500 credit but their entire income tax liability for the year is less than $7500?

This new tax credit is a so?called “refundable” credit. Thus, if the actual tax liability was $6000, the
purchaser would receive a tax credit refund of $1500. The refundable amount is the difference between
$7500 credit amount and the amount of tax liability. (The term “tax liability” refers to the actual
amount of tax computed on the tax return once all the computations are complete. The individual may
already have “paid” their tax liability through withholding, by means of estimated taxes or simply by a
check that makes up the difference when there is a shortfall of withholding or estimated tax payments.
Most taxpayers determine their tax liability by referring to tables that the IRS prepares each year.)

3. Who can use the new tax credit?
Only first?time homebuyers are eligible to use the credit. A first?time homebuyer is defined as an
individual who has not had an ownership interest in a principal residence in the previous three years.
The 3?year period is measured as of the date of the purchase of the eligible principal residence.

4. Is there an income restriction?

Yes. The income restriction is based on the tax filing status the purchaser claims when filing his/her
income tax return. Individuals whose Form 1040 filing status is Single (or Head of Household) are
eligible for the credit if their income is no more than $75,000. Individuals who file a Joint return may
have income of no more than $150,000.

5. Do individuals with incomes higher than the $75,000 or $150,000 limits lose all the benefit of
the credit?

Not always. The credit has a phase?out so that the closer a buyer comes to the maximum phase?out
amount, the smaller the credit will be. For this new credit, the credit amount is gradually reduced as an
individual’s income reaches $95,000 (single return) or $170,000 (joint return). Individuals with income
above $95,000 ($170,000 joint return) will receive no tax credit.

For example, if a married couple had income of $165,000, their credit would be reduced by 75% as
shown:

Couple’s income $165,000
Income limit $150,000
Excess income $15,000

The excess income amount ($15,000 in this example) is used to form a fraction. The numerator of the
fraction is the excess income amount. The denominator is $20,000 (specified by the statute).

In this example, the disallowed portion of the credit is 75% of $7500, or $5625.
($15,000/$20,000 = 75% x $7500 = $5625)

Stated another way, only 25% of the credit would be allowed.
In this example, the allowable credit would be $1875. (25% x 7500 = $1875)

6. Is the amount of the credit tied to the price of the home?

Yes. The credit is for 10 percent of the cost of the home, up to a maximum credit of $7,500. If a home
cost $65,000, the allowable credit would be $6,500. If a home cost $120,000, the allowable credit would
be $7,500. The amount of the credit is the same for all taxpayers, married or single.

7. What’s the definition of “principal residence?”

Generally, a principal residence is the home where an individual spends most of his/her time (generally
defined as more than 50%). The term includes single?family detached housing, condos or co?ops,
townhouses or any similar type of new or existing dwelling.

8. Are there restrictions on the location of the property?

Yes. Eligible property must be located in the United States. Property outside the US is not eligible for
the credit.

9. Are there restrictions related to the financing for the mortgage on the property?

Yes. If the financing is obtained by means of mortgage revenue bonds (i.e., through a tax?exempt bond?
related financing program offered by a state housing agency), then the purchaser is not eligible for the
tax credit.

10. Why do some news reports call the credit an interest?free loan?

Unlike most other tax credits, this tax incentive must be paid back. All eligible purchasers who claim the
credit will be required to repay it over 15 years. The statute specifies that the repayment amount will
be 6.67% of the credit amount each year. Thus, a buyer who qualifies for the full $7500 credit will repay
$502.50 each year. There will be no interest charge on outstanding balances. (See “Repaying the
Credit” below.)

Some Practical Questions

11. How do I apply for the credit?

There is no pre?purchase authorization, application or similar approval process. Eligible purchasers will
simply claim the credit on the appropriate IRS Form 1040 tax return and/or on any special forms the IRS
might devise. In many, if not most cases, the IRS will be on notice that a purchase has occurred because
the settlement officer at the time of purchase is required to report the transaction.

12. So I can’t use the credit amount as part of my downpayment?

Presently, there is no mechanism available for claiming the credit any earlier than the 2008 tax return
that will be filed in 2009. Congress tried to devise a mechanism that would allow pre?funding of the
credit, but found that pre?funding would require cumbersome processes that would, in effect, bring the
IRS into the purchase and settlement phase of the transaction.

13. So there’s no way to get any cash flow benefits before I file my 2008 tax return?

Any first?time homebuyers who believe they would be eligible for all or part of the credit may wish to
modify their income tax withholding (through their employers) or to adjust their quarterly estimated tax
payments. Individuals subject to income tax withholding would get an IRS Form W?4 from their
employer, follow the instructions on the schedules provided and give the completed Form W?4 back to
the employer. In many cases their withholding would decrease and their take?home pay would
increase. Those who make estimated tax payments would make similar adjustments.

14. I made an offer on a home that was accepted on March 27, 2008. We went to settlement on
April 12, 2008. Do I qualify for the credit (assuming I meet all the other requirements)?

Yes. A home is considered as “purchased” when all events have occurred that transfer the title from the
seller to the new purchaser. If a property goes to settlement on or after April 9, 2008, then an
otherwise qualified buyer would be eligible for the credit. Similarly, closings must occur before July 1,
2009 for purchases to be eligible for the credit.

15. If I don’t make an eligible purchase until 2009, do I claim the credit when I file my 2009 tax
return in 2010?

You’ll have a choice. Qualified first?time homebuyers who make their purchase between January 1,
2009 and before July 1, 2009 are permitted to make an election to treat the purchase as if it had
occurred on December 31, 2008. This election allows them (depending on the timing of the sale) to
claim the credit on their 2008 tax return that is due on April 15, 2009. They may also elect to file their
2008 tax return after April 15 by filing for an automatic extension and claim the credit on the extended
2008 return. If they file their 2008 return before they have purchased the home, they may utilize this
election and file an amended 2008 tax return. Of course they will always have the option of claiming the
credit for the 2009 purchase on their 2009 return filed in 2010.

16. My sister and I are both single and want to purchase a home together. Will we each receive a
$7500 credit?

No. The purchase of a residence will generate a tax credit amount that will total up to no more than
$7500, no matter how many unmarried purchasers are buying the house.

17. My fiancé and I bought a house on June 1, 2008. We’ll get married in 2009. I owned a home
in 2006. He’s never owned a home. Will we get a credit? For 2008? For 2009?

It’s pretty clear that you will not qualify for the credit for the 2008 purchase because you owned a home
after June 1, 2005 (three years before the date of purchase). But since you and your fiancé were single
when you made the purchase, he may qualify for the credit since he didn’t own a home after June 1,
2005. If he’s otherwise eligible, then he may be able to take the credit because you’ll both file your tax
return as Single for 2008. If you got married in 2008, neither of you could claim the credit. When
purchasers file a joint tax return (as you would if you got married in 2008), both must be first?time
homebuyers. Your 2009 marriage isn’t relevant for this purpose.

18. My sister and I wish to purchase a home together. She previously owned a principal residence
but sold it 2 years ago. I’ve never owned a residence. Can I qualify for a partial credit?

Possibly. The statute is somewhat ambiguous. Note though, that Treasury will no doubt provide
guidance to clarify this ambiguity. As it presently stands, the statute specifically provides that for a
married couple to be eligible for the credit, both must be first?time homebuyers. Similarly, the statute
provides that if a married couple files their tax return as Married Filing Separate, then the credit is
limited to $3750 each. By contrast, the statute directs the IRS to determine how the credit can be
shared when two or more unrelated individuals purchase a home. In that case, the statute does not
specify whether all the unrelated purchasers must be first?time homebuyers. You’ll want to check with
a tax advisor.

19. I made an eligible purchase of a principal residence in May 2008. My brother, also a first?time
homebuyer, wishes to move in with me next year and purchase a partial interest in the home
in before July 1, 2009. Will he qualify for the credit, as well?

No. Any purchase of a principal residence (or interest in a principal residence) from a related party such
as a sibling, parent, grandparent, aunt or uncle is ineligible for the tax credit. Since you and your brother
are related in this way, he cannot qualify for the credit on any portion of the home that he purchases
from you, even if he is a first?time homebuyer. If you, as the first?time homebuyer, had bought the
property from, for example, your grandparents, you would also be disqualified from using the credit.

20. I’m working outside the US for part of 2008, so part of my income will be excluded from tax.
I’m single and want to buy a home when I come back (also in 2008). Can I disregard my non?
taxable overseas income when figuring whether I am eligible for the credit?

No. To determine whether you are eligible for the tax credit, you are required to combine your non?
taxable overseas income with any US income you earn in 2008. Thus, for example, if you are single and
had $45,000 of non?taxable overseas income and $55,000 of US income, you would be ineligible for the
tax credit because your 2008 income ($100,000) exceeded even the $95,000 phase?out amount. If you
had $45,000 of non?taxable overseas income and $40,000 US income, you would qualify for a partial
credit because your total income of $80,000 would be within the phase?out amount. If you had $45,000
non?taxable overseas income and $20,000 US income, you would qualify for the full credit (assuming
you met all of the other requirements) because your income was less than $75,000. Similar rules would
apply if you had non?taxable overseas income in 2009 and wished to purchase then.

21. I live in the District of Columbia and am eligible for the DC Homebuyer Tax Credit. Can I use
both credits?

No. You must choose one or the other. Note that the $5000 DC credit has no repayment feature, while
the new $7500 credit must be repaid as an interest?free loan. (See “Repaying the Credit” below)

Repaying the Credit

22. What is the repayment feature of the credit?

The repayment feature of the credit is similar to a recapture provision: in some circumstances the tax
system takes back all or part of a tax benefit. In this case, there is no precedent for repayment of a tax
credit created for individuals, so not much is known about how the repayment will occur, how it will be
reflected at settlement (or on sales forms) or how the IRS will collect and enforce the payments. The
repayment is the equivalent of converting the tax credit into an interest?free loan.

23. What are the terms for repayment?

The credit amount is repaid in increments of 6.67% of the credit amount over 15 years. For individuals
who take the full $7500 credit, the repayment will be about $502.50 a year. Individuals who claim a
credit of less than $7500 will also have a 15?year repayment period and will pay 6.67% of their credit
each year. For example, an individual who claims a credit of $6000 will repay $400.20 a year ($6000 x
.0667). There is no interest charge applied to outstanding balances.

24. When do I make the payment?

The mechanics are not specified. Repayments for credits claimed on 2008 tax returns will go into effect
for the 2010 tax year. As a practical matter, then, repayments of credits taken in 2008 will not actually
start until 2010 returns are filed in 2011. Repayments for credits claimed on 2009 returns will go into
effect for the 2011 tax year and reflected on 2011 returns filed in 2012.

25. Will the IRS put a lien on my property for the amount of the credit repayment?

The statute does not grant the IRS that authority. The rules for tax liens are quite specific about when
the IRS can put a lien on property. It is not yet known how the IRS will identify and stake its claim to the
repayment.

26. What if I sell my house before the 15?year repayment period is complete?

When the person who used the credit sells the home, any amount of tax credit that has not been repaid
will be due in the year of sale. For example, if an individual still “owed” $4000 in repayments and
realized $25,000 of proceeds from the sale, the $25,000 of seller proceeds would be reduced to $21,000
and $4000 will be remitted to the IRS. Again, the mechanics are unknown.

27. What if there’s very little gain (or even a loss) on the sale and the proceeds won’t cover the
repayment amount?

If the gain on the sale is less than the amount that must be repaid, part of the liability is forgiven. For
example, if the individual still “owed” $4000 but the gain on the sale was only $3500, then the seller
would not be required to repay the IRS the $500 shortfall. If there was no gain or even a loss, then the
remaining $4000 would not be repaid.

28. Are there any other exceptions to the repayment rules?

Yes. If the person who utilized the credit dies before the full credit amount has been repaid, then any
balance that remains unpaid is disregarded. Special rules make adjustments for people who sell homes
as part of a divorce before the credit has been fully repaid. Similarly, adjustments are made in the case
of a home that is part of an involuntary conversion (property is destroyed in a natural disaster or subject
to condemnation by eminent domain by an authorized agency).

29. If I received a refund of a portion of the tax credit because my total tax liability was less than
the amount of my tax credit, do I have to repay the amount of the refund?

Yes. You would have received the maximum economic benefit of the any credit amount when you
reduced your tax to zero and also received a refund of the balance. Thus, you would repay the full
amount of the credit for which you were eligible. Again, there are no details that specify the mechanics
for tracking those amounts.