The tax credit is not a gift or a grant but essentially a 15 year loan to the homebuyer and, while it is interest free, will require filing a tax return and will carry the same IRS penalties for non-payment as accrue to delinquent taxes.
Further information and the regulations regarding this tax credit are now available. If you have an interest in the program, here are some basic facts.
The credit is available only to first-time home buyers defined as buyers who have not owned a principal residence for three-years prior to the subject purchase. The ownership test applies to both partners in a marriage; i.e. if a husband has not owned a home in the past three years but the wife has, neither spouse qualifies for the first-time home buyer tax credit. (It appears that this would be the case even if the husband is purchasing the property only in his own name.) A buyer can still be eligible for the credit even if he owns a vacation home or rental property not used as a principal residence.
Single taxpayers with "modified adjusted gross income" up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit. Individuals and couples with incomes above the thresholds may still qualify for a lesser credit, however, taxpayers with adjusted gross income above $95,000/ $170,000 phase out of the program completely.
There is no need to fill out an application to qualify for the tax credit. First-time homebuyers merely claim the credit when filing the tax return for that year. No pre-approval is necessary, but if you are relying on this program to purchase a home you may want to check your eligibility. Your tax advisor may be able to help you with this.
The credit is available even to those with little or no federal income tax liability to offset. This usually means that the government will send a check for part or all of the credit. Otherwise the credit is used to offset any unpaid taxes or increase a refund.
The credit is available for homes purchased between April 9, 2008 and July 1, 2009 and applies to both new and existing homes whether attached or detached, condominiums, mobile homes, or houseboats. A homebuyer contracting for a custom built home can qualify for the credit as long as the home is first occupied between the April 2008/June 2009 dates. (For newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.)
The $7,500 credit represents 10 percent of the purchase price of a low cost home. Most who use the program will be able to claim this full amount, however, in the event a home is purchased for a lesser amount, the 10 percent cap will apply. That would mean that a $65,000 purchase would result in a $6,500 credit.
There are other refinements to the program. For example, if it is to his benefit, a taxpayer can apply for the credit in a different year than the home is purchased. There is also a possible forgiveness of debt for homeowners who sell the home before the loan is repaid and do not received sufficient gain from the sale to cover the loan balance. Information on these and other details of the program can be researched on a website maintained by the National Association of Homebuilders at www.federalhousingtaxcredit.com.
Source: Grande Financial Newsletter
c/o Jim Burrington
Thursday, October 23, 2008
Wednesday, September 24, 2008
Home loan documentation more vital than ever
Today, home buyers and homeowners are having a lot of trouble getting a home loan. Lenders are saying "no" even when buyers and owners have good credit scores and credit histories.
What has changed is how much risk some mortgage investors are willing to accept in the face of mounting real estate loan losses in the billions of dollars. Unfortunately, you can't kick start the real estate market until the panic in the credit markets has abated.
To apply successfully for a home loan, start by gathering together the following information:
-all W-2 forms for each person who will be a co-borrower on the loan. You'll also want to provide the contact information for the human resources manager or your direct bosses, so the mortgage lender can verify your income.
-copies of completed federal tax forms for the last two or three years, including any schedules or attachments. These will be required primarily of self-employed individuals or those who are claiming a history of rental income. Either way, you won't need your state returns.
-copies of one month's worth of pay stubs.
-copies of the last two or three bank statements for every bank account, IRA, 401(k), Keogh, other retirement account or brokerage account the co-borrowers own. Bring a copy of your most recent statement for any other assets you have.
-a copy of the back and front of your canceled earnest money check plus the escrow deposit receipt. If you don't get your canceled checks back, then access the electronic version on your account and print it out.
-a copy of the fully executed sales contract and all riders. You'll need both brokers' names, addresses and phone numbers (if you're using a broker or agent), and the same information for both your attorney and the sellers' attorney (if you're living in a state where real estate attorneys are used to close residential sales).
-If you're selling a residence at the same time you're buying it, you'll need a copy of the listing agreement and, if the home is under contract, a copy of the fully executed sales contract. (Be prepared to provide the contact information for the brokers and attorneys for your sale as well, if you're far enough down the line for that.) When the property closes, you may be asked to provide a copy of the actual disposition of funds from the escrow account.
-If gift or grant funds are involved, the giver (or grantor) must provide proof that he or she had that money to give, such as a copy of the giver's recent bank statement. If you're receiving a grant, the grantor should provide you with a letter outlining the grant and stating that the funds do not need to be repaid. Be prepared to show the paper trail for the money, including a deposit slip. The giver will have to fill out a gift letter affidavit, available from the loan officer, indicating that the funds were a gift and the gift giver does not expect repayment. In short, you'll need a copy of the check, deposit receipt and a bank statement verifying the deposit.
-copies of all divorce decrees and property settlement agreements.
-copies of a survey or title insurance commitment for the home you're buying, if available when you apply for the mortgage, or when it becomes available during the purchase process. In most states, the preliminary title report takes the place of a survey, lenders say. But a survey may be required in states like New Mexico.
-If you're self-employed, prepare complete copies of the last two years' federal business tax returns and a year-to-date profit-and-loss statement and balance sheet with the original signatures. Some lenders will agree to use a letter from your CPA stating that you are self-employed or a copy of your business license, but have your tax returns and profit-and-loss handy.
-a list of your addresses in the last two years.
-If you've made any large deposits ("large" means anything larger than your monthly salary) into your bank accounts in the last three months, be prepared to provide an explanation with proof as to where the funds came from.
-If you've opened a new bank account in the last six months, write a letter explaining where the money came from to open this new account.
-addresses and account numbers for every form of credit you have. Or alternatively, many lenders will use your credit history. Be sure to pull a copy from each of the credit reporting bureaus before you apply at AnnualCreditReport.com. Pay for a copy of your credit score while you're there (approximately $7) so you know what you're facing.
-documentation to verify additional information, such as Social Security, child support and alimony.
-If you've had a previous bankruptcy or foreclosure, make sure you have a complete copy of the proceedings, including all schedules, and a letter explaining the circumstances for the bankruptcy or foreclosure and the discharge certificate.
-For most loans these days, you'll need a photocopy of a picture ID (usually your driver's license or U.S. passport) and in some cases a copy of your Social Security card. Also, for VA loans you will need to bring proof of enlistment (your DD214) and Certificate of Eligibility for a VA loan (details for this are available at www.va.gov.)
-If you have any judgments against you that have been paid in full, bring a copy of the recorded satisfaction of judgment. But if you have a judgment against you or are involved in litigation, you will need copies of documents describing any lawsuits and may expect to have to settle and pay off any judgments prior to closing on the loan.
-If you are buying a new primary residence and turning your existing home into a rental property, you'll need to show a signed lease agreement as well as proof of receiving the security deposit from the new renter. You should also be prepared to prove that you have at least 30 percent equity in the existing property.
This seems like an incredibly long and detailed list, and your mortgage lender may not ask for everything on it or may ask for other documentation. But if you want your home loan application process to go smoothly, it pays to get your documentation in order, before you ever apply for a single loan.
Source:
Inman News, Ilyce Glink
What has changed is how much risk some mortgage investors are willing to accept in the face of mounting real estate loan losses in the billions of dollars. Unfortunately, you can't kick start the real estate market until the panic in the credit markets has abated.
To apply successfully for a home loan, start by gathering together the following information:
-all W-2 forms for each person who will be a co-borrower on the loan. You'll also want to provide the contact information for the human resources manager or your direct bosses, so the mortgage lender can verify your income.
-copies of completed federal tax forms for the last two or three years, including any schedules or attachments. These will be required primarily of self-employed individuals or those who are claiming a history of rental income. Either way, you won't need your state returns.
-copies of one month's worth of pay stubs.
-copies of the last two or three bank statements for every bank account, IRA, 401(k), Keogh, other retirement account or brokerage account the co-borrowers own. Bring a copy of your most recent statement for any other assets you have.
-a copy of the back and front of your canceled earnest money check plus the escrow deposit receipt. If you don't get your canceled checks back, then access the electronic version on your account and print it out.
-a copy of the fully executed sales contract and all riders. You'll need both brokers' names, addresses and phone numbers (if you're using a broker or agent), and the same information for both your attorney and the sellers' attorney (if you're living in a state where real estate attorneys are used to close residential sales).
-If you're selling a residence at the same time you're buying it, you'll need a copy of the listing agreement and, if the home is under contract, a copy of the fully executed sales contract. (Be prepared to provide the contact information for the brokers and attorneys for your sale as well, if you're far enough down the line for that.) When the property closes, you may be asked to provide a copy of the actual disposition of funds from the escrow account.
-If gift or grant funds are involved, the giver (or grantor) must provide proof that he or she had that money to give, such as a copy of the giver's recent bank statement. If you're receiving a grant, the grantor should provide you with a letter outlining the grant and stating that the funds do not need to be repaid. Be prepared to show the paper trail for the money, including a deposit slip. The giver will have to fill out a gift letter affidavit, available from the loan officer, indicating that the funds were a gift and the gift giver does not expect repayment. In short, you'll need a copy of the check, deposit receipt and a bank statement verifying the deposit.
-copies of all divorce decrees and property settlement agreements.
-copies of a survey or title insurance commitment for the home you're buying, if available when you apply for the mortgage, or when it becomes available during the purchase process. In most states, the preliminary title report takes the place of a survey, lenders say. But a survey may be required in states like New Mexico.
-If you're self-employed, prepare complete copies of the last two years' federal business tax returns and a year-to-date profit-and-loss statement and balance sheet with the original signatures. Some lenders will agree to use a letter from your CPA stating that you are self-employed or a copy of your business license, but have your tax returns and profit-and-loss handy.
-a list of your addresses in the last two years.
-If you've made any large deposits ("large" means anything larger than your monthly salary) into your bank accounts in the last three months, be prepared to provide an explanation with proof as to where the funds came from.
-If you've opened a new bank account in the last six months, write a letter explaining where the money came from to open this new account.
-addresses and account numbers for every form of credit you have. Or alternatively, many lenders will use your credit history. Be sure to pull a copy from each of the credit reporting bureaus before you apply at AnnualCreditReport.com. Pay for a copy of your credit score while you're there (approximately $7) so you know what you're facing.
-documentation to verify additional information, such as Social Security, child support and alimony.
-If you've had a previous bankruptcy or foreclosure, make sure you have a complete copy of the proceedings, including all schedules, and a letter explaining the circumstances for the bankruptcy or foreclosure and the discharge certificate.
-For most loans these days, you'll need a photocopy of a picture ID (usually your driver's license or U.S. passport) and in some cases a copy of your Social Security card. Also, for VA loans you will need to bring proof of enlistment (your DD214) and Certificate of Eligibility for a VA loan (details for this are available at www.va.gov.)
-If you have any judgments against you that have been paid in full, bring a copy of the recorded satisfaction of judgment. But if you have a judgment against you or are involved in litigation, you will need copies of documents describing any lawsuits and may expect to have to settle and pay off any judgments prior to closing on the loan.
-If you are buying a new primary residence and turning your existing home into a rental property, you'll need to show a signed lease agreement as well as proof of receiving the security deposit from the new renter. You should also be prepared to prove that you have at least 30 percent equity in the existing property.
This seems like an incredibly long and detailed list, and your mortgage lender may not ask for everything on it or may ask for other documentation. But if you want your home loan application process to go smoothly, it pays to get your documentation in order, before you ever apply for a single loan.
Source:
Inman News, Ilyce Glink
Friday, September 19, 2008
New Fannie Mae Guidelines Encourage Short Sales
Fannie Mae recently released updated underwriting guidelines for new mortgage loans that directly address individuals with various types of foreclosure history.
Potential borrowers with a foreclosure on their credit record must wait 5 years to be considered for new funding, and are subject to additional credit and down payment requirements for 5 to 7 years
.
Deed-in-lieu-of-foreclosures warrant a 4 year wait with additional requirements for 4 to 7 years.
Finally, the silver lining...Short Sales requires only a two year wait with no additional requirements. These new guidelines make short sales a more attractive option for distressed homeowners and future home ownership.
Potential borrowers with a foreclosure on their credit record must wait 5 years to be considered for new funding, and are subject to additional credit and down payment requirements for 5 to 7 years
.
Deed-in-lieu-of-foreclosures warrant a 4 year wait with additional requirements for 4 to 7 years.
Finally, the silver lining...Short Sales requires only a two year wait with no additional requirements. These new guidelines make short sales a more attractive option for distressed homeowners and future home ownership.
Wednesday, September 3, 2008
End in Sight for Seller-Funded Down Payments
Prospective homeowners have until Oct. 1, 2008, to use down payment assistance from a seller to purchase a house.
The Housing and Economic Recovery Act of 2008 signed into law in July bars such seller-funded aid on Federal Housing Administration-backed mortgages.
Lawmakers added the provision to the housing relief package because about 40 percent of FHA borrowers who went into foreclosure in the past year received down payment assistance from a seller.
However, some industry professionals are worried that the rule change will keep some buyers out of the market.
Scott Syphax, president of The Nehemiah Corp., which runs a privately funded down payment assistance program, cites a report by housing research firm Zelman & Associates.
The report found that 10 to 25 percent of potential home buyers will have no way of securing home ownership without seller-funded down payment assistance, and stated that the rule change will have far-reaching implications for the real estate industry at large.
Source: Augusta Chronicle (GA), Tim Rausch
The Housing and Economic Recovery Act of 2008 signed into law in July bars such seller-funded aid on Federal Housing Administration-backed mortgages.
Lawmakers added the provision to the housing relief package because about 40 percent of FHA borrowers who went into foreclosure in the past year received down payment assistance from a seller.
However, some industry professionals are worried that the rule change will keep some buyers out of the market.
Scott Syphax, president of The Nehemiah Corp., which runs a privately funded down payment assistance program, cites a report by housing research firm Zelman & Associates.
The report found that 10 to 25 percent of potential home buyers will have no way of securing home ownership without seller-funded down payment assistance, and stated that the rule change will have far-reaching implications for the real estate industry at large.
Source: Augusta Chronicle (GA), Tim Rausch
Monday, August 18, 2008
New Mortgage Law Has Buyers Scrambling
Housing industry observers expect that prospective buyers will scramble to take advantage of seller-funded down-payment assistance before a federal ban on such programs takes effect on Oct. 1.
The federal housing bill signed into law in July sews up a loophole that allows nonprofit organizations to gift mortgage down payments, and industry experts believe markets that have relied heavily on the programs could see new-home sales cut by as much as half.
Seller-funded downpayment assistance has served as a surrogate for subprime loans in some ways and has helped builders put first-time and low-income buyers into new homes.
"We will eventually go back to the mind-set of a society where you have to have 3 percent up-front to buy a home," says Phoenix real estate analyst Jim Belfiore.
Source: Poughkeepsie Journal (N.Y.) (08/18/08)
The federal housing bill signed into law in July sews up a loophole that allows nonprofit organizations to gift mortgage down payments, and industry experts believe markets that have relied heavily on the programs could see new-home sales cut by as much as half.
Seller-funded downpayment assistance has served as a surrogate for subprime loans in some ways and has helped builders put first-time and low-income buyers into new homes.
"We will eventually go back to the mind-set of a society where you have to have 3 percent up-front to buy a home," says Phoenix real estate analyst Jim Belfiore.
Source: Poughkeepsie Journal (N.Y.) (08/18/08)
Monday, August 4, 2008
Housing Rescue Bill
President George W. Bush signed into law a bipartisan housing stimulus bill Wednesday that is expected to bring greater stability to housing markets nationwide.
The bill, strongly supported by the NATIONAL ASSOCIATION OF REALTORS®, will help some 400,000 home owners refinance into affordable, government backed loans and offer a temporary first-time home buyer tax credit, which is expected to serve as an attractive incentive to buyers and help reduce high inventories of unsold homes.
The temporary first-time home buyer tax credit would offer $7,500 for the purchase of any home and an be used for purchases between April 9, 2008, and July 1, 2009.
The bill — H.R. 3221, the Housing and Economic Recovery Act of 2008 — also includes reform of Fannie Mae and Freddie Mac, FHA modernization, and permanent increases in conforming and FHA loan limits.
"These are all designed to help the housing and mortgage industries and boost the U.S. economy," NAR President Dick Gaylord said in a statement. “NAR has been a leading advocate for many of these changes long before the current housing and economic downturn. We are pleased that the president and Congress worked together to enact meaningful legislation that protects and enables families in this country to continue to strive for and enjoy the dream of homeownership.”
Source: NAR, Associated Press (7/30/08)
The bill, strongly supported by the NATIONAL ASSOCIATION OF REALTORS®, will help some 400,000 home owners refinance into affordable, government backed loans and offer a temporary first-time home buyer tax credit, which is expected to serve as an attractive incentive to buyers and help reduce high inventories of unsold homes.
The temporary first-time home buyer tax credit would offer $7,500 for the purchase of any home and an be used for purchases between April 9, 2008, and July 1, 2009.
The bill — H.R. 3221, the Housing and Economic Recovery Act of 2008 — also includes reform of Fannie Mae and Freddie Mac, FHA modernization, and permanent increases in conforming and FHA loan limits.
"These are all designed to help the housing and mortgage industries and boost the U.S. economy," NAR President Dick Gaylord said in a statement. “NAR has been a leading advocate for many of these changes long before the current housing and economic downturn. We are pleased that the president and Congress worked together to enact meaningful legislation that protects and enables families in this country to continue to strive for and enjoy the dream of homeownership.”
Source: NAR, Associated Press (7/30/08)
Tuesday, July 22, 2008
Good Credit Is Step One for Buyers
Potential home buyers inevitably must confront their credit scores.
Here’s a primer for those who have never faced this issue before:
A credit score, commonly known as a FICO score, is derived from a history of taking on debt and paying it off.
FICO scores range between 300 and 850, with the highest reflecting the best credit risk. The median FICO score nationally is around 720-723, according to Fair Isaac, the company for which FICO scores are named.
Except for a first-time buyers or those who have a large down payment, lenders will want to see a FICO score of 680 or higher, says Robert Satnick, chairman of the California Mortgage Bankers Association.
To get their FICO score, potential home buyers can go to Myfico.com, a unit of Fair Isaac. Obtaining a FICO score and a credit report from one of the three credit bureaus that collect this history costs $15.95; the combination of all three scores and the FICO report costs $47.85.
The credit factors that determine the score are: a person's payment history (35 percent of the score), how much they owe (30 percent), the mix of credit and installment loans they have (10 percent), the length of their credit history (15 percent), and whether they have applied for new credit recently (10 percent).
Source: The Associated Press, Alex Veiga
Here’s a primer for those who have never faced this issue before:
A credit score, commonly known as a FICO score, is derived from a history of taking on debt and paying it off.
FICO scores range between 300 and 850, with the highest reflecting the best credit risk. The median FICO score nationally is around 720-723, according to Fair Isaac, the company for which FICO scores are named.
Except for a first-time buyers or those who have a large down payment, lenders will want to see a FICO score of 680 or higher, says Robert Satnick, chairman of the California Mortgage Bankers Association.
To get their FICO score, potential home buyers can go to Myfico.com, a unit of Fair Isaac. Obtaining a FICO score and a credit report from one of the three credit bureaus that collect this history costs $15.95; the combination of all three scores and the FICO report costs $47.85.
The credit factors that determine the score are: a person's payment history (35 percent of the score), how much they owe (30 percent), the mix of credit and installment loans they have (10 percent), the length of their credit history (15 percent), and whether they have applied for new credit recently (10 percent).
Source: The Associated Press, Alex Veiga
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