How the homebuyer tax credit works
Sources: National Association of Home Builders and the Internal Revenue Service
Published: Sun, Aug. 09, 2009 02:00AM
Are you considering a leap to homeownership? Here is some information about the tax credit to help you with your decision.
Q: Who is eligible? Anyone who has not owned a home for the previous three years. The home must be purchased on or after Jan. 1 and before Dec. 1, 2009. For the purposes of the tax credit, the purchase date is when closing occurs and the title to the property transfers.
Q: How is the amount of the tax credit determined? The tax credit is equal to 10 percent of the home's purchase price up to a maximum of $8,000.
Q: Are there income limits? Yes. The limit for single taxpayers is $75,000; $150,000 for married taxpayers filing a joint return. You cannot have a modified adjusted gross income above $95,000 (single) or $170,000 (married), and the credit is reduced proportionally for taxpayers whose modified adjusted gross income is between these amounts.
Q: What is "modified adjusted gross income"? Modified adjusted gross income is defined by the IRS. To find it, first determine "adjusted gross income" or AGI. AGI is total income for a year minus certain deductions (known as "adjustments" or "above-the-line deductions") but before itemized deductions from Schedule A or personal exemptions are subtracted. AGI includes all income including wages, salaries, interest income, dividends and capital gains.
Q: How is this homebuyer tax credit different from the tax credit that Congress enacted in July of 2008? The most significant difference is that this one does not have to be repaid.
Q: How do I claim the tax credit? Claim it on your federal income tax return by completing IRS Form 5405, then claim this amount on line 67 of your 1040 for 2009 returns (line 69 of the 1040 income tax form for 2008 returns).
Q: I purchased a home in early 2009 and have already filed to receive the $7,500 tax credit on my 2008 tax returns. Can I claim the new $8,000 tax credit instead? You may file an amended 2008 tax return. Consult with a tax adviser to ensure you file this return properly.
Q: Is a tax credit the same as a tax deduction? No. A tax credit is a dollar-for-dollar reduction in what you owe. That means if you owe $8,000 in income taxes and receive an $8,000 tax credit, you'd owe nothing to the IRS. A tax deduction is subtracted from the amount of income that is taxed.
Q: I bought a home in 2008. Do I qualify for this credit? No, but if you purchased your first home between April 9, 2008, and Jan. 1, 2009, you may qualify for a different tax credit. Consult with a tax adviser for more information.
Q: Is there any way to get the money before filing a 2009 tax return? If you believe you qualify for the tax credit, you can reduce your income tax withholding. Reducing tax withholding (up to the amount of the credit) will allow you to accumulate cash by raising your take-home pay. This money can then be applied to the down payment.
Adjust the withholding amount on your W-4 or through your quarterly estimated tax payment; IRS Publication 919 contains rules and guidelines. If you end up not buying the house, you'll have to repay the IRS income tax and possibly interest charges and penalties.
Q: The Secretary of Housing and Urban Development has announced that HUD will allow "monetization" of the tax credit. What does that mean? It means that HUD will allow buyers using FHA-insured mortgages to apply their anticipated tax credit toward their home purchase immediately rather than waiting until they file their 2009 income taxes to receive a refund. These funds may be used for certain down payment and closing cost expenses.
Under the guidelines announced by HUD, nonprofits and FHA-approved lenders will be allowed to give homebuyers short-term loans of up to $8,000.
The guidelines also allow government agencies, such as state housing finance agencies, to facilitate home sales by providing longer term loans secured by second mortgages.
Housing finance agencies and other government entities may also issue tax credit loans, which homebuyers may use to satisfy the FHA 3.5 percent down payment requirement.
In addition, approved FHA lenders will also be able to purchase a homebuyer's anticipated tax credit to pay closing costs and down payment costs above the 3.5 percent down payment that is required for FHA-insured homes.
Q: If I'm qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return? Yes. The law allows you to choose to treat qualified home purchases in 2009 as if the purchase occurred on Dec. 31, 2008. This means that the 2008 income limit applies and the election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns).
If you want to do this but have already filed your 2008 return, you may file an amended 2008 return claiming the tax credit. Consult with a tax professional.
For more information email Edwin mailto:mail@609sold.com
or visit http://www.edwingerace.com/homebuyerseminar
Follow the Home Buyer Semina on Twitter at www.twitter.com/FREEHomeSeminar
Showing posts with label Changes in Home Buying. Show all posts
Showing posts with label Changes in Home Buying. Show all posts
Monday, August 10, 2009
Friday, May 29, 2009
NOTES ABOUT MORTGAGES IN TODAY'S ENVIROMENT by Edwin Gerace and Kip Murphy
NOTES AND CONVERSATION ABOUT MORTGAGES IN TODAY'S ENVIROMENT.
(June 1,2009)
What are the largest changes that face the Home Buying process?
One of the biggest changes for buyers looking for a conventional mortgage in today’s market is the importance of their credit score. Just two years ago it was an all or nothing system. If you were approved for a conventional loan you got the same rate whether your credit score was 620 or 740. Now the difference in rate for these two buyers would be more than a point or cost the 620 buyer 3 discount points to get the same rate as the 740 buyer. Also, buyers with less than a 660 credit score no longer qualify for mortgage insurance, requiring them to be able to put down 20%. This is the primary reason FHA loans are becoming more popular. If a borrower qualifies, there is no minimum credit score and everyone gets the same interest rate. The FHA loan limit for most of SC, including the Columbia Metro Area, is $271,050; so buyers needing a larger loan need to do their homework upfront and make sure there are no errors on their credit report which could be impacting their score.
What are interest rates going to do in the future?
It is always dangerous to try and predict which way interest rates will go, but generally they will increase as the economy improves. Most people think the FED sets mortgage rates and expect rates to go up and down based on FED policy. This is not true. Rates are impacted by the FED’s action, but are actually determined by the bond market. Generally speaking, if the stock market is improving, investors shift money from the bond market to stocks. This requires bond sellers (Fannie Mae & Freddie Mac) to offer higher yields to sell their bonds which they must then pass on to the end consumer in the form of higher rates. So to answer your question, if the economy has really started to turn the corner, we can expect rates to rise as well.
When is a good time to refinance your home?
Assuming that the only reason a borrower is considering refinancing is to lower their rate, there is a pretty simple calculation to determine whether it is a good time or not. The first question is always “how long do you intend to keep the property?” Once you determine this, you simply divide the cost of the new loan by the monthly payment savings to establish the break even period. If this is a shorter time frame than how much longer they intend to own the property it is probably a good financial decision. An example would be someone with a $200,000 mortgage thinking about refinancing from a 6% rate to a 5% rate. The monthly savings would be approximately $125 month and the closing costs without points would be around $2500. This borrower would break even in only 20 months, so most borrowers would benefit from this refinance. It can be a little harder to determine if the borrower wants to pay off other debts, include renovations, or drastically reduce or increase the pay off time of their current loan. Most mortgage professionals will be happy to assist someone with the decision without any charges.
Has the loan approval process over last 90 to 120 days on loans changed?
The process is definitely taking longer and more documentation is being required than at any time in the last ten years. Borrowers need to be prepared for this upfront and realize the importance of getting the process started as early as possible if they are trying to achieve a specific closing date. The reason it is taking longer is two fold. As the mortgage industry was shaken to its core over 2007 and 2008, many lenders began to lay off thousands of support personnel or failed all together. By the end of 2008 there were approximately 60% fewer lenders and workers in the mortgage industry. At this time mortgage rates fell to their all time lows, creating a rush of business. This coupled with legislation giving first time buyers tax credits and an improving economy left lenders overwhelmed with business. Still reeling from losses the last two years and leery of the duration this business surge would last, most lenders decided not to bring on more employees due to training times and costs. The new requirements in credit policy also added to delays. The more documentation that is required, the longer it takes to be reviewed in underwriting. Fewer people, more business, and more documentation requirements caused some loans to take 60 days or more to get approved. The good news is that most lenders have now increased staffing and improved efficiencies so that most purchase loans can be closed in 30 days. You should still expect 45 to 60 days on refinances, but this should improve too if rates continue to rise.
Are there any True 100% financing programs out there?
In general there are no longer any 100% loans available. A few exceptions are Rural Housing and VA loans, but these loans are only available on certain properties or for military personnel. FHA has the lowest down payment requirement of the non-income restricted loans at 3.5% and can be used by qualified borrowers up to $271,050 in most of South Carolina. Borrowers should also do their homework on any available down payment assistance programs. Most of these are available to first time borrowers at or below the median income and work well in conjunction with FHA loans. Another good option for buyers needing 100% financing is to consider buying a HUD foreclosure. These can be purchased with $100 down using a FHA loan.
What are the top 2-4 factors that effect buyers buying/ credit score numbers?
Credit scoring is very tricky to predict for even the most seasoned loan officer, much less the general consumer, but there are a few things buyers should know. Revolving credit balances should be below 50% of the limit and preferably below 30% of the limit. Judgments and collections do hurt a credit score, ironically though, if they are over two years old it may be better to leave them alone unless it is required for loan approval. Inquiries do not have near the impact most people think as long as they are not excessive. One thing most people don’t realize is that borrowing from finance companies actually hurts your credit score even if you make your payments on time. Finally, anytime you open a new loan your score will go down until you establish a payment history. So if you are thinking about getting a mortgage it is advisable to hold off on getting any other new credit.
This is some great information put together in Partnership with Kip Murphy with Bank of Amercia and Edwin Gerace of Russell and Jeffcoat.
Kip Murphy is a loan officer with Bank of America Home Loans with over 10 years of experience in the Columbia market. He has helped 100’s of buyers over this time. At Bank of America he has the tools, products and support to help anyone from first time buyers to someone needing a jumbo construction loan. Give him a call or email him today if you need any information about getting a mortgage loan. He can help with purchases or refinances in 48 of the 50 states.
Kip Murphy , Loan Officer, Bank Of America Home Loans, O: 803-216-7488, C: 803-920-3470,
F: 866-429-1636, E: Robert.K.Murphy@Bankofamerica.com
Edwin Gerace is a realtor with Russell and Jeffcoat Realtors with over 10 years of expierence in the Columbia market. He has help buyers,sellers and builders over the years reach thier real estate desires. Feel free to call or email him about real estate. Visit him on othe web at http://www.edwingerace.com/ or visit his blog at http://www.edwingeracesrealestateblog.com/ . Contact him at 803-609-7653 cause with Ed You Win.
(June 1,2009)
What are the largest changes that face the Home Buying process?
One of the biggest changes for buyers looking for a conventional mortgage in today’s market is the importance of their credit score. Just two years ago it was an all or nothing system. If you were approved for a conventional loan you got the same rate whether your credit score was 620 or 740. Now the difference in rate for these two buyers would be more than a point or cost the 620 buyer 3 discount points to get the same rate as the 740 buyer. Also, buyers with less than a 660 credit score no longer qualify for mortgage insurance, requiring them to be able to put down 20%. This is the primary reason FHA loans are becoming more popular. If a borrower qualifies, there is no minimum credit score and everyone gets the same interest rate. The FHA loan limit for most of SC, including the Columbia Metro Area, is $271,050; so buyers needing a larger loan need to do their homework upfront and make sure there are no errors on their credit report which could be impacting their score.
What are interest rates going to do in the future?
It is always dangerous to try and predict which way interest rates will go, but generally they will increase as the economy improves. Most people think the FED sets mortgage rates and expect rates to go up and down based on FED policy. This is not true. Rates are impacted by the FED’s action, but are actually determined by the bond market. Generally speaking, if the stock market is improving, investors shift money from the bond market to stocks. This requires bond sellers (Fannie Mae & Freddie Mac) to offer higher yields to sell their bonds which they must then pass on to the end consumer in the form of higher rates. So to answer your question, if the economy has really started to turn the corner, we can expect rates to rise as well.
When is a good time to refinance your home?
Assuming that the only reason a borrower is considering refinancing is to lower their rate, there is a pretty simple calculation to determine whether it is a good time or not. The first question is always “how long do you intend to keep the property?” Once you determine this, you simply divide the cost of the new loan by the monthly payment savings to establish the break even period. If this is a shorter time frame than how much longer they intend to own the property it is probably a good financial decision. An example would be someone with a $200,000 mortgage thinking about refinancing from a 6% rate to a 5% rate. The monthly savings would be approximately $125 month and the closing costs without points would be around $2500. This borrower would break even in only 20 months, so most borrowers would benefit from this refinance. It can be a little harder to determine if the borrower wants to pay off other debts, include renovations, or drastically reduce or increase the pay off time of their current loan. Most mortgage professionals will be happy to assist someone with the decision without any charges.
Has the loan approval process over last 90 to 120 days on loans changed?
The process is definitely taking longer and more documentation is being required than at any time in the last ten years. Borrowers need to be prepared for this upfront and realize the importance of getting the process started as early as possible if they are trying to achieve a specific closing date. The reason it is taking longer is two fold. As the mortgage industry was shaken to its core over 2007 and 2008, many lenders began to lay off thousands of support personnel or failed all together. By the end of 2008 there were approximately 60% fewer lenders and workers in the mortgage industry. At this time mortgage rates fell to their all time lows, creating a rush of business. This coupled with legislation giving first time buyers tax credits and an improving economy left lenders overwhelmed with business. Still reeling from losses the last two years and leery of the duration this business surge would last, most lenders decided not to bring on more employees due to training times and costs. The new requirements in credit policy also added to delays. The more documentation that is required, the longer it takes to be reviewed in underwriting. Fewer people, more business, and more documentation requirements caused some loans to take 60 days or more to get approved. The good news is that most lenders have now increased staffing and improved efficiencies so that most purchase loans can be closed in 30 days. You should still expect 45 to 60 days on refinances, but this should improve too if rates continue to rise.
Are there any True 100% financing programs out there?
In general there are no longer any 100% loans available. A few exceptions are Rural Housing and VA loans, but these loans are only available on certain properties or for military personnel. FHA has the lowest down payment requirement of the non-income restricted loans at 3.5% and can be used by qualified borrowers up to $271,050 in most of South Carolina. Borrowers should also do their homework on any available down payment assistance programs. Most of these are available to first time borrowers at or below the median income and work well in conjunction with FHA loans. Another good option for buyers needing 100% financing is to consider buying a HUD foreclosure. These can be purchased with $100 down using a FHA loan.
What are the top 2-4 factors that effect buyers buying/ credit score numbers?
Credit scoring is very tricky to predict for even the most seasoned loan officer, much less the general consumer, but there are a few things buyers should know. Revolving credit balances should be below 50% of the limit and preferably below 30% of the limit. Judgments and collections do hurt a credit score, ironically though, if they are over two years old it may be better to leave them alone unless it is required for loan approval. Inquiries do not have near the impact most people think as long as they are not excessive. One thing most people don’t realize is that borrowing from finance companies actually hurts your credit score even if you make your payments on time. Finally, anytime you open a new loan your score will go down until you establish a payment history. So if you are thinking about getting a mortgage it is advisable to hold off on getting any other new credit.
This is some great information put together in Partnership with Kip Murphy with Bank of Amercia and Edwin Gerace of Russell and Jeffcoat.
Kip Murphy is a loan officer with Bank of America Home Loans with over 10 years of experience in the Columbia market. He has helped 100’s of buyers over this time. At Bank of America he has the tools, products and support to help anyone from first time buyers to someone needing a jumbo construction loan. Give him a call or email him today if you need any information about getting a mortgage loan. He can help with purchases or refinances in 48 of the 50 states.
Kip Murphy , Loan Officer, Bank Of America Home Loans, O: 803-216-7488, C: 803-920-3470,
F: 866-429-1636, E: Robert.K.Murphy@Bankofamerica.com
Edwin Gerace is a realtor with Russell and Jeffcoat Realtors with over 10 years of expierence in the Columbia market. He has help buyers,sellers and builders over the years reach thier real estate desires. Feel free to call or email him about real estate. Visit him on othe web at http://www.edwingerace.com/ or visit his blog at http://www.edwingeracesrealestateblog.com/ . Contact him at 803-609-7653 cause with Ed You Win.
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About Me
- Lexington Real Estate with Edwin Gerace
- Lexington, SC, United States
- Edwin Gerace is Realtor with Holiday Builders in Lexington South Carolina. Edwin specializes in New Construction and 1st Time Home Buyers. Edwin is very active in Lexington South Carolina and is knowledgeable about the surroundings. Edwin is very active in his profession and community such as: On active committees with the Columbia Home Builders, active and on committees with Lexington Chamber of Commerce, Town of Lexington Performing Arts Center, Green Building Council of HBA, LORADAC, State Association of Realtors on State and Local Level, and many other community oriented service groups.
