U.s. Tax Legislation For Homeownership

For many years, the idea that ones’ home being the largest investment was said as a complete sentence when in fact, it was only an incomplete sentence. Any duly licensed financial planner would finish that sentence by saying all investments are subject to market conditions, the value that investment could increase or decrease and other similar cautionary statements that their attorneys wrote to protect them. The American public only heard that their home was the largest investment and had never experienced, nor had their parents seen the value of their personal homes drop like they did in the past few years. They had never experienced the financial pain and although only a few years have passed, many have forgotten and are ready to jump right back into homeownership.

The housing crisis of the late 2000s rocked the economy and changed the landscape of the real estate business for years to come. Decades of people purchasing houses unfordable houses and properties with lenient loans policies led to a collective housing bubble. When the banking system faltered and the economy wilted, interest rates were raised, mortgages increased, and people lost their jobs amidst the chaos. This all culminated in tens of thousands of American losing their houses to foreclosures and short sales, as they could no longer afford the mortgage payments on their homes. The United States entered a recession and homeownership no longer appeared to be a feasible goal as many questioned whether the country could continue to support a middle-class. Former home owners became renters and in some cases homeless as the American Dream was delayed with no foreseeable return. While the future of the economy looked bleak, conditions gradually improved. American citizens regained their jobs, the United States government bailed out the banking industry, and regulations were put in place to deter such events as the mortgage crash from ever taking place again. The path to homeowner ship has been forever altered, as loans in general are now more difficult to acquire and can be accompanied by a substantial down payment.

The Homestead Act of 1862 made surveyed lands obtainable to homesteaders. The act stated that men and women over the age of 21, unmarried women who were head of households and married men under the age of 21, who did not own over 160 acres of land anywhere, were citizens or intended on becoming citizens of the United States, were eligible to homestead. This paper will show how the Homestead Act came to be enacted, who the homesteaders were and the effects of the Homestead Act on the pioneers.

As we now know, the U.S. economy, the middle class, and its job growth was damaged by the overwhelming collapse of Wall Street, which was triggered by the downfall of the housing market and sub-prime loan defaults. One of the main things that need to be addressed in our economy today is the housing market and making sure that our banks and credit unions are not allowing people who do not have the necessary income to pay their mortgage disbursements. In an article entitled Thinking outside the Housing Bubble, the author John Vogel remarks how the economy is generally supported by the housing market. Vogel states:

The interest rates alone became a huge problem for the mortgage holders in Kansas City. Molly Fleming-Pierre, the policy director for Community Creating Opportunities in Kansas City stated that “Our residents, in just Kansas City, are paying 26 million dollars every single year in interest alone” (qtd. in We Are Superman). People cannot continue to pay such a large amount. The advantage for people in buying a home is that equity is built in something of great value. But with such high rates, these families put a huge portion of their house payment into paying the interest. It’s difficult for families to pay off a home with so little of it going to principle. Payments can be made for years and there still be so much owed for the home. This makes it impossible for them to get ahead on payments. Families cannot afford to sell the home, save more money, and move into a better, safer neighborhood with quality schools and convenient shopping. Another advantage of buying a home is paying it off and eventually living in something that is completely paid for. Without monthly house payments, money can go towards retirement and other items to better lives. But high interest rates make this dream much more difficult or even impossible to achieve.

During this time period, homeownership typically required a 20 percent down payment (Melicher & Norton, 2014, 168). Lending institutions were very careful about whom they lent money to, and credit standards were high (Melicher & Norton, 2014, 168). Melicher & Norton (2014) called this the “save now, spend later” philosophy, and it would change in the coming years (p. 168).

Tax credits for homebuyers have complicated tax requirements with home-price restrictions, payback requirements, eligibility guidelines and time-frame limitations. Few areas of personal deductions generate more errors or greater audit risks than failing to meet the requirements of taking homebuyer tax credits. A tax advisor can help you avoid the pitfalls.

The Homestead Act  stated that settlers could migrate to the west and every American including free slaves could claim at least 160 acres of federal land. When the Civil War was over, fifteen thousand land claims had been made. A program was established that gave small farmers public land grants. States in the south voted against this act before the Civil War. Most states did not want the Homestead Act to be passed because they knew it would rush settlement.

Home Mortgage Interest Deduction – Should it be eliminated, reduced or change it to a tax credit?

President Franklin D. Roosevelt’s affordable housing initiatives of the 1930s were responsible for the rapid expansion of home ownership and economic stability throughout the United States following The Great Depression of 1929 (Allen and Barth, 2012). Leading economists have viewed affordable housing as one of the key components of a healthy economy ever since. (Bluhm, Overbeck and Wagner, 2010). The Federal National Mortgage Association conceived during the time of his administration, provided an abundant amount of affordable housing through low down payment mortgages extended over a 30-Year period. In 1940 the median price of a single family home in the U.S. was approximately two times an average borrower’s median income. The Housing Cost

However, I believe that this is really not a major problem, because many wealthy people become wealthy before they have a nice house. Rich people are often focused on planning and a desire to accumulated wealth. Anyone who can add and subtract should be able to determine that you don’t accumulate more wealth by having a mortgage. Instead of paying more to the government, you pay more to the banks. There is one exception if a family was in one of the higher tax brackets and they were reduced to a lower bracket. Nevertheless, the vast majority of people trying to accumulate wealth often buy houses without mortgages and use other areas for tax savings because houses don’t build wealth

Yet, to some this may come off as simply a Marxist perspective of contemporary society, however, the American Financial crisis of 2007–2008 is a case which is evident that the financial elite (base) are in control of the American superstructure. At this point in time, people used credit for expensive home loans, which created an economic bubble causing the prices of houses to increase. Due to this increase in wealth, banks made it easier to get a loan, regardless of credit history, these were known as subprime loans. Additionally, during this time, homeowners refinanced their homes, causing their mortgage to change, and lowering interest (Bosworth, Flaaen 2009, p.147). After they refinanced, homeowners took out other mortgages to use as pocket

One of the first indications of the late 2000 financial crisis that led to downward spiral known as the “Recession” was the subprime mortgages; known as the “mortgage mess”. A few years earlier the substantial boom of the housing market led to the uprising of mortgage loans. Because interest rates were low, investors took advantage of the low rates to buy homes that they could in return ‘flip’ (reselling) and homeowners bought homes that they typically wouldn’t have been able to afford. High interest rates usually keep people from borrowing money because it limits the amount available to use for an investment. But the creation of the subprime mortgage

Due to such events as the subprime mortgage crisis, the auto market and Wall Street’s failure, the United States suffered a severe economic blow. Looking at the situation from an economic view, supply is supposed to equal demand. Due to the mortgage crisis and the careless attempts of some to make money, there is a superfluous amount of empty homes throughout the United States. In the subprime mortgage crisis, the nature of the failure was the inability to account for money given to individuals, who lack the appropriate requirements. In order to obtain a loan, collateral is needed. References were not being checked and poor credit history went ignored. People were obtaining loans and not paying attention to the interests rates associated. “This time around, the slack standards allowed millions of high-risk borrowers to get easy home mortgages. When this so-called subprime market collapsed beginning about a year ago, ordinary working people bore the brunt” (Gallagher, 2008). Companies were so anxious to place people in homes, that it cost them billions of dollars and

CAPSTONE PROJECT Project Title: APPLICABLE FINANCIAL POLICIES CHANGES THAT CAN BE USED TO ENCOURAGING HOUSE AND HOME OWNERSHIP IN MICHIGAN Submitted by: Submitted to University MBA/MS Program [list one] Capstone Mentor: [name] For University Use Date Received: ______________________________________________ Reviewed by: _______________________________________________ Approved/Disapproved: ______________________________________________ Signature: ______________________________________________ Date: ______________________________________________ Comments: ______________________________________________