June 2009

Clearing Up Some Mis-conceptions About the $8,000.00 Tax Credit

Ever since the government announced it, there’s been lots of talk, and plenty of excitement, surrounding the $8,000 federal tax credit for new homebuyers.  Think you know everything about it?  Think again…

With all of the information out there, there’s also been some mis-information floating about as well, and we aim to set the record straight.  It doesn’t matter if you’re buying or if you’re selling, because the new tax credit can help you either way.  This is info you need to know.

Let’s start off with the amount: $8,000.00

Now, that’s not $8,000.00 per person.  That’s $8,000.00 per transaction.  Single? $8,000.00.  Married? $8,000.00.  Married, but filing your taxes separately?  You get $4,000.00 apiece, for a maximum of… you guessed it, $8000.00.

Another misconception: every first time home buyer will get that $8,000.00.  Not true.  If you’re single, and your income is more than $75,000.00 a year, or if you’re married and filing jointly with an income of more than $150,000.00, you will get less than the maximum.  The more you make, the less credit you get.

And say you actually managed to find a house somewhere for $8,000.00, would you get it for free?  Nope.  If you buy a house that costs less than $80,000.00, you get 10% of the purchase price.  So, if you buy a home for $50,000.00 you’d get a credit of $5,000.00.

Here’s another mistake folks are making: you may have heard the government say the tax credit is good on homes purchased between January 1st and December 1st, 2009.  That’s true, but pay attention to the wording.  It doesn’t say through December 1st, but between January 1st and December 1st, which means if you close on that house on the first of December, you’ll be too late.  To get the credit you’ll have to settle by November 30th, 2009.

Finally, some people say you’ll have to wait to get the $8,000.00 tax credit, because you either have to file your taxes next year, or file an amended return this year, then wait for the check.  For right now, that’s true, but it could literally change at any minute!

Recently, the Obama administration announced that soon, it will allow qualified buyers to get the $8000 up front, at the settlement table for FHA and certain other loans.  When that happens, those buyers will be able to use the $8000 for closing costs and their down payment.

It just hasn’t become law yet.  Soon, but not yet.

So, please check back with us here at Taylor’d 2 U Realty regularly.  We will be sure to let you know officially when this happens!

HUD: Tax Credit Can Be Used On Closing Costs

FHA-approved lenders received the go-ahead to develop bridge-loan products that enable first-time buyers to use the benefits of the federal tax credit upfront, according to eagerly awaited guidance from the U.S. Department of Housing and Urban Development on so-called home buyer tax credit loans that was released today.

Under the guidance, FHA-approved lenders can develop bridge loans that home buyers can use to help cover their closing costs, buy down their interest rate, or put down more than the minimum 3.5 percent.

The loans can’t be used to cover the minimum 3.5 percent, senior HUD officials told reporters on a conference call Friday morning.

Thus, buyers applying for FHA-backed financing with an FHA-approved lender that offers a bridge-loan program can get a bridge loan to bring down the upfront costs of buying a home significantly but would still have to come up with the minimum 3.5 percent downpayment.

There remain many sources of assistance for buyers needing help with the 3.5 percent downpayment, including many state and local government instrumentalities and nonprofit lenders.

In addition, some state housing finance agencies have developed their own tax credit bridge loan programs, so buyers in states whose HFAs offer such programs can monetize the tax credit upfront to cover all or part of their downpayment. These programs are separate from what HUD announced today.

The first-time homebuyer tax credit was enacted last year–and improved upon earlier this year–to help encourage households to enter the housing market while interest rates are low and affordability is high. The credit is worth up to $8,000 and is available to households that haven’t owned a home in at least three years. The credit does not have to be repaid, and is fully reimbursable, so households can get their credit returned to them in the form of a payment.

Money Saving Tips at Closing

There are a number of money saving ideas you can use to save money on your mortgage and at the closing table. The most obvious is to ask the seller to offer payment of closing costs as part of your negotiations for an accepted offer on the home.

If the seller is not willing to let closing costs be deducted from his current asking price, you can suggest that the final sale price of the home be increased to offset closing costs, providing that the home will appraise for amount suggested. Since most closing costs are not tax-deductible, you avoid missing out on the deductions by putting the closing costs into the mortgage for which mortgage interest is tax-deductible.

You can save money at closing by looking for loans that don’t have a lot of administrative fees such as seller financing or taking over an existing mortgage. Such loans will help you avoid purchasing private mortgage insurance (PMI) when you don’t have the standard 20 percent down payment. You can pay a higher rate of interest (typically .75 to 1 percent) or you can use two loans (e.g., 80-10-10) to finance your home purchase. The advantage of financing the amount of the second loan is that the mortgage interest is tax-deductible.