Buyers’ Tax Credit Now For All Buyers

Announced in November, 2009, new tax credits not only offer first-time  buyers incentives to purchase a new home [up to $8,000], but  all buyers, even those who already own homes.  If you’re seeking to change your house and take advantage of low home prices and interest rates, now’s the time!

Who’s Eligible?

If you’ve owned your principal residence for 5 consecutive years  of the last 8, you’re in. If you’re planning to live in your new home as your principal residence, you’re in.  If you’re single, you can earn up to $125,000 adjusted gross income and still receive the full credit of $6500. For married folks, that’s $225,000 adjusted gross income. Singles earning $125,000 to $145,000 and marrieds $225,000 to $245,000 can still get incrementals of the tax credit.

What’s the Deal?

Your new home cannot cost more than $800,000. Beyond that, I guess the feds’ feeling is you can handle the costs yourself.  And the credit is actually 10% of the purchase price up to a limit of $6500. Your purchase contract must be dated between November 7, 2009 and April 30, 2010. And, you must close on your deal no later than June 30th.

Notice:  Your new home’s price has no relation to your previous home’s value. This tax credit is for move-up buyers, downsizing buyers and relocating buyers. The legislation has no provision regarding the price of the new home.

In case you were wondering, you are not required to sell your previous home.  A detail announced by the IRS, however, states you are not eligible  if you convert your previous home into a rental.  It does seem, though,  you could short sale your previous home and still purchase a new home with the federal tax credit using the special loan mentioned in a previous post. Another detail is that you must live in your new home for which you received the tax credit for 36 months or you might have to repay it.

What’s the Catch?

Really, there’s no catch.  The federal government is trying to send some “stimulus” to the average taxpayer and to the moribund housing industry. As we know, the buyers’ tax credit was extended and this one for move-up buyers added, so there’s little likelihood that this will be extended again…

The main catch to this program is the same for any government program. It requires proper paperwork. Especially this time around, after many proven cases of out-and-out fraud in the buyers’ program, the IRS is determined to make sure all claims are valid.

 So, here’s what you need: a copy of  the HUD-1 settlement sheet from your new property. This gives the sales price and date of closing. You will need some evidence of the 5 consecutive years at the previous property–property tax, homeowners’ insurance or the like. And revised Form 5405 available at www.irs.gov.

That’s it. You’re in business. Now go get that property.

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Breaking News: Tax Credit Can Be Cash for Downpayment

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HUD [Housing and Urban Development] announced today that the buyer’s credit of up to $8,000 can now be used as part of the down payment for an FHA loan.

This is great news because it will, undoubtedly help many more first-time home buyers get into their first home. HUD Secretary Shaun Donovan estimates that thousands more buyers will now be able to use the FHA-insured program, stimulating the lagging housing market.
“We believe this is a real win for everyone,” said Donovan. “Today, the Obama Administration is taking another important step toward accelerating the recovery of the nation’s housing market. Families will now be able to apply their anticipated tax credit toward their home purchase right away. At the same time we are putting safeguards in place to ensure that consumers will be protected from unscrupulous lenders. What we’re doing today will not only help these families to purchase their first home but will present an enormous benefit for communities struggling to deal with an oversupply of housing.”

Previously, the buyer was required to wait until next year’s tax time to recoup the money. As we remember, this credit was included in Obama’s Recovery Act of earlier this year. The property must be purchased by December 1, 2009. How, exactly the tax credit of up to $8000 will be monetized is not yet clear. It appears that each state will issue separate guidelines for FHA lenders. Buyers financing through state Housing Finance Agencies and certain non-profits will be able to use the tax credit for their downpayments via secondary financing provided by the HFA or non-profit. In addition to the borrower’s own cash investment, FHA allows parents, employers and other governmental entities to contribute towards the downpayment. Today’s action permits the first-time homebuyer’s anticipated tax credit under the Recovery Act to be applied toward the family’s home purchase right away. Unlike seller-funded down-payment assistance, which was a vehicle for abuse, this program will allow homebuyers to shop for the best home price and services using their anticipated tax credit.

Homebuyers should beware of mortgage scams and carefully compare benefits and costs when seeking out tax credit monetization services. Programs will vary from organization to organization and borrowers should consider whether the services make sense for them, as well as what company offers the most suitable and affordable option.
For every FHA borrower who is assisted through the tax credit program, FHA will collect the name and employer identification number of the organization providing the service as well as associated fees and charges. FHA will use this information to track the business closely and will refer any questionable practices to the appropriate regulatory agencies, as necessary.

As always, because this is a brand-new program there may be some delay before the money is available.

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