First Time Home Buyer Tax Credit Extended
First Time Home Buyer Tax Credit Extended Into 2010 Fot Utah Buyers!
Plus... A New Tax Credit for Certain Existing Salt Lake City Home Owners!
It's official. President Obama has signed a bill that extends the tax credit for first-time homebuyers (FTHBs) into the first half of 2010. This program had been scheduled to expire on November 30, 2009.
In addition to extending the tax credit of up to $8,000 through June 30, 2010, the extension measure also opens up opportunities for others who are not buying a home for the first time.
So Who Gets What?
The program that has existed for FTHBs remains intact for salt lake city home purchasers with the one exception that more people are now eligible based on an increase in the amount of income someone may now earn.
Additionally, the program now gives those who already own a Salt Lake City residence some additional reasons to move to a new home. This incentive comes in the form of a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.
Deadlines
In order to qualify for the credit, all contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010.
Higher Income Caps in Effect
The amount of income someone can earn and qualify for the full amount of the credit has been increased.
Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, single filers who earn $145,000 and above are ineligible.
Joint filers who earn up to $225,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, joint filers who earn $245,000 and above are ineligible.
Maximum Purchase Price
Qualifying buyers may purchase a property with a maximum sales price of $800,000.
First-Time Homebuyer Tax Credit – Frequently Asked Questions
Here are answers to some commonly asked questions about the tax credit.
What is a tax credit?
A tax credit is a direct reduction in tax liability owed by an individual to the Internal Revenue Service (IRS). In the event no taxes are owed, the IRS will issue a check for the amount of the tax credit an individual is owed. Unlike the tax credit that existed in 2008, this credit does not require repayment unless the home, at any time in the first 36 months of ownership, is no longer an individual's primary residence.
What is the tax credit for first-time homebuyers (FTHBs)?
An eligible homebuyer may request from the IRS a tax credit of up to $8,000 or 10% of the purchase price for a home. If the amount of the home purchased is $75,000, the maximum amount the credit can be is $7,500. If the amount of the home purchased is $100,000, the amount of the credit may not exceed $8,000.
Who is eligible for the FTHB tax credit?
Anyone who has not owned a primary residence in the previous 36 months, prior to closing and the transfer of title, is eligible. This applies both to single taxpayers and married couples. In the case where there is a married couple, if either spouse has owned a primary residence in the last 36 months, neither would qualify. In the case where an individual has owned property that has not been a primary residence, such as a second home or investment property, that individual would be eligible.
As mentioned above, the tax credit has been expanded so that existing homeowners who have owned and occupied a primary residence for a period of five consecutive years during the last eight years are now eligible for a tax credit of up to $6,500.
How do I claim the credit?
For those taking advantage of the tax credit in 2009, you may choose to either apply for the credit with your 2009 tax return or you may apply for the credit sooner by filing an amended 2008 tax return with Form 5405 (http://www.irs.gov/pub/irs-pdf/f5405.pdf).
Can you claim the tax credit in advance of purchasing a property?
No. The IRS has recently begun prosecuting people who have claimed credits where a purchase had not taken place.
Can a taxpayer claim a credit if the property is purchased from a seller with seller financing and the seller retains title to the property?
Yes. In situations where the buyer purchases the property, even though the seller retains legal title, the taxpayer may file for the credit. Examples of this would include a land contract, contract for deed, etc. According to the IRS, factors that would demonstrate the ownership of the property would include: 1. the right of possession, 2. the right to obtain legal title upon full payment of the purchase price, 3. the right to construct improvements, 4. the obligation to pay property taxes, 5. the risk of loss, 6. the responsibility to insure the property and 7. the duty to maintain the property.
Are there other restrictions to taking the credit?
Yes. According to the IRS, if any of the following describe your situation, a credit would not be due.
- You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.
- You do not use the home as your principal residence.
- You sell your home before the end of the year.
- You are a nonresident alien.
- You are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year. (This does not apply for a home purchased in 2009.)
- Your home financing comes from tax-exempt mortgage revenue bonds. (This does not apply for a home purchased in 2009.)
- You owned a principal residence at any time during the three years prior to the date of purchase of your new home. For example, if you bought a home on July 1, 2009, you cannot take the credit for that home if you owned, or had an ownership interest in, another principal residence at any time from July 2, 2006, through July 1, 2009.
Can you buy a home from a step-relative and be eligible for the credit?
Yes. Provided the person you are buying a home from is not a direct blood relative, the purchase would be allowed.
Can parent(s) who will not live in the property cosign for a mortgage for their child and the child that is a qualifying FTHB still be eligible for the credit?
Yes.
Can a separated spouse who has not owned a home for four years qualify for the FTHB tax credit if the spouse has owned a property anytime in the last three years?
No. However, the spouse may be eligible for the repeat buyer credit. The best path to take in any situation regarding income taxes is to speak with a professional tax preparer or CPA.
Fixer Uppers made easy
If you've been passing up on buying a home in utah because of the expense of anticipated cosmetic repairs, you're missing out on a great opportunity. Sure, it used to be that if you bought a home in utah and then applied for a home equity loan to pay for repairs, the result would be two separate loans (or worse, a mortgage plus a short-term loan for repairs that often had a much higher interest rate). This is not the case anymore if you qualify for an FHA Streamlined 203(k) loan.
The Department of Housing and Urban Development's FHA Streamlined 203(k) loan allows qualifying home buyers to finance up to an additional $35,000 into their mortgage to improve or upgrade their home before move-in. With this product, home buyers can quickly and easily tap into cash to pay for property repairs or improvements, such as those identified by a home inspector or FHA appraiser. And the best part is, the additional funds are combined into your mortgage, so you only have to worry about one loan.
There are, of course, rules and guidelines we have to follow, and not every repair qualifies. But if you or anyone you know are interested in taking advantage of this great opportunity, give us a call, and we'll gladly provide you more information about this valuable program.
New FHA Condo Guidelines and what they mean to Condo Owners
In the last couple of months HUD has passed some new condo guidelies with Mortgagee Letter 09-19.
In the past all a condominium complex had to do was get approved with HUD once and they would be approved forever. Or they could allow their owners to obtain an FHA loan using the FHA Condo Spot Loan Approval Process, which approves a single loan in the complex.
FHA Spot Loan Approvals are gone.
After October 1st 2009 all previously approved Conominium projects will have to reapply to get onto the HUD Approval List.
This will be a nightmare for anyone owning and seling a condo unit. The only two people who can apply for condominium approval is a builder and a lender. So the owner of the condo is going to have to find a buyer, then wait 30- 90 days for that buyers mortgage company to get the condominium complex re-approved through HUD.
If you, or anyone you know would like to purchase a condo, please give me a call and let someone who knows what is going on help you get your complex on the HUD approval list.
Anthony VanDyke
Is the FTHB Tax Credit Stealing From Future Demand?
I thought it was pretty interesting.
Editorial Disclaimer: The opinions and views expressed here are those of the contributing authors and do not necessarily reflect those of the publisher, editor or the editorial staff of Mortgage News Daily.
Is the FTHB Tax Credit Stealing From Future Demand?
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WASHINGTON, Aug 28 (Reuters) - Low interest rates and tax breaks are giving the U.S. housing sector a jolt but, like the "cash-for-clunkers" program spurring car sales, the recent spurt in home sales is taking an advance on tomorrow's demand. Thanks to Washington, 2009 has become a tempting year to purchase a home.
First-time buyers may receive an $8,000 tax credit and mortgage rates are invitingly low as the Federal Reserve fulfills its promise to buy nearly $1.45 trillion in mortgage-related securities this year. The real estate industry is lobbying Congress to extend the tax credit beyond its planned November expiration. But there are concerns the program's benefits may be short-lived, uneven and could undercut future sales. For observers like Mark Calabria of the libertarian Cato Institute, the sector is wrongly borrowing from tomorrow's market and the tax credit and other stimulus could prevent an orderly recovery. He sees a risk regional and local housing markets that have not touched bottom will be artificially inflated, while borrowers lured by government stimulus could rush into still-sinking markets.
"This manipulation is going to be disruptive in different ways for different markets," he said.
BORROWING FROM THE FUTURE
Since the tax credit was enacted in February, sales of new homes have climbed for five straight months and sales of previously owned homes have hit two-year highs.
"If you have been saving your pennies and paying your bills, there probably is no better time to buy than right now," said Brian Montgomery, former head of the Federal Housing Administration, which aims to provide affordable home loans.
Some realtors warn the housing sector is eating its seed corn with the help of government incentives and many of today's home buyers will be badly missed in the future.
"It's an offer that has people deciding to make a home purchase sooner rather than later," said Pam Jones, who sells property in Northern Virginia, of the tax credit.
Jones is a 26-year veteran of the suburban Washington real estate market, which soared when easy-to-get, subprime loans were fueling the U.S. market. Now, three out of every four homes that Jones sells are funded by the FHA and some warn that the government is taking on too much risk as it tries to stabilize the market. There are also worries consumers are getting hooked on government subsidies and may stop spending without them.
PENT UP DEMAND
As investors have cooled to risky mortgage investments, the FHA has seen its market share increase. It expects to handle three million applications this year, about 50 percent more than in 2008.
Former FHA chief Montgomery, now a financial services advisor with the Collingwood Group, says the 3.5 percent downpayment his one-time agency still requires is prudent, although he would support increasing it.
He also defends the government's housing stimulus policies. "Is tomorrow going to be a sunnier day? Nobody knows. Does a recovery come in 2011, 2012, 2013?" he said.
James Lockhart, the outgoing regulator for mortgage finance companies Fannie Mae and Freddie Mac, said officials must be careful not to over stimulate today's market. But he said there is plenty of pent-up demand to go around.
"There are two years worth of people who were waiting on the sideline because of fear of falling house prices who are now ready to buy," he said.
Easy credit fueled a five-year housing boom that crashed in 2006, leading to record foreclosures and damaging the credit of millions of consumers.
"There are people with lots of scars and the theory that housing prices always rise has been destroyed," said Lockhart, who will soon become vice chairman of a distressed investment group at Invesco Ltd. But the housing sector "is bumping around the bottom" and government efforts are helping stabilize the market, he said.
A few thoughts for discussion...
What if the government had decided not to provide a subsidy to the housing market? Would we be seeing the so called stabilization in housing? Would the macroeconomy still be "leveling off", as the Federal Reserve puts it. Wasn't borrowing from the future a necessity to save the "here and now"?
"Better than expected" perspectives aside, even with record low mortgage rates and an $8,000 FTHB tax credit, activity in the housing market isn't all that exciting. In my experiences and conversations with mortgage market participants, the times are still pretty tough. Making matters worse is the macroeconomic outlook. The frailness of our labor market does not give me a warm and fuzzy feeling about the health of the consumer. I hear some economists talking about a nonconsumer led recovery, but I have yet to hear how growth will resume once cost cutting and inventory liquidation run their course on domestic output statistics. The reality is the labor market is still incredibly weak....that does not bode well for housing. Less people working equals less people who are eligible to buy a home.
Lets put economic outlooks aside for a moment and focus on a few mortgage industry specifics. Just a few qualms, I won't go nuts.
Qualifying for "record low" rates is not exactly an easy task. The evaporation of consumer credit has resulted in falling FICO scores, pushing many a prospective home buyer (and refinancer) into higher rates as loan level price adjustments are tacked onto mortgage pricing. Above and beyond deteriorating borrower credit metrics, to receive an Approve/Eligible from Fannie/Freddie, borrowers must get passed nervously overtightened lending guidelines. I know underwriting standards got way too relaxed in the subprime era, but come on...regs have gotten rediculous over the past two years. I'd be happy with a return to common sense underwriting. What ever happened to compensating factors?
Then there is the broadly BOOOOOED Home Valuation Code of Conduct. Anyone whose dealt with HVCC will tell you it can be a deal killer. Before anyone takes offense, I am not putting the blame on any specific housing professional, so dont get all upset appraisers. All I am saying is HVCC has not had a positive effect on the loan process. It's done nothing but muddle valuations and block an originator's ability to question whether or not an assesement is remotely rational. Yes, I am willing to concede that in the past, perhaps some appraisers and originators did not respect proper barriers which may have contributed to the overall downfall of the housing market. However, just as lending guidelines have gone too far, so has HVCC. I feel for brokers mostly...those poor souls must deal with AMCs, whereas direct lenders can at least assemble a list of competent, fully paid appraisers.
Instead of asking if we are stealing from future demand, maybe the better question is will there be any future demand? If you agree with ex-FHFA regulator James Lockhart's outlook..will that demand even be able qualify for a mortgage?
There are bigger problems than the expiration of the $8,000 tax credit. Maybe those issues should be addressed too.
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Article by: Winston Smith |
The Worst of Times is the Best of Times
The Worst of Times is the Best of Times: How Today is the Best Time to Buy a Home
Today’s home buying market is the hardest it’s been in years. Mortgage loan programs have dried up; No-down-payment programs, 80/20 loans, and mycommunity 100% loans are all things of the past. Down payment requirements have skyrocketed to 10%, meaning a $200,000 home now requires a $20,000 down payment. And credit scores are more important than ever; the days of easy credit are gone.
But to paraphrase Dickens, if now’s the worst of times it’s also in many ways the best of times: with record low interest rates, plummeting house prices, and even government $8,000 incentives for first time buyers, now may actually be the best time ever for buying your first home!
Also, though conventional loans have disappeared, there are still lots of other loan programs available for your down payment! These include: USDA loans, Utah Housing Corporation Loans (for low-to-moderate income housebuyers), the VA loan, (for veterans and surviving spouses who do not remarry), and loans available throughout rural Utah, including: Saratoga springs, Eagle Mountain, Tooele, and most of Utah (with the exception of Salt Lake, Davis, and Weber counties, and parts of Washington and Cache counties). Basically, if you’re low-to-mid income, a vet, or looking to live rural, there are tons of options available for loans!
More good news is that FHA loans have hardly budged at all, increasing from only 3% to 3.5%—as opposed to the 10% down payments required of conventional loans, saving you thousands of dollars. FHA loans also have lower credit score requirements, making them more attractive in today’s economy.
Making loans even easier, the FHA also allows the down payment money to come from multiple different sources.
For instance, did you know that for an FHA home, a secured loan is an acceptable source for a down payment? For example, your car could be a source of down payment money: place a secured loan on your car—or truck—or boat—basically, any large asset item, and you could use that loan money as your FHA down payment.
Tax refunds, 401ks, even selling a few assets—say, a computer or xbox—could all be acceptable sources for down payment money in an FHA loan, sources you couldn’t get away with in other, more conventional loans. Basically, almost any way you can come up with the money for a down payment is allowed under an FHA!
Other acceptable sources for an FHA down-payment include:
Tax Refund
Inheritance
Loan from 401k or other retirement savings account
Employer assistance plans (an employer may pay part or all of the required down payment)
Real estate agent’s commission
A gift from a family member, relative, close friend, or domestic partner
Gift of Equity (Relatives may provide equity credit as a gift on a property being sold to other family members)
Gambling or Lottery Winnings (must be documented)
Lawsuit or insurance settlement
Rent Credit
Sweat Equity
$100 Dollar Down Payment? Believe It!
Believe it or not, The Department of Housing and Urban Development, or HUD, offers an FHA loan that only requires $100 down payment. The loan is a standard FHA 30 year fixed rate loan, only you do not have to fork out 3.5% of the purchase price in order to buy a house.
In layman’s terms, instead of paying a $3,500 down-payment for a $100,000 house, you only pay $100. The house just has to be a HUD-home, that is, a house that had an FHA loan taken out on it that foreclosed.
In the past, HUD-homes had been few and far between, and in such poor shape that you’d barely want to sleep in one. But due to the housing meltdown, dozens of high quality homes are becoming available though HUD each week! Many of these HUD-homes are large houses in good neighborhoods, some even in the $200,000+ range. To only pay a $100 down-payment for a $200,000 home is nothing to sneeze at!
The loan even allows for the purchaser to finance repairs into the loan, something standard FHA loans do not allow. For example, if the roof needs $5,000 of repairs, than the $200,000 house can be refinanced for $205,000, and the down payment will still only be $100!
The loan is available to anyone who qualifies for an FHA loan, and as long as the new house is a primary residence, not a second home. And who qualifies for an FHA loan? Lenders generally look for borrowers who have sufficient income to repay the loan, as well as a satisfactory credit history. Today lenders usually require a 620 credit score for an FHA loan, but someone who does not use credit and has no scores likewise still qualifies.
Outstanding collections normally do not have to be paid off; most of the time, Court Judgments are required to be paid off, unless you have entered into a payment plan, and have made on time payments for the last 12 months.
To view HUD homes available for purchase, visit www.hud.gov, or, for
To purchase a HUD home, place an electronic bid with a HUD registered Real Estate Broker. Both of the above websites have links to lists of local HUD Registered Real Estate Brokers.
If you are the winning bidder, you do still need to have at least $1,000 earnests money check available for your Real Estate Broker. This money will eventually be applied to your $100 down payment, any closing costs you may own. In many cases, the remaining money is simply refunded back to you at closing.
If you’ve been wanting to take advantage of these historic low interest rates, low home prices, and $8,000 government stimulus money but have been held back due to lack of on-hand down payment money, then this may be the right loan for you. To find out more about this loan program, HUD homes, and to see if you qualify, Give me a call at 801-505-4641.
How Much Can You Borrow? How Much SHOULD You Borrow?
How Much Money CAN You Borrow?
How Much Money SHOULD You Borrow?
It may be tempting to borrow whatever amount of money you are qualified for, it's important to think carefully about how much you'll actually need to borrow in order to purchase a new home. From the down payment to taxes to insurance and interest rates, there are many factors to consider when making this important decision.
Contrary to popular sentiment, there is no standard formula for accurately calculating the specific dollar amount you
should borrow when purchasing a new home. Many websites do offer special borrower calculators that claim to factor in important variables, and yet final results vary vastly from one site to the next. Other websites offer general rules of thumb, suggesting that you should never borrow more than 2 1/2 to 3 times your gross annual income, or that 28%, 32%, or even 40% is the maximum amount of debt you should ever take on.And, while these insights may be helpful as you begin thinking about the overall borrowing process, meeting with a reputable loan professional and getting yourself pre-approved (not pre-qualified) is really the only way to know the exact amount of money you can and should borrow. By getting pre-approved, you not only increase the chance of finding the perfect house for your needs, you also become a "cash buyer", instantly increasing your bargaining power.
As a mortgage professional, I see my role differently than a traditional loan officer. While my job is to match you with the best mortgage available for your specific needs, I feel that it's also my duty to make sure it's the most responsible product as well. After all, what if something unforeseen or unexpected were to occur? What if you have an accident or you lose your job?
Whether you choose to work with me or not, be aware. A lender will often offer you the maximum amount of money that you qualify for, whether you actually need the full amount or not. Because of this, it's vital to sit down with a professional you can trust to figure out your complete financial picture.
If you or someone you know could benefit from this type of free consultation, give me a call. I would be happy to assist you!
The Affect On Rates For Those Who Wait
Everyone Wants a Lower Price, But What About the Impact of Interest Rates?
When shopping for a home, the natural tendency of any buyer is to want to pay the lowest price possible. It's important to keep in mind, however, that the sales price is not the only factor that determines what the monthly payment will be. In fact, the impact of higher interest rates can easily nullify any benefit of waiting for a lower price.Why Should I Rush to Buy?
While you may have heard discussions in the media about the decline of property values in many markets, the rate of decline appears to be stabilizing.
That being said, it would not be unreasonable for buyers to want to hold out for an additional decline of 10%, hoping to capture the best possible price. However, as property values have declined in many areas to 2003 levels or lower, waiting longer to pull the trigger could be a mistake. Many markets are reporting that lower property values have been bringing out investors and the result has been multiple offers on many properties. Properties priced correctly are not declining and, in fact, are creating a lot of interest.
Interest Rate Complacency
The problem is that many home buyers have been lulled into a sense of complacency because of extremely low interest rates. Since the Federal Reserve initiated its program of buying mortgage-backed securities, which control the rates people pay for their home loans, rates had been range bound, bouncing between 4.50% to 5.00% for a 30-year fixed-rate loan.
But buyers shouldn't be confused by this. These rates are artificially low! Historically, interest rates have been above 6.00%. And any rate obtained below this number is a great deal, especially on homes with price tags from 2003!
Markets are Unforgiving
The last two weeks of May showed just how unforgiving the markets can be for people who choose to procrastinate. In just five days, interest rates from many lenders increased anywhere from .50% to 1.00% as fixed-income investors demanded more for their money.
For anyone who was waiting for prices to drop even more, a 1.00% increase in interest rate would bring a higher monthly principal and interest payment on a home, even if the price of that same home had fallen an additional 10% in value.
If your clients are waiting for prices to fall even lower, be aware that while holding out for a lower price may help them win the battle, they could lose the war in terms of monthly payments and overall affordability. With the Federal Reserve scheduled to end its buying of mortgage-backed securities this year, rates only stand to go higher for those that wait. In fact, interest rates are already on the rise and could go higher from here.
Clock is Ticking on Free Money
If you have clients who are planning on purchasing their first home this year, be sure to let them know that they need to take possession before 12/01/2009 to be eligible for a tax credit of up to $8,000. In a survey conducted in March by Move.com, nearly 50% of home buyers are currently unaware that this free money exists in the marketplace. And since over 50% of all buyers are first-timers in today's market, this could impact a lot of your clients.
If you have questions about this update, give us a call. I can show you how waiting for the lowest price could really cost your clients more in the long run.
FHA Energy Efficient Mortgage (EEM) Updates for Utah
FHA Energy Efficient Mortgage (EEM) Updates for
HUD has just released a new mortgagee letter raising the amount of money available to finance energy efficient home improvements.
An FHA Energy Efficient Mortgage (EEM) is a loan available through FHA that allows you to finance home improvements, appliances, HVAC furnaces and central air, windows, weather stripping, upgraded insulation, and various other items which will lower your overall usage of energy.
FHA Energy Efficient Mortgages used to be limited to a maximum of the lower of $8,000 or 5% of the property’s value to go towards energy efficient home improvements. In accordance with Section 2123 of the Housing Economic Recovery Act of 2008 (HERA) this has changed, the new maximum amount of money for energy improvements no longer has the $8,000 cap and is now calculated using the lesser of 5% of:
· the value of the property, or
· 115% of the median area price of a single family dwelling, or
· 150% of the conforming Freddie Mac limit.
In the State of
· FHA Purchase loans
· FHA Refinance Loans
· FHA Streamline Loans
How an FHA Energy Efficient Mortgage saves you money:
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Regular Home |
Energy Efficient Home |
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Purchase Price |
$200,000 |
$200,000 |
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Down Payment |
$7,000 |
$7,000 |
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Financed Energy Saving Improvements |
$0.00 |
$10,000 |
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Total Loan Amount |
$196,377 |
$206,552 |
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Interest Rate |
6% Rate 6.34% APR |
6% Rate 6.37% APR |
|
Principle and Interest Payment |
$1,177.38 |
$1,238.38 |
|
Average Utility Bill |
$242 |
$127 |
|
Total Housing Expense |
$1,419.38 |
$1,365.38 |
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Income needed to qualify |
$3,800 |
$3,500 |
|
Monthly Savings |
|
$54.00 |
|
Yearly Savings |
|
$648 |
|
|
|
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Besides financial benefits Energy Efficient Mortgages are also good for the environment. By limiting the amount of energy you use you will de doing your part in cutting down on greenhouse gas.
In order to obtain an EEM the home must have a home energy rater conduct a HERS (Home Energy Rating System) test to verify that the energy improvements would be cost effective.
Once you have decided what energy saving improvements you would like to make we will obtain bids from licensed and insured contractors. We will then turn in the HERS test and the bids to the underwriter and close the loan. The money for the improvements will be placed in a special escrow account and will be paid to the contractor when the work has been completed and inspected.
From beginning to end Energy Efficient Mortgages take no longer than doing a regular FHA mortgage. There is a bit more paperwork involved because we must obtain a HERS test and contractor bids. But other than that it is no different than a regular FHA loan.
If you would like to learn more about FHA Energy Efficient Mortgages or obtaining a HERS rating please feel free to contact me.
